TMI Blog2019 (8) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... omply with various statutory functions is allowable even in the absence of any business income. In case, a company does not have its own premises then such company will be required to take a premises on rent for its registered office and rent so paid being towards meeting statutory obligation will be allowable expenditure. As against this, a company which owns its own premises and uses such premises for its registered office, it cannot be said that such premises was vacant so as to charge notional rent as its income u/s 23(1). Further, we are of the view that there is no restriction or condition about the size of the registered office. Thus, merely on the basis of the area of the office being large, the same cannot be said to be vacant property so as to attract the provision of section 23. Further in the preceding assessment years and succeeding years there is no such addition has been made despite there being no change in facts. - appeal of the assessee is allowed - I.T.A .No.-3316/Del/2017 - - - Dated:- 13-8-2019 - Shri H.S. Sidhu, Judicial Member And Dr. B.R.R. Kumar, Accountant Member For the Appellant : Shri Ved Jain, Adv., Shri Nischay Kantoor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition sustained is otherwise too illegal and untenable. 2.2 That the ld. CIT(Appeals) while sustaining the addition, has failed to appreciate the written submissions placed on record by the assessee including the judicial pronouncements cited by the assessee. 3. That the Ld. CIT(Appeals) has erred both in law and on facts in recording various adverse inferences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and, therefore, addition so sustained is absolutely unwarranted. 4. That enhancement by Ld. CIT(Appeals) in the impugned order is beyond the scope of powers vested u/s 251(2) of the Act and thus in excess of jurisdiction. 5. That the Ld. CIT(A) has erred both in law and on facts in sustaining levy of interest. It is, therefore, prayed that addition made by the Ld. Assessing Officer and sustained by the Ld. CIT(Appeals) may kindly be deleted and appeal of the assessee be allowed. It be further held that enhancement made by the Ld. CIT(Appeals) is in excess of jurisdiction. 2. The brief facts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal filed by the assessee against the order passed by the learned CIT(A) dated 22.03.2017 under section 250 of the Act whereby ld. CIT(A) upheld the action of the Assessing Officer in making the addition of ₹ 1,62,39,728/- under section 23(1)(a) of the Act and made further enhancement of ₹ 24,11,170/- under section 23(1)(a) of the Act. 2. The brief facts of the case are that the assessee is a Private Limited Company having PAN AAACI0319R incorporated on 14.11.1990 with the main object to carry on engineering activities in high technology areas. 3. The return of income for the year under consideration was duly e-filed by the assessee on 17.09.2012 wherein loss of ₹ 46,978 was declared. 4. The case of the assessee was selected for scrutiny and notice u/s 143(2) dated 12.08.2013 was issued. 5. The Company has its registered office at 17, Okhla Industrial Estate, Phase III, New Delhi, 110020 (hereinafter referred to as office property ). The said office property is an old property acquired in 1992 and is the sole property held by the assessee company. The property is a double story bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue was 48,770 sq. feet as against the area of 22,000 sq. feet against which show cause was issued. 11. The increased area considered was based on the reply dated 27.03.2015 furnished by M/s Architects Bureau in response to notice under section 133(6) wherein M/s Architects Bureau had enclosed a letter dated 05.07.2011 [PB page no 56-57] written by assessee to M/s Architects Bureau wherein the estimated covered area of the Ground Floor and other floors and basement has been stated as 48,770 sq. feet. The said area was considered wrongly as architect had stated the area which could be built but not what is actually built. 12. Aggrieved by the order of the ld. AO, assessee preferred an appeal before the ld. CIT(A). Before the ld. CIT(A), assessee reiterated its stand and further submitted, inter-alia, the following: That the communication between assessee and M/s Architects Bureau only referred to the total area that could be built when assessee was contemplating during the year to demolish and construct the said building again (with two floors and one basement) to make the building of utility to the business and the said area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A), assessee is in appeal before this Hon ble Tribunal. 18. In this regard, it is submitted that the issue involved is squarely covered in favor of the assessee by the judgment of Hon ble ITAT Delhi in the case of M/S Mission Verdes Estate Pvt. Ltd., Vs ACIT, in ITA No. 4236/Del/2015 since the property under consideration is used by the assessee company as its registered office and is therefore outside the scope of section 22 itself. Property under consideration is used for business and therefore outside the scope of Section 22 itself 19. At first, it is hereby submitted that that the addition made is bad both in law and on facts. Section 22 of the Act, which is the charging section in respect of income from house property, specifically excludes properties used for the purpose of business or profession from its ambit. In this regard, it is relevant to refer the provision of the Act which is produced below for the sake of ready reference: Income from house property. 22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness and therefore outside the ambit of section 22. 