The Income Tax Appellate Tribunal (ITAT), Mumbai bench upheld the assumption of 5% of Cost of acquisition as income from house property owned by Priya M Gurnani, director of Moraj Group.
Priya Mohan Gurnani, the Assessee and Co-Founder of Moraj Group, filed a series of seven appeals covering the assessment years 2010-11 to 2016-17, addressing common issues arising from a single search and seizure action.
Both parties acknowledged that the appeals shared common grounds, facts, and circumstances across these years. Consequently, the authorized representative presented unified arguments encompassing all matters, while the departmental representative defended the lower authorities’ orders with consistent arguments.
As a result, these appeals have been collectively addressed through this shared order.
The Assessee was represented by CA Pradip Kapasi and Revenue by Manoj kumar Sinha, Senior Department Representative.
The factual background reveals that Ms. Priya Mohan Gurnani, an individual assessed for income tax, earns income from various sources, including salary, house property, business, and other sources, with meticulous maintenance of regular books of accounts.
A search and seizure operation under Section 132 of the Income Tax Act took place on 4/2/2016. Subsequently, assessments for the years 2010-11 to 2014-15 were conducted by issuing notices under Section 153A of the Income Tax Act, while assessments for 2015-16 and 2016-17 were performed under Section 153A read with Section 143(3) of the Income Tax Act.
Addressing the initial claim related to the determination of annual let-out value based on standard rent or rateable value, the CIT(A) had affirmed that Priya Mohan Gurnani is the owner of flat number 13 and flat number 14 in Model House Operating Housing Society, Sion, Mumbai.
Assessee provided the working of the deemed rental income of the above 2 properties as per property tax levied by the Mumbai municipal Corporation which was not accepted by the AO.
The assessing officer took 5% of the cost of acquisition of the property to determine standard rate. Undisputedly the Maharashtra rent control Act 1999 is applicable to the properties, however; the standard rent of the area in which the properties are situated has not been fixed under that act. Therefore, standard rent is not available for those properties. Assessee has also not produced any evidence about the standard rent of those properties according to that act.
Therefore, there is no point in stating that the assessing officer has not attempted to determine the standard rent. Even assessee could also not do that despite being the owner of the property. Therefore, now the option left is to determine the annual value of the property. The claim of the assessee is that in view of the decision of the Bombay High Court in case of Tiptop Typography, the AO should have determined on standard rent.
In the present case, the standard rent has not at all been determined by the BMC and therefore no fault can be found with the assessing officer to determine the so. Further in case of Tiptop Typography in paragraph number 33 the High Court has noted that “However, in all the appeals before us, the factual position is that the property or part thereof is let or given on leave and license basis.”
Fact was that the properties were let out during the year. This is not the case of the properties owned by the assessee. Thus the property was not let, therefore the provisions of section 23 (1) (b) and (c) does not apply.
The case of the assessee falls under section 23 (1) (a). Therefore, the annual value of the property would be the sum for which the property might reasonably be expected to let from year to year.
The assessing officer has considered 5% of the cost of acquisition of the property by which the property can be expected to be let out. Assessee has not made any attempt to justify what is the sum for which the property might reasonably be expected to let from year to year, therefore it is for the AO to estimate the income.
It was further noted that, “It cannot be said that return on the acquisition cost of the property cannot be considered as return on such property and it is not fair method. The assessing officer has estimated 5% of the cost of acquisition as the income from the same. There is no whisper from the side of the assessee that whether 5% rate of return, which is expected to be annual value for the property maintenance also, is excessive or unreasonable”.
The CIT – A has given the decision of the High Court in case of Radha Devi Dalamia wherein the 7% of the investment was considered to be the fair and just return of income on such investment.
The CIT-A also relied on the decision of the coordinate bench in a case wherein 8% return on such cost was also held to be the annual value of a property for taxation under the head income from house property.
“Therefore, we do not find any infirmity in the order of the lower authorities in assuming 5% of the cost of the investment as the annual value of the property which can be taxed under section 23 (1) of the act under the head income from house property”, the tribunal bench of Prashant Maharishi, Accountant Member and Kavitha Rajagopal, Judicial Member held.
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