9911796707
TMI Blog2024 (11) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... up AY 2013-14 as base year. 4. Aggrieved with the order of ld. CIT (A)-23, New Delhi, assessee is in appeal raising following grounds of appeal :- "1. For that on the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have held the additions made under the head "Income from House Property' the order passed u/s 153A/143(3) for the unabated AY 2013-14 to be bad in law in view of the fact that no incriminating material or document pertaining thereto was either found and / or seized in course of the search. 2. For that on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to correctly appreciate the fact that the property at Goa was being used for the purposes of business and therefore, the Ld. CIT(A)'s action of upholding the assessment of annual lettable value of such property to tax in terms of Section 22 & 23 of the Act, was grossly unjustified. 3. For that on the facts and in the circumstances of the case and in law and without prejudice to the preceding grounds, the Ld. CIT(A) grossly erred in holding that the assessee was not entitled to the benefit of Section 23(2) of the Act, without correctly appreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different places. The details are reproduced below :- Sl. No. Name Properties Remarks S.No. Location 9. THE KUMAR FAMILY TRUST 1. SHOP AT LANDMARK, JUHU TARA ROAD, MUMABI (Leased to Ritika @ Rs.550000/- PM) Mr. Suresh Chander Kumar Trustee 2. SHOPS AT MEGA MALL, GURGAON (Leased to Ritika @ Rs.350000/- PM) Mrs. Ritu Kumar Trustee 3. REIS MAGOS, GOA Mr. Ashvin Prakash 5. JARDIM TROPICALE - VILLA NO.1 - SANGOLDA Mr. Amrish Prakash Kumar - Beneficiary 6. VATIKA LANDBASE LTD. (UNIT 708) 7. VATIKA LANDBASE LTD. (UNIT 709) 8. The Assessing Officer observed from the seized records, several emails were recovered wherein it was found that the properties owned by Kumar Family Trust i.e. Reis Magos Villa and Sangolda Villa in Goa were used by Mr. Ashvin Prakash Kumar (one of the beneficiaries) for running the business of hotel/let out property to tourists. The Assessing Officer reproduced the relevant emails in the assessment order and observed that several members of the family had discussed over mail regarding two alternatives whether rent be paid to the assessee or alte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , assessee has submitted that the property in Goa is a residential property which was used by the assessee for its own use i.e. self-occupied property by relying on section 23 of the Act. After considering the submissions of the assessee, the Assessing Officer found the explanation not acceptable and observed that on perusal of the seized email data, it is seen that assessee has used two properties of the Trust to Mr. Ashvin Prakash Kumar for running his business and for the same, the assessee has not offered any income in the return of income. For the purpose of use of the above two properties in Goa by Ashvin Prakash Kumar, during the course of search operation as well as post-search inquiry proceedings, no agreement was found to be entered by the assessee nor brought on record any agreement in respect to abovesaid query. He observed that it is clear that assessee has focused on tax saving only whether the means are genuine or not. The Assessing Officer observed that as per the provisions of section 23, which provides computation of gross annual value, unless the same is being used for business carried on by the owner himself. Since the assessee has given the property to Ashvin P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared any rent on these properties in the return of income, accordingly rejected the submission of the assessee. In order to determine annual lettable value, an Inspector was deputed to make field enquiries of these properties. As per the report of the Inspector, Assessing Officer observed that the Unit No.703 and 704 in the same Tower was occupied by Rohlig India Pvt. Ltd. in the same Tower and at 6th Floor property, it is occupied by Finelines PJ Management India Pvt. Ltd. and the said properties were occupied for more than 6 years. Therefore, the contention of the assessee that it has clear intention of letting out the property but the same could not be let out, stands futile seeing the other properties adjacent to i.e. Unit No.703 & 704 and on 6th Floor were given on rent. Further he observed that the properties held by the assessee are commercial properties. As the enquiries conducted by the Inspector, it was found that the prevailing rate for letting out the property was Rs.50 per sq.ft per month. Based on the above, the Assessing Officer determined the annual lettable value of the abovesaid properties at Rs.9,00,000/- each and determined the net amount of annual value after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for the sake of clarity, it is reproduced below :- 2. Ground No.l of AYs 2013-14 to 2016-17 2.1 In these grounds the appellant has contended that the lower authorities were unable to bring any evidence on record which prove that any incriminating material was found in the course of search which can justify the impugned additions of Rs. 12,60,000/-, Rs.25,20,000/-, Rs. 25,20,000/- & Rs. 25,20,000/- in AYs 2013-14, 2014-15, 2015-16 & 2016-17 respectively and in that view of the matter the addition made in these orders deserve to be deleted. 