24. Further, it is also not in dispute that the portion of the property to the tune of 29,500 sq. feet (30,000 sq. feet less 500 sq. feet) on account of which deemed notional income addition has been was not let out throughout the year and was in the possession of the assessee company. The said fact is evident from para 4.5.2 (b) and (d) page 8 and para 4.16.1(c) page no 25 of the order of the ld. CIT(A) wherein such facts are discussed. Further, it has again also been stated at para 4.16.1 page 25 that the property as admitted is a composite property and only a part is let out. 25. In this regard, reliance is placed on the judgment pronounced by the Hon ble ITAT Delhi in the case of M/S Mission Verdes Estate Pvt. Ltd., Vs ACIT, in ITA No. 4236/Del/2015, wherein the addition made on account of notional rent u/s 23(1)(a) in relation to the property which was the registered office of a company was deleted. 26. Further, reliance is placed on the judgment of Hon ble ITAT Delhi in the case of M/S Palos Verdes Estate Pvt. Ltd., versus ACITITA No. 4235/Del/2015, wherein it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 90 taxmann.com 307 (Mumbai - Trib.) M/s Mangilall Estates (P) Ltd. Versus DCIT, Central Circle- 1 (3) , Kolkata, ITAT Kolkatta, ITA No.156/Kol/2015 Commissioner Of Income-Tax Versus New Savan Sugar and Gur Refining Co. Limited, Calcutta High Court, [1990] 185 ITR 564 Commissioner Of Income-Tax Versus Ganga Properties Limited, Calcutta High Court, [1993] 199 ITR 94 Without prejudice to the above and in an alternate, no addition can be made in view of the provisions of section 23(1)(c) of the Act 29. Without prejudice to the above, it is submitted that even if the property is not treated as being used for the purpose of business, no addition can be made in accordance with 23(1)(c) of the Act. Section 23(1)(c) of the Act reads as under: Annual value how determined. 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; or .. (c) where the property or any part of the property is let and was vacant during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .com 146 (AP). In this regard, it is submitted that the said case is not applicable since the facts of the case are different. In the said case, the entire property remained vacant throughout the year. The same is evident from para 2 of the said judgment which reads as under: 2. The appellant, a practicing advocate, filed his return of income for the assessment year 2002-03 on August 6, 2002 declaring a total income of ₹ 3,01,610. His case was taken up for scrutiny under section 143(2) of the Act. A notice dated March 11, 2005, was issued calling upon him to show cause why the annual value, in respect of the flat, should not be included in the computation of his income from house property. The appellant, vide letter dated March 23, 2005, contended that, as per section 23(l)(c) of the Act, the annual value of the flat was nil and, hence, he was not liable to tax. The assessing authority, in his order of assessment dated March 28, 2005, held that section 23(1)(c) would apply only when the property was let out what could be seen from the computation of income was that this property was not let out during the accounting year the question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Court are fulfilled in the case in hand. Part of the property is let, another part is vacant and it is owing to such vacancy that the actual rent received is less than deemed annual value as per section 23(1)(a), thus, no addition can be made by virtue of section 23(1)(c) of the Act. 37. Further, ld. CIT(A) held at para 4.16.1 page 25 that there are three distinctly lettable portions, two wholly let out during the year and rest part vacant throughout. . In this regard, it is submitted that the ld. CIT(A) erred in considering the provision of section 23(1)(c) for let out and vacant portion separately. The property is one composite property with one entry gate and cannot be divided into different parts. The same was submitted before ld. CIT(A) and is on record at para 4.4 page 5 of its order. The property cannot be divided in n number of components based on the whims and fancies of the ld. AO/ld. CIT(A). The property is a composite one and should be treated as one. The act of ld. CIT(A) in treating the portion not let out as a separate property is bad in law and against the facts of the case. 38. In view of the above, no disallowance can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from year to year. 44. It is a settled law now that since the determination of rateable value of land assessable to property taxes under the Municipal laws and the annual letting value under section 23(1)(a) are both based on annual rent at which such land and building might reasonably be expected to let from year to year, accordingly, said rateable value will hold good in pari-materia under the Income Tax Laws while determining the annual letting value in respect of a property which has not been let out and thus the ALV is to be computed with reference to the municipal rateable valuation. In this regard, reliance is placed on the following judgments: ITAT MUMBAI in the case of Shri Moti Govind Bhatia versus DCIT, No.- ITA no.2020/Mum./2016, Dated.