TMI Blog2016 (12) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... earned on this ₹ 25 crores cannot be ignored at the time of computing the ALV of the property. Punjab & Haryana High Court in the case of CIT v. K. Streetlite Electric Corporation, (2010 (10) TMI 742 - Punjab and Haryana High Court ) categorically held that interest-free security deposit taken by the assessee hugely disproportionate to monthly rent charged is a device to circumvent liability to income-tax. Therefore, notional interest on security deposit is to be treated as income from house property. Therefore the AO has rightly adopted the ALV which was even lesser to the monthly rent of ₹ 5 lakhs per month initially agreed upon by the parties. Thus, we find no infirmity in the order of CIT(Appeals) and we confirm the same. - Decided against assessee - ITA Nos.1607 & 1692/Bang/2012, ITA No.1630/Bang/2012 - - - Dated:- 23-11-2016 - SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER For The Appellants : Shri V. Srinivasan, CA For The Respondent : Shri Kamaladhar, Standing Counsel ORDER Per Sunil Kumar Yadav, Judicial Member All these three appeals preferred by the assesses for the assessment years 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentary lease deed, the assessee has stated that it had taken certain trade advances from Sobha Developers Pvt. Ltd., its sister concern, which were used for the construction of its factory shed. Since the assessee was not in a position to return these advances after the sale of its assets liabilities, these advances were converted into interest free security deposit and on account of these security deposits, rent was reduced from ₹ 5 lakhs per month to ₹ 25,000 per month with effect from the date of execution of the supplementary lease deed i.e., 29.3.2007. It was also contended that the AO does not have the power to enhance the ALV on the basis of higher deposit in view of the decision of the Calcutta High Court in the case of Satya Company, 75 Taxman 183. 4. While disallowing the claim of assessee, the AO observed that in the interim period of one year i.e., from 1.4.2006 to 29.3.2007, no payment of rent appears to have actually made to the assessee by the lessee, M/s. Sobha Developers Ltd. and as on 1.4.2006, the so-called trade liability of ₹ 25 crores should be appearing in the balance sheet of the assessee, for the same to be converted into interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that no property tax documents were produced in spite of being given several opportunities, which also speaks its own story. Lastly, the AO has mentioned at Para 5 of his assessment order that the appellant's arrangement was made in the context of the impending public issue in the case of the parent company, and the ₹ 25 crores in the balance sheet of the appellant on 31.3.2007 cannot represent a rent deposit as claimed. I find this argument of the AO to be persuasive and based on a reasonable interpretation of the facts and circumstances of the transaction. 4.13. In the circumstances, I find no reason to accept this kind of artificial accounting jugglery indulged in by the appellant merely to justify the charging of a lower rental after already having entered into an agreement earlier to charge a much higher rate (in-fact, twenty times higher than the reduced rate adopted later). The circumstances of this claim do not carry credibility in view of the manipulative nature of the transaction which is claimed to have been entered into on grounds of commercial expediency. I have already mentioned above that there was an impending public issue in the case of M/s SDL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of view, the supplementary rental agreement was suddenly entered into after a year, and the justification given for the same of commercial expediency on account of the so-called loan was now advanced. I have already mentioned above that the appellant has failed to adequately clarify the entries with regard to the existence of this loan in the balance sheet as on 31.3.2006 in course of the appellate hearings. The explanations offered only reflect a rather desperate attempt to juggle figures in the balance sheet from one head to another, making light of established accountancy principles whereby current trade liabilities have been made to change their character overnight to loans simply by means of a journal entry. 4.16. In this connection, I note that it is made clear by the Ld. Supreme Court in the McDowell case (154 ITR 148) that where a transaction was found to be colorable, the AO would be within his rights to treat it as a sham one when it is seen that apart from the satisfaction of legal formality and documentation, there existed an angle of lack of credibility and the flavor of an intention towards tax evasion. Though the appellant has challenged the decision of the AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved, the assessee is in appeal before the Tribunal and reiterated its contentions as raised before the CIT(Appeals). It was further contended that assessee has constructed a building measuring 1,29,538 sq.ft. on a land measuring about 7,84,107 sq.ft. The said plot was given on lease to assessee s sister concern, M/s. Sobha Developers Pvt. Ltd. [SDPL] for a monthly rental of ₹ 25,000 per month against an interest-free security deposit of ₹ 25 crores. It was further contended that assessee has availed the financial assistance from its sister concern, SDPL in order to ;purchase the land and construction thereon in the form of interest free trade advances. When the assessee was not in a position to return the advances taken from its sister concern, it had let out the constructed building for a period of 25 years at a monthly rent of ₹ 25,000 per month. The outstanding amount was converted into interest free security deposit with the assessee. The AO has estimated the ALV of the property u/s. 23(1)(a) of the Act at ₹ 54,88,798 calculated at ₹ 7/- per sq.ft., being the rent as per lease deed between M/s. MTR Distributors and MTR Foods Ltd. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in those cases are that the property was not let out and ALV was computed as per provisions of section 23(1)(a) of the Act. When the property is let out, the ALV is to be computed as per section 23(1)(b) of the Act. The ld. DR placed heavy reliance upon the judgment of Hon ble Punjab Haryana High Court in the case of CIT v. K. Streetlite Electric Corporation, 336 ITR 348 (P H) in which it has been categorically held that interest free security deposit taken by the assessee hugely disproportionate to monthly rent charged is a device to circumvent liability to income tax. Therefore, notional interest on security deposit is to be treated as income from house property. Copy of the judgment is placed on record. The ld. DR further contended that the issue is squarely covered by the judgment of Hon ble Punjab Haryana High Court. 9. We have carefully examined the orders of authorities below and the issue in dispute in the light of rival submissions and we find that undisputedly the property in question was let out to its sister concern vide lease deed dated 1.4.2006 for a monthly rent of ₹ 5 lakhs. At that time, no interest free security deposit was given or credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aryana High Court in the case of CIT v. K. Streetlite Electric Corporation, 336 ITR 348 (P H) and Their Lordships have categorically held that interest-free security deposit taken by the assessee hugely disproportionate to monthly rent charged is a device to circumvent liability to income-tax. Therefore, notional interest on security deposit is to be treated as income from house property. The relevant observations of the Hon ble High Court along with the facts of the case are extracted hereunder for the sake of reference:- The assessee earned rental income from letting facilities of factory, land, building and offices. The assessee had taken interest-free security of ₹ 35 lakhs from two parties to whom the assets were leased out, but the assessee showed a very low rental income of ₹ 1.50 lakhs as annual letting value in respect of those properties. There was no provision in the agreement for increase in rent from year to year. The Assessing Officer determined the annual value at ₹ 7,80,000 by adding notional interest of ₹ 6,30,000 calculated at the rate of 18 per cent. per annum on ₹ 35 lakhs taken as security deposit, to the value of ₹ 1.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en lesser to the monthly rent of ₹ 5 lakhs per month initially agreed upon by the parties. Thus, we find no infirmity in the order of CIT(Appeals) and we confirm the same. 12. So far as ground No.3 relating to interest u/s. 234B and 234C is concerned, we find it is consequential in nature and needs no independent adjudication. Accordingly, the appeals of the assessee stand dismissed. ITA No.1630/Bang/2012 13. This appeal is preferred by the assessee inter alia on the following grounds:- [1] The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. [2] The learned CIT[A] is not justified in upholding the ALV adopted by the learned AO at ₹ 21,81,669/- rejecting the income reported by the appellant under the facts and in the circumstances of the appellant's case. [3] Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case and the levy dese ..... X X X X Extracts X X X X X X X X Extracts X X X X
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