2.2 The appellant submits that the assessments of AYs 2013-14 to 2016- 17 were unabated in terms of Section 153A of the Act. The relevant dates to substantiate the same have been enumerated in the table below: Asst Year Date of filing of original ROI Income returned Date of order u/s 143(1) Last date of notice u/s 143(2) /2013-14 30.09.2013 1,21,57,710/- N.A. 30.09.2014 2014-15 26.06.2015 50,07,870/- 29.11.2015 30.09.2015 2015-16 27.08.2015 50,40,270/- 14.10.2015 30.09.2016 2016-17 05.08.2016 47,12,910/- 28.11.2016 30.09.2017 2.3 Consequent to the search action u/s 132 which took place on 29.05.2018, the AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business activities conducted at the property in Goa formed part of his regular books of accounts. Accordingly, the information contained in these emails cannot by any stretch of the imagination be construed to be 'incriminating' in nature. It is further submitted that even the AO is unable to correlate or link as to how the contents of these emails led to the unearthing of unexplained income of the appellant. The AO has also not specified as to how this material was 'incriminating' in nature. 2.7 Reference in this regard is made to the decision of the Hon'ble ITAT, Delhi in the case of Lord Krishna Dwellers (P) Ltd Vs ACIT in ITA No.5294/Del/2013 & 2403/Del/2014 dated 17.12.2018, In the decided case, Search u/s 132 was conducted against the assessee and certain sale deeds were impounded by the Investigating authorities which related to purchase of land worth Rs. 4.01 crores. Based on the registered sale deeds, the AO observed that the assessee had paid consideration in cash of Rs. 1.05 crores which was disallowed u/s 40A(3) of the Act. On appeal, the question posed before the Hon'ble Tribunal was whether the registered sale deeds constitute 'incriminating' material to trigger t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. The Tribunal therefore, in absence of any incriminating material found in the course of search, deleted the additions made in the orders u/s 153A in the unabated assessments for AY 2011-12 & AY 2012-13. 2.9 Attention is further invited to the decision of the Hon'ble ITAT, Delhi in the case of HBN Insurance Agencies Vs ACIT in ITA No. 3783/Del/2014 dated 23.12.2019. In the decided case the AO had made an addition by way of unexplained bank deposits in the assessments framed u/s 153A of the Act. On appeal, the assessee contended that the additions made u/s 68 were not based on any incriminating material found in the course of search whereas the Revenue claimed that the balance sheet, bank statements etc. found and seized in the course of search constituted incriminating material' which justified the impugned addition. The Hon'ble Tribunal upheld the contention of the assessee by observing as under: "In our considered opinion, the profit and loss account and balance sheet of the assessee company, by any stretch of imagination, cannot be considered as incriminating material. It is also not the case of the Revenue that the bank accounts were unearthed during the search operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etch of the imagination be said to be incriminating material unearthed in relation to these properties at Gurgaon in the course of search so as to justify the additions made in the unabated AYs 2013-14 to 2016-17. 2.13 These facts considered cumulatively show that no incriminating material whatsoever was found in the course of search pertaining to the appellant to justify the additions made u/s 23 of the Act in the unabated assessments of the relevant AYs 2013-14 to 2016-17. In the circumstances, the appellant submits that the impugned additions made in the absence of any incriminating material found in the course of search were wholly unsustainable and deserve to be deleted in full. 2.14 Reference in this regard is made to the following judgments of the judicial forums wherein it has been consistently held that where no incriminating material is found in the course of search pertaining to the assessee's unabated assessment, then it is not permissible to make any addition while passing an order of assessment u/s 153A of the Act. - PCIT Vs Abhisar Buildwell (P.) Ltd. (149 taxmann.com 399) [SC] - CIT Vs Kabul Chawla reported in [380 ITR 573] ( Delhi HC) - CIT Vs Continental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a habitable condition because it was neither