ACIT, CIRCLE-16(1), MUMBAI Vs. SMT. MALINI V. SHETH
LAWS(IT)-2014-5-126
INCOME TAX APPELLATE TRIBUNAL
Decided on May 23,2014

Acit, Circle -16(1), Mumbai Appellant
VERSUS
Smt. Malini V. Sheth Respondents

JUDGEMENT

Sanjay Garg, Member (J) - (1.) THE present appeals have been filed by the Revenue against two different orders of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] both dated 20.10.2010 relevant to assessment years 2002 -03 and 2004 -05. Since both the appeals are pertaining to the same assessee and even the facts and the issues involved are identical in nature, hence the same are being taken together for disposal with this common order. For the sake of convenience, the facts have been taken from ITA No. 932/M/2011 relevant to assessment year 2002 -03.
(2.) THE Revenue, through its grounds of appeal, has agitated the setting aside of the estimation by the CIT(A) which was made by the Assessing Officer (hereinafter referred to as the AO), u/s. 23(1)(a) of the Income Tax Act, of the standard rental value in respect of three rented out flats at Rs. 1,20,000/ - per month, Rs. 1,10,000/ - per month and Rs. 1,05,000/ - per month respectively against the rental income of Rs. 18,000/ - per month for each of the flat as declared by the assessee. During the course of assessment proceedings under Section 143(3) of the Act, AO observed that the assessee had shown the annual rental income of 2,16,000/ - (i.e. Rs. 18000/ - per month) for each of the three flats, one rented out in her own name and the other two in the names of her minor son and daughter respectively, situated at Anand Bhavan Mumbai. The assessee had received interest free deposits of Rs. 65 lakh each for each of the above mentioned three flats from the lessee 'Bank of America'. The AO was not satisfied with the amount of rental income. When he called for an explanation from the assessee in respect of low rental of the flats, the assessee vide letter 22.12.2006 explained that the municipal rateable value of the flats was lower than the actual rent received by the assessee and that the actual rent received by the assessee was offered for tax. The AO, however, observed that the rent offered to tax by the assessee was grossly low when compared with the market rent of the similar property in the vicinity of the building in which the assessee's property was situated. He further observed that the interest free deposit of Rs. 65 lakh each for the three flats was not just the security but also included the rental receipts. He concluded that the interest free deposit was given by the Bank to the assessee to compensate the low rent agreed upon by the parties. He therefore held that the fair market value had to be calculated as per provisions of section 23(1)(a) of the Act. Thereafter relying upon the decision of the Co -ordinate Bench of this Tribunal in the case of "Trivoly Investment and Trading Company Pvt. Ltd." reported in, 90 ITD 163, to arrive at the fair rental, he computed usufructuous from security deposit and estimated the rent of the above mentioned three flats at Rs. 1,20,000/ - per month, Rs. 1,10,000/ - per month and Rs. 1,05,000/ - per month respectively.
(3.) THE learned CIT(A), while adjudicating on the appeal preferred by the assessee, observed that though the AO was not barred from computing the income on the house property on the basis of 'annual letting value' as per Section 23 of the Income Tax Act, 1961, however, the said rental value was to be determined on the basis materials collected by him for determining the fair market value of the property. The AO should have made necessary inquiries and compared the rent offered by the assessee with the market rent of the similarly situated property in the vicinity of the building. Since the comparative market rates were not called for/furnished and hence the applicability of section 23(1)(a) was not examined by the AO. He therefore held that the estimation of income by the AO without any supporting material was wrong and thus deleted the addition so made by the A.O. The Revenue is thus in appeal before us.;


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