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TMI Blog2018 (7) TMI 1810X X X X Extracts X X X X X X X X Extracts X X X X ..... ment orders were framed by the AO were neither erroneous nor prejudicial to the interest of the Revenue. For this assessee has raised the identical grounds in all the years. The facts are also identical in all the years. Hence, we will take the facts and grounds from AY 2001-02 in ITA No. 3282/Mum/2014. The relevant grounds read as under: - "1. The learned Commissioner of Income Tax erred in passing the order u/s. 263 even though the assessment orders framed by the AO were neither erroneous or prejudicial to the interest of the revenue, and while doing so he amongst others erred in; a. not appreciating that the order giving effect to order of I-1onble ITAT was passed by the A0 after duly considering the directions of Hon'ble ITAT. b. not appreciating that the AO had accepted the actual rent received as the basis for determining ALV of the property, after considering the ratio laid down in the decision of Moni Kumar Subba 333 ITR 38 (Del)." 3. At the outset, the learned Counsel for the assessee first of all drew our attention to Income Tax Appellate Tribunal, Mumbai 'D' Bench decision in assessee's own case for AY 2001-02 to 2006, wherein Tribunal vide order dated 30-12-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icipal value, as case may be, is the one of the various factors to be taken into account by the AO while determining the fair rent expected to be fetched for letting out the property from year to year u/s 23(1)(a). 16.2 Recently, the Full Bench of the Hon'ble Delhi High Court in the case of Moni Kumar Subba (supra) after considering the decision of the Division Bench of the Hon'ble High Court in the case of CIT V/s Asian Hotels ltd observed and held in paragraph 13 to 22 as under : "13. We approve the aforesaid view of the Division Bench of this Court and Operative words in Section 23 (1)(a) of the Act are "the sum for which the property might reasonably be expected to let from year to year". These words provide a specific direction to the Revenue for determining the „fair rent‟. The AO, having regard to the aforesaid provision is expected to make an inquiry as to what would be the possible rent that the property might fetch. Thus, if he finds that the actual rent received is less than the „fair/market rent‟ because of the reason that the assessee has received abnormally high interest free security deposit and because of that reason, the actual rent re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration everything, would form the basis of arriving at annual value to be determined under Section 23(1)(a) and to be compared with actual rent and notional advantage in the form of notional interest on interest free security deposit could not be taken into consideration. It is clear from the following discussion therein: "6. With regard to question Nos. (5) and (6) which are only for the asst. yrs. 1984-85 and 1985-86 the further issue involved is whether any addition to the annual rental value can be made with reference to any notional interest on the deposit made by the tenant. When the annual value is determined under sub-cl. (a) of sub-s. (1) of s. 23 with reference to the fair rent then to such value no further addition can be made. The fair rent, takes into consideration everything. The notional interest on the deposit is not any actual rent received or receivable. Under sub-cl. (b) of s. 23(1) only the actual rent received or receivable can be taken into consideration and not any notional advantage. The rent is an actual sum of money which is payable by the tenant for use of the premises to the landlord. Any advantage and/or perquisite cannot be treated as rent. Wherever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Delhi Municipal Corporation Act are pari materia of Section 23 of the Act, we are inclined to accept the aforesaid view of the Calcutta High Court in Satya Co. Ltd. (supra) that in such circumstances, the annual value fixed by the Municipal Authorities can be a rationale yardstick. However, it would be subject to the condition that the annual value fixed bears a close proximity with the assessment year in question in respect of which the assessment is to be made under the Income Tax laws. If there is a change in circumstances because of passage of time, viz., the annual value was fixed by the Municipal Authorities much earlier in point of time on the basis of rent than received, this may not provide a safe yardstick if in the Assessment Year in question when assessment is to be made under Income Tax Act. The property is let-out at a much higher rent. Thus, the AO in a given case can ignore the municipal valuation for determining annual letting value if he finds that the same is not based on relevant material for determining the „fair rent‟ in the market and there is sufficient material on record for taking a different valuation. We may profitably reproduce the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurity for arriving at annual letting value. Since that was not permissible, the effect would be that such assessment was rightly set aside by the CIT (A) and the Tribunal. Therefore, the orders would not call for any interference. These appeals are, thus, dismissed on this ground. Once we hold this, the very basis adopted by the AO to fix annual letting value was wrong and therefore, no further exercise in fact is required by us in these appeals. 21. We would like to remark that still the question remains as to how to determine the reasonable/fair rent. It has been indicated by the Supreme Court that extraneous circumstances may inflate/deflate the „fair rent‟. The question would, therefore, be as to what would be circumstances which can be taken into consideration by the AO while determining the fair rent. It is not necessary for us to give any opinion in this behalf, as we are not called upon to do so in these appeals. However, we may observe that no particular test can be laid down and it would depend on facts of each case. We would do nothing more than to extract the following passage from the Supreme Court judgment in the case of Motichand Hirachand Vs. Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO finds that the Municipal Value is not based on relevant material for determining fair rent in the market and there is a sufficient material on record for taking different valuation then the AO can determine the fair rent by inflating or deflecting the Municipal Value or Standard Rent as the case may be by taking into account the relevant material in this regard. As observed by the Hon. Delhi High Court if the ratable value is correctly determined under the Municipal law the same can be taken as annual letting value u/s 23(1)(a) of the Act. However, the ratable value is not a binding on the AO if the AO can show that the ratable value under Municipal law does not represent the correct fair rent. If the AO finds that the actual rent received is less than the fair market rent/market rent because of the reason that the assessee has received abnormally high interest free security deposits and because of that reason actual rent received is less than the rent which the property might fetch he can undertake necessary exercise in that behalf. 16.4 However, when the same premises has been let out by the sub tenant and fetch a higher rent, then the same can be taken as determinative fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined order dated 23.10.2013 set aside the assessment order giving appeal effect to the order of ITAT by observing in para 7.10 to 7.14 as under: - "7.10 From the above discussion it is evident that the appeal effect orders dated 14.02.2012 passed by the AO were orders which got merged with the assessment orders and the same were assessment orders like the assessment orders passed u/s 143(3) or else u/s 143(3)1147. Hence, the AO had no jurisdiction or authority to pass any subsequent assessment orders The subsequent orders passed u/s 143(3)1254 dated 20.12.2012, thus, cannot be held to be valid and legal assessment orders as there is no specific provision in the Act for passing such an assessment order again. I therefore, hold that the impugned orders dated 20.12.2012 are bad in law and void ab initio. The same therefore deserve to be annulled. 7.11 The AO himself, in the remand report has stated that the orders dated 14.02.2012 were appeal effect orders. Hence, such orders are deemed to be assessment orders in view of the judgements cited above. Further logic of the AO that subsequent orders dated 20.12.2012 are also assessment orders, therefore. becomes invalid and self-contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evi Bhojnagarwala vs ITO (56 ITO 302) (]TAT, Cal). 7.14 It is thus true that the impugned orders have been wrongly passed without jurisdiction. In the case of Sunrolling Mills P Ltd (supra), the assessment was reopened under section 147(b) by the AO, who later sought to justify the reopening under section 147(a). The Hon'ble high court held that section 292B does not empower the AO to treat a proceeding initiated under section 147(b) as a proceeding under section 147(a). Similarly, Hon'ble Calcutta bench of the ITAT in the case of Pushpa Devi Bhojnagarwala (supra) held that penalty levied under a wrong section cannot be upheld by taking recourse of section 292B. In view of above decisions, the impugned orders cannot be sustained by taking recourse to the provisions of section 292B. Therefore, the impugned orders are legally not valid and the same deserve to be annulled. I order accordingly and the impugned orders dated 20.12.2012 are hereby annulled." 5. The learned Counsel for the assessee also stated that the CIT(A) also discuss the issue on merits of the case but refrained from adjudicating the issue on merits. In view of the above, the learned Counsel stated that the CIT wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n determine the fair rent by inflating or deflecting the municipal value or standard rent as the case may be by taking into account the relevant material in this regard. Further, if the AO finds that the actual rent received is less than the "fair market rent" because of the reason that the assessee has received abnormally high interest free security deposit and because of that reason, the actual rent received is less than the rent which the property might fetch, he can undertake necessary exercise in that behalf. The Bench in paras 16.4 & 16.5 of its aforesaid order, remarked that in the instant case when the same premises has been let out by the sub-tenant and fetched a high rent, then the same can be taken as determinative factor to arrive at fair market rent. If the AO finds that the ratable value under the municipal law does not represent correct fair rent and then he may determine the same on the basis of material/ evidence placed on record. Further, the Bench observed that the rent against which the property was let out by the sub-tenant is one of the relevant factors for determination of the fair market rent but not the sole and alone. Accordingly, the Bench set aside the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the assessee before the CIT(A)-6, Mumbai. A perusal of the grounds of appeal shows that the assessee has objected to the AO passing the order dated 20.12.2012 stating that an order dated 14.02.2012 has already been passed giving effect to ITAT's order. In fact, at Ground No.3, it is contended by the assessee that the ITO did not address the issue of fair rent of let out properties as per statute and as per the decision of the Full Bench of the Hon'ble Delhi High Court in the case of Moni Kumar Subba (supra). But she argued that the CIT(A) has stated in para 1.5 at page 10 of his order that the only legal issue to be decided is as to whether the appeal effect order dated 14.02.2012 passed by the AO can be considered to be valid assessment order or not. It is further stated that if such orders passed on 14.02.2012 are valid assessment orders then it automatically follows that any subsequent assessment order could not have been passed for the same assessment years without any specific provision of law under the Act. Hence, it is a fact that the merits of the order dated 14.02.2012 has not been a subject matter of appeal before the CIT(A)-6, Mumbai. 