having an electricity nor a water connection and other things such as flooring, sanitation etc. were also to be completed for the purpose of use and occupation of the property by the tenant. In the absence of the basic material amenities in the property, it was held that the owner would not be in a position to create interest of the tenant in the property and hence the annual value was held to be NIL. 3.3 The above decision was again followed by the Hon'ble ITAT, Amritsar in the case of ACIT Vs Dr. Amrit Lai Adlakha (11 SOT 674). In the decided case also the report of the Inspector showed that there were cracks in the impugned property which was being planned to be demolished and reconstructed. The Hon'ble ITAT therefore upheld the order of the Ld. CIT(A) that the property was not capable of being let out as it was not in a habitable condition. Accordingly, the annual value of the property was assessed at NIL. 3.4 In view of the above decisions and having regard to the admitted facts in the present case, the appellant submits that the commercial properties at Gurgaon were not in a habitable condition and therefore not capable of bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition u/s 23 in relation to properties at Goa) 4.1 The appellant is a private discretionary trust settled by Mrs. Ritu Kumar 8b Mr. Shashi Kumar in favour of their sons, Mr. Ashvin Kumar and Mr. Amrish Kumar, who are the principal beneficiaries of the Trust. Clause 8.1 of the Trust Deed states that all the properties owned by the Trust shall be applied only for the benefit of the beneficiaries of the Trust. Copy of the Trust Deed is enclosed at Pages 45 to 52 of the Paper Book. Accordingly, in terms of the Deed of Trust, the Trustees had permitted one of the principal beneficiary, Mr. Ashvin Kumar to use the properties owned by the Trust for business purposes. The principal beneficiary, Mr. Ashvin Kumar had accordingly used these properties in the course of business for the purposes of providing accommodation to tourists which were being run under the name 8s style M/s RTA Retreats. The income derived from this business activity formed part of the total income of Mr. Ashvin Kumar and has all along been assessed to tax at the normal marginal tax rates. 4.2 Referring to some email communications, the AO inferred that the action of the appellant Trust permitting its beneficiaries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the business of a firm, it is beyond comprehension as well as common sense that he could not be said to be carrying on business in the premises in respect of the income of which the exemption is claimed since he is occupying the same as a partner and not in the capacity of an owner. If, when a partnership carries on a business, each partner thereof, carried on that business, and if the firm is carrying on business on the premises in respect of the income of which the exemption is claimed, it must be held as a necessary implication that that partner is occupying the premises. Therefore, the Tribunal, was justified in holding that the annual letting value of the godown, owned by the assessee and used for the business carried on by him in partnership was not liable to be included in his total income under section 22. 4.5 Following the above judgment similar view was expressed by the jurisdictional Delhi High Court in the case of H.S. Singal & Sons (118 Taxman 894). In the decided case the assessee HUF was owning a property which was being used by a partnership in which the family of the assessee was a partner. The AO held that the property was not being used by HUF for its own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r business purposes, it is submitted that the lower authorities had grossly erred in assessing the annual value of the properties at Goa. The appellant submits that these properties qualify in the exception set out in Section 22 of the Act and therefore its annual value is not assessable under the head 'House Property'. 4.8 With regard to the AO's allegation that the non-charging of rent by the appellant trust from its beneficiaries was a tax saving tool, it is submitted that this observation does not hold any water. Had the appellant Trust charged rent from the principal beneficiary, on one hand, the rent would be taxable in its hands but correspondingly it was also tax deductible in the hands of the beneficiary. Since both the appellant Trust and the beneficiary are taxed at the same tax rates, it was not the case that the appellant avoided any tax by not charging rent from its beneficiary. This may be viewed from another angle as well. Assuming that rent was charged by the appellant Trust, then such income ultimately would in turn be passed on to the beneficiary i.e. Shri Ashvin Kumar for whose benefit the appellant Trust was formed. Hence, there is no rationale for the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e