The Income Tax Appellate Tribunal (ITAT), Mumbai bench, while upholding the addition made by the assessing officer, observed that the assessee failed to submit relevant information to determine the actual rent on an unfurnished flat based on the value of furniture and fittings of furnished flats.
The assessee, K Lalchand Private Ltd, is engaged in the business of dealing in shares and securities and renting of immovable properties. During the assessment proceedings, the AO noticed that the assessee has given on rent its 24 flats owned by it. Among these, one furnished flat is leased to M/s. Anmol Rice Mills Pvt Ltd. (not a related party), and the rent received from them is ₹60,000 per month. Furthermore, the assessee has given on rent 23 unfurnished flats at the same location to its related sister concern, M/s. Lalco Services Apartment LLP, at the rate of ₹25,000 per month.
The Assessing Officer observed that the assessee has received rent from unrelated entities at a higher rate vis-à-vis the rent received from its related sister concern, which is lesser than the rent collected from unrelated parties. Accordingly, the assessee was asked to substantiate the difference in rent as well as provide details of the information relating to the furnished apartment. Then the AO found that the 2 Directors of the assessee company have a substantial interest in the partnership firm M/s. Lalco Service Apartment LLP, and the assessee company is also a partner in the said partnership firm. Thus, it was concluded that the rent received for the 23 flats given to sister concerns is at a lower value than the market value or fair value.
Thereafter, the AO asked the assessee to submit details of the actual value of furniture so that the actual value of unfurnished flats could be determined. But the assessee failed to do so; therefore, the AO, after analyzing, made the addition.
Aggrieved by the order, the assessee filed an appeal before the CIT(A), who dismissed the appeal of the assessee. Thereafter, the assessee filed an appeal against the CIT(A) order before the tribunal.
During the appeal proceedings before the bench, Satish Mody, counsel for the assessee, submitted that the assessee holds 23 flats in two societies and these flats were given on lease to sister concern LLP. Furthermore, the assessee holds 24 flats out of which one flat was leased out to M/s. Anmol Rice Mills Pvt. Ltd. and receives rent of ₹60,000 per month; this flat was furnished.
Brajendra Kumar, Counsel for Revenue, submitted that the assessee failed to submit the relevant information as called for by the Assessing Officer to determine the actual rent on an unfurnished flat based on the information of the value of furniture and fittings in the furnished flats. It was observed by the tribunal that the assessee has not submitted any information regarding the cost involved in furnishing the above flats to the tax authorities. Also, the assessee did not submit the balance sheet of the assessee company as well as the sister concern, i.e., M/s. Lalco Services Apartment LLP. Further, it was observed that the assessee has not submitted any information related to the furnishing of flats which were leased out to unrelated parties, and the assessee has leased out the majority of the flats, i.e., 23 flats, to its sister concern at ₹25,000 per month.
After considering the facts submitted and the circumstances, the two-member bench of S. Rifaur Rahman (Accountant Member) and Amit Shukla (Judicial Member) held that the assessee failed to submit relevant information to determine the Actual Rent on Unfurnished Flat based on the value of Furniture and Fittings of Furnished Flats. Therefore, the bench confirmed the addition and dismissed the ground of the assessee.
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