8. Hence, she argued that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required for determination of annual value for income tax purposes. Nothing was found by the AO to doubt the correctness of such value. The AO noted that Indokem Limited had further sub-let the said premises to Sumangal Holdings for a monthly rent of Rs. 67,275/- equivalent to Rs. 8,07,300/- per annum. Based on the rent received by Indokem Limited from its tenant, the AO computed the annual value in the assessee's case at Rs. 8,07,300/- under section 23(1)(a) of the Act. This re-assessment was challenged in appeal before the CIT(A) and the CIT(A) by his appellate order granted discount of 20% to the annual value as determined by the AO and determined such value at Rs. 60,548/- per month equivalent to Rs. 7,26,576/- per annum. Aggrieved, assessee preferred the appeal before Tribunal. 10. The Tribunal in its appellate order has followed the decision of Full Bench of the Delhi High Court in the case of Moni Kumar Subba (surpra) & set aside the matter back to the AO for re-determination of the annual value. It directed the AO to re-determine the annual value under section 23(l)(a) of the Act and held that standard rent or municipal rateable value would be factors relevant for determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, she has taken the annual value for the purposes of section 23 of the Act as Rs. 3,16,800/- being the higher of the values arrived at based on clauses (a) or (b). Therefore, there is no error in the Order dated 14.02.2012 passed by the AO and she has given effect to the Tribunal's order after full application of mind. The AO passed second order giving effect to the Tribunal's order, determining the annual value of the said premises at Rs. 24,10,471/- and income from house property after allowing the necessary deductions at Rs. 11,31,664/-. For this purpose, he has determined the annual value based on the' value adopted by Valuer M/s Nadkarni& Co. in its valuation report. Aggrieved by the aforesaid order passed by the AO, the assessee had filed an appeal before the CIT(A). In the said appeal, the assessee had inter-alia urged that the AO was not justified in passing the order dated 20.12.2012 as there cannot be more than one assessment order for the same year and, in the present case, order dated 14.02.2012 passed by the AO should be regarded as the valid order. It was also urged that the AO erred in not assessing the annual value in accordance with the directions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had made her order dated 14.02.2012 giving effect to the Tribunal's order as erroneous and prejudicial to the interests of the Revenue. Assessee replied to the above referred show cause notice, highlighting the conclusion reached by the Full Bench of the Delhi High Court in the case of Moni Kumar Subba (supra) as inter-alia laying down that standard rent is the upper limit for determination of annual value under section 23 of the Act. Further, municipal rateable value could be considered as a rational yard stick to determine the annual value unless the AO can show that the rateable value under the municipal laws did not represent the correct fair rent. His attention was drawn to the fact that, the Assessee had let out the said premises to Indokem Limited in the year 1995 in a bare shell form on which substantial expenditure had been incurred by them to make it suitable to be used as an office. It was also highlighted that municipal rateable value for the present year. 12. Eventually, the CIT passed the revision order under section 263 of the Act. According to him, order dated 14.02.2012 was passed by the AO without perusing the said details properly and carrying out the enquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be lower of the standard rent or the fair rent. A bare perusal of this part of the CIT(A)'s order shows that determination of annual value of the said premises as per the Tribunal's Order was a subject of matter of appeal before the CIT(A) which has been considered and decided by him. Therefore, the CIT could not have assumed jurisdiction under section 263 of the Act in respect of the said issue. The CIT in his revision order dated 11.03.2014 passed under section 263 of the Act, has observed that the order dated 23.10.2013 passed by the CIT(A) and the consideration of the issues therein was restricted to the second Order dated 20.12.2012 passed by the AO giving effect to the Tribunal's Order. According to him, the subject matter of appeal adjudicated by the CIT(A) in the said order would not be hit by the provisions of clause (c) of Explanation-1 below section 263(1) of the Act. According to us, the real test for determination of subject matter of appeal is that, assuming that the CIT(A)'s order dated 23. 10.2013 was appealed by the Revenue before the Tribunal and his finding with respect to the validity of the order dated 20.12.2012 passed by the AO in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er time will be lost by the necessity to remand the matter on matters not considered. We hope the learned AAC will take up the matter without further delay and record his views on the question on merits. The reference is answered accordingly. No costs." 14. In the present case also order dated 20.12.2012 passed by the AO giving effect to the Tribunal's order was challenged before the CIT(A) as without jurisdiction as well as on merits but the finding given by the CIT(A) with respect to the order dated 20.12.2012 passed by the AO, as beyond jurisdiction and therefore the merits of the matter becoming academic, he has also rightly adjudicated the merits of the matter. Hence, in our view, the bar on jurisdiction prescribed by clause (c) of Explanation 1 below section 263 applies to this case. The CIT has relied upon certain decisions to justify his exercise of jurisdiction under section 263 of the Act, which according to him, would show that the issue with respect to determination of annual value under section 23 of the Act in view of the directions of the Tribunal was not the subject matter of appeal before the CIT(A). Whether the issue in respect of which the CIT had exercised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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