status of trustees in the instant case could only be that of an individual and not that of an AOP. In the instant case, there were more than one trustees and they were to be assessed as one unit in the status of an individual. It had not been disputed that if the status of the assessee's were to be taken to be that of an individual, they should be entitled to deduction under section 80L. The order of the Commissioner (Appeals) was justified in allowing the assessee's claim. " 5.2 The above decision of the Hon'ble Tribunal has since been upheld by the Hon'ble Calcutta High Court which is reported in 201 ITR 989 wherein it was held as follows: Since the determination of the status of an assessee is a part of the process of computation of income, it is necessary to look into the general principles for determining whether the status of the trustees of a discretionary trust can be taken to be as "an association of persons" or as an "individual". The Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546, while considering what constitutes an association of persons, held that the word "association" means "to join in any purpose" or "to join in an action". Therefore, "associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that there could be no reason why the word "individual" in section 3 of the Indian Income- tax Act, 1922, should be restricted to human being alone and not to juristic entities. ... Having regard to the facts and circumstances of this case, we are of the view that the trustees of the assessee-trust have to be assessed in the status of an "individual". We, accordingly, return our answer in the affirmative and in favour of the assessee." 5.3 Following the above judgment, an identical view has been expressed by the Hon'ble Delhi High Court in the case of CIT Vs Food Corpn. of India, Contributory Provident Fund Trust (318 ITR 318) and Hon'ble Madras High Court in the case of CIT v. Shriram Ownership Trust (122 taxmann.com 155). In view of the foregoing judgments therefore and without prejudice to the earlier submissions, the appellant submits that it is legally entitled to the benefit of at least one-self occupied property in terms of Section 23(2) of the Act. 6. Ground No. 6 of AYs 2014-15 to 2016-17 and Ground No. 5 of AY 2013- 14 and AYs 2017-18 to 2019-20 (Manner of computation of annual lettable value was erroneous) 6.1 Without prejudice to the above submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of arriving at annual value to be determined under section 23(l)(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. ...... 14. In fact, this is the view taken even by the Supreme Court in the case of Mrs. Shiela Kaushish v. CIT [1981] 131 ITR 435/7 Taxman 1 on account of similarity of the provisions under the municipal enactments and section 23 of the Act. 15. It is on this basis that in the present case, the CIT(A) gave primacy to the rateable value of the property fixed by the Municipal Corporation of Delhi vide its assessment order dated 31-12-1996 and on this basis, opined that the actual rent was more than the said rateable value and therefore, as per section 23(l)(b), the actual rent would be the income from house property and there could not have been any further additions. 16. Since the provisions of fixation of annual rent under the Delhi Municipal Corporation Act are pari materia of section 23 of the Act we are inclined to accevt the aforesaid view of the Calcutta High Court in Satya Co. Ltd. 's case (suyra) that in such circumstances, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aries for running the business. 16. With regard to Gurugram properties, ld. DR submitted that the assessee claims that these properties were not rentable properties, however there are adjacent properties which were already let out. Therefore, the submissions of the assessee are not acceptable. Accordingly, he supported the findings of the lower authorities. 17. In the rejoinder, ld. AR of the assessee submitted that properties at Gurugram is neither rentable nor useable considering the fact that these were incomplete and also there are several issues relating to access of these properties. He further submitted a statement indicating the sale of Gurugram properties unit no.701 & 702 which was sold by the assessee on 30.04.2024 and he submitted a calculation indicating that sale consideration of Rs.1,94,67,000/-, cost of purchase of Rs.1,87,57,457 and maintenance expenditure of Rs.93,52,580/- during the assessment years 2013-14 to 2025-26 and net cash loss was determined at Rs.86,43,037.51. He submitted that the assessee has not let out the property till AY 2024-25. He pleaded that assessee has not been able to let out this property. 