- June 21, 2019: 4. As regards the property at sl. no.1 in the table, it is the contention of the assessee that his children are using it as residence, therefore, the assessee has offered the municipal ratable value as house property income. It is to be noted that the Assessing Officer has determined the ALV of the property by adopting the value at which another flat in the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amendments made vide Taxation Laws (Amendment) Act, 1975. The circular provides the following in relation to amendment made to section 23: TAXATION LAWS (AMENDMENT) ACT, 1975-III Determination of annual value where the rent received exceeds the municipal valuation - Section 23(1) 9. Hitherto, the annual value of house property chargeable to income-tax under the head Income from house property was deemed to be the sum for which the property might reasonably be expected to let from year to year. In many cases, however, the actual rent received or receivable in a year exceeds the municipal valuation of the property. Sub-section (1) of section 23 has been amended to provide that where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to let from year to year, the annual rent received or receivable shall be taken as the annual value of the property. Where the property is let out only for a part of the previous year the annual rent for this purpose will be the rent received or receivable for a period of twelve months calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e should be computed with reference to Municipal rateable value i.e. ₹ 24,08,832/- in the case in hand, as evident from the copy of self-assessment property tax form [Pb page no 53-55] Without prejudice to the above and in an alternate, the rent and area considered by ld. AO and ld. CIT(A) is incorrect Rent to be considered 52. Without prejudice to the above, it is submitted that the average of ₹ 46 as adopted by ld. CIT(A) is bad in law. 100 sq. feet was leased out to Luxor Fashion for ₹ 30 per sq. feet per month (3,000 per month for 100 sq. feet) and 400 sq. feet was leased out to Luxor Writing Instruments (P) Ltd. for ₹ 50 per sq. feet per month (20,000 per month for 400 sq. feet). Accordingly, assumption of ld. CIT(A) that assessee will fetch the average of ₹ 46 per sq. feet (23,000/500) is highly injudicious and unwarranted. 53. The property is an old production hall without any amenities as such and accordingly cannot fetch such high rate. The said fact has been repeatedly submitted before the authorities. Accordingly, reasonable rent may be adopted as against such high v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard, attention is also drawn towards the copy of the self-assessment property tax form [Copy placed at PB page no 54] placed on record before the ld. AO as well as ld. CIT(A). Perusal of the same clearly reveals that the total area of property as 2788 sq. meter [30,000 sq. feet (2788 sq. meter X 10.7639)]. 60. Further, it is relevant to highlight that at para 4.52 page 8 of the order of ld. CIT(A), certain undisputed facts have been stated. Point (f) of para 4.5.2 page 8 of such order reveals that ld. CIT(A) is in agreement with the total area as he has stated that the built up area is seen to be 1394 sq. meter (100%) as seen from para 8 of the Municipal Self Assessment Property Tax form filed before me . 61. However, while making the final determination, ld. CIT(A) at para 4.16 page 25 of its order took the total area as 48,770 sq. feet without giving any reasoning. This is despite the fact that the property tax form was brought on record and it was submitted that the correspondence only revealed the estimated area vide the submission placed at PB Pg. 61. 62. In view of the above, the total area of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itect in the said letter has stated the area which could be built but not what is actually built as can be seen from the said letter placed at PB page 56-57. It was submitted that the communication between assessee and Architechts Bureau only referred to the total area that could be built when assessee was contemplating during the year to demolish and construct the said building again (with two floors and one basement) to make the building of utility to the business and the said area cannot be considered as actual area as is evident from PB page no. 61. It was submitted that since the area was not let-out and was in possession of the assessee company for its own office, no addition can be made. 3.1 On the contrary, the Ld. DR placed reliance on the order passed by the authorities below. He invited our attention towards the provisions of section 23 of the Act which were amended by the Finance Act, 2001 where a property or any part of the property was vacant during the whole or any part of the previous year then the AO is entitled to compute the actual rent on the basis of the annual letting value. The Ld. DR also invited our attention to the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property was vacant during the year. Both AO and Ld. CIT(A) have gone with the presumption that the property is vacant and hence, income on the basis of notional rent needs to be added under section 23(1)(c) of the Act. We are of the view that the company having occupied the property for its own purposes, no notional rent can be added. It may be germane to mention here that this is the only property owned and occupied by the assessee as its registered office. It is not the case of the AO that the assessee company was having some other premises to have its office. A company having been incorporated is legally required to have its registered office irrespective of the fact whether during the year it has carried on any activity or not. There is a statutory requirement under the Companies Act to have a registered office. We are also in agreement with the contention of the Ld. AR for the assessee that the cost incurred by the company in order to comply with various statutory functions is allowable even in the absence of any business income. In case, a company does not have its own premises then such company will be required to take a premises on rent for its registered office and rent ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