18. Considered the rival submissions and materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its Balance Sheet as on 31.03.2013. As per the exchange of emails between family members, it is clear that one of the beneficiaries has taken up the properties in Goa to exploit the same commercially. Accordingly, we noticed that Ashvin Prakash Kumar has declared income for this property in his Balance Sheet submitted as on 31.03.2015 and 31.03.2016 and the emails were also dated 20.02.2015 onwards. It clearly shows that the property was commercially exploited from AY 2015-16. The additions proposed by the Assessing Officer relates back to AY 2013-14 onwards. It is clear from the above information that the assessee has not disclosed any rental income for the abovesaid properties during the AY 2013-14 onwards. It is not clear how the property at Goa was utilised by the family. If these properties were under utilisation of the family members during the AYs 2013-14 to 2015-16, we noticed that all these properties were already disclosed in the Balance Sheet of the Trust dated 31.03.2013. Therefore, the emails found during the search are not an incriminating material for the AYs 2013-14 and 2014-15. Considering the fact that the family has started the discussion of exploring the various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property in his financial statement even though, on the loss, it is still exploitation of the property owned by the assessee trust. Therefore, assessee should have declared rental income u/s 23 of the Act and it is not necessary that the annual lettable value considering the fact that it was used for commercial purposes by one of the beneficiaries of the trust in his individual capacity. Strictly speaking, the revenue of the RTA Retreats should have been the revenue of the assessee trust. Since the beneficiary has already declared the revenue as his own, the assessee should have declared the annual lettable value as the rent. Since it has failed to do, the AO has made the addition based on the report from the Joint Director (Inv.), Goa. The annual rent determined/estimated was Rs.12.40 lakhs after standard deduction. However, we noticed that Mr. Ashvin Prakash Kumar has earned the gross income itself of Rs.3.59 lakhs and Rs.8.39 lakhs in AY 2015-16 and 2016-17. 22. Considering the AY 2016-17 as the base year, since the property was exploited fully during this year. The amount lettable value cannot be more than Rs.8.39 lakhs. Therefore, we direct the Assessing Officer to treat the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and also not commercially exploited after AY 2016-17. There is no further material available on record to show that assessee has actually exploited commercially afterwards. However, we observed that based on the emails exchanged between the family members during February 2015 and subsequently on 21.02.2015, Assessing Officer presumed that the property was commercially exploited and proceeded to make the addition. We noticed that assessee also made a submission that the property was used by one of the beneficiaries for the business purpose and made a submission that section 22 of the Act provides that properties which are occupied for the purpose of business shall be excluded from the charge of income from Income from House Property. We observed that the property under consideration was utilised by one of the beneficiaries, however as per the Act, the trust is assessed to income separately and beneficiaries are separate. The property owned by the assessee cannot be termed as property utilised for business purpose since one of the beneficiaries is a separate person who runs a business for his own purposes under proprietorship and it is a fact on record that he has disclosed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome as against the ALV adopted by the Assessing Officer which is determined by the Assessing Officer through commission as per which it was estimated on the information gathered from the properties located in the same vicinity. However, it is only an estimation and as submitted by the beneficiary, it clearly shows that it does not give such rental income. It is also a fact that assessee has not properly exploited the property still the assessee has incurred huge loss. It is not commercially viable from the information available on record. Further there is no material brought on record by the Assessing Officer that the assessee has exploited the property subsequent to AY 2016-17. Keeping the information available on record, it is not fair to estimate the rental income on the presumption basis. Therefore, we direct the Assessing Officer to adopt the municipal value of the property as ALV as per municipal valuation and we direct Assessing Officer accordingly. 28. Coming to the property at Gurugram. As per the information available on record, we observed that assessee was not in a position to let out the property on rent and various information available on record clearly show that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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