I-T - Whether AO can brush aside actual rent received and reopen assessment on ground that sister concern earned higher rent from property located in vicinity of assessee's property - NO, rules ITAT
MUMBAI, NOV 01, 2011: THE issues before the Bench are - Whether AO can brush aside actual rent received and reopen assessment on the ground that the sister concern per se earned higher rent from the property located in the vicinity of the assessee's property and whether reasons alone are to be seen while scrutinizing the jurisdiction of AO under section 147. And the ruling goes in favour of the assessee.
Facts of the case
Assessee Company let out its property on rent and reflected the actual rent as income from house property - the AO while assessing the sister concern, observed that the sister concern had let out its premises, situated in the same building, at a higher rent - Accordingly, the AO formed a view that the property of the assessee should also be assessed at the same value, and hence he reopened the assessment and assessed the case - CIT(A) affirmed the order of the AO - Before ITAT, assessee interalia challenged the jurisdiction of the AO under section 147 on the ground that there was no material with the AO on the basis of which it can be opined that income has escaped assessment.
After hearing the parties the ITAT held that,
++ as noted by the Assessing Officer in reasons recorded for reopening the assessments, the actual rent received by the assessee is to be substituted for the rent received for a similar property by an associate concern. We are unable to see any legal support for this approach of the Assessing Officer. Just because a similar property is let out for a higher rent, the Assessing Officer cannot determine annual value on the basis of such higher rent, and disregard the actual rent received. No doubt a higher rent being received by a sister concern for a similar property may prima facie indicate that "the sum for which the property might reasonably be expected to let out from year to year" could be higher than actual rent received, but that does not per se justify such a higher rent being adopted as the annual value of Rs.2,62,25,960 which is what Assessing Officer has done in the reasons recorded by the Assessing Officer;
++ it is also important to bear in mind that, as held by Bombay High Court in the case of Hindustan Lever Ltd. vs. R. B. Wadkar (2004-TIOL-72-HC-MUM-IT ), ... It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to these reasons". Similarly, in the case of Prashant S. Joshi Vs. ITO (2010-TIOL-146-HC-MUM-IT), Hon'ble Bombay High Court has observed that "the reasons which are recorded by the AO are the only reasons which can be considered when formation of belief is impugned." Viewed in this perspective, when we examine reasons recorded for reopening the assessment, we find that these reasons proceed on the fallacious assumptions that when a higher rent is received for same property by a person other than the assessee, the rent so received can be substituted for the rent actually received by the assessee. We are unable to see any legal support for this assumption;
++ it was not even the case of the Assessing Officer that the sum for which subject property might reasonable be expected to let out is to be ascertained by making further enquiries. That apart, Hon'ble Bombay High Court, in the case of Smt. Smitaben N Ambani V CWT (2009-TIOL-86-HC-MUM-WT) and while dealing with the scope of expression "the sum for which the property might be reasonably expected to let from year to year", has observed that rateable value, as determined by the Municipal Corporation, shall be the yardstick. In view of these discussions, in our considered view, the reasons for reopening the assessment cannot be sustained in law, and are contrary to the plain provisions of statute and law as laid down by Hon'ble Jurisdictional High Court
MUMBAI, NOV 01, 2011: THE issues before the Bench are - Whether AO can brush aside actual rent received and reopen assessment on the ground that the sister concern per se earned higher rent from the property located in the vicinity of the assessee's property and whether reasons alone are to be seen while scrutinizing the jurisdiction of AO under section 147. And the ruling goes in favour of the assessee.
Facts of the case
Assessee Company let out its property on rent and reflected the actual rent as income from house property - the AO while assessing the sister concern, observed that the sister concern had let out its premises, situated in the same building, at a higher rent - Accordingly, the AO formed a view that the property of the assessee should also be assessed at the same value, and hence he reopened the assessment and assessed the case - CIT(A) affirmed the order of the AO - Before ITAT, assessee interalia challenged the jurisdiction of the AO under section 147 on the ground that there was no material with the AO on the basis of which it can be opined that income has escaped assessment.
After hearing the parties the ITAT held that,
++ as noted by the Assessing Officer in reasons recorded for reopening the assessments, the actual rent received by the assessee is to be substituted for the rent received for a similar property by an associate concern. We are unable to see any legal support for this approach of the Assessing Officer. Just because a similar property is let out for a higher rent, the Assessing Officer cannot determine annual value on the basis of such higher rent, and disregard the actual rent received. No doubt a higher rent being received by a sister concern for a similar property may prima facie indicate that "the sum for which the property might reasonably be expected to let out from year to year" could be higher than actual rent received, but that does not per se justify such a higher rent being adopted as the annual value of Rs.2,62,25,960 which is what Assessing Officer has done in the reasons recorded by the Assessing Officer;
++ it is also important to bear in mind that, as held by Bombay High Court in the case of Hindustan Lever Ltd. vs. R. B. Wadkar (2004-TIOL-72-HC-MUM-IT ), ... It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to these reasons". Similarly, in the case of Prashant S. Joshi Vs. ITO (2010-TIOL-146-HC-MUM-IT), Hon'ble Bombay High Court has observed that "the reasons which are recorded by the AO are the only reasons which can be considered when formation of belief is impugned." Viewed in this perspective, when we examine reasons recorded for reopening the assessment, we find that these reasons proceed on the fallacious assumptions that when a higher rent is received for same property by a person other than the assessee, the rent so received can be substituted for the rent actually received by the assessee. We are unable to see any legal support for this assumption;
++ it was not even the case of the Assessing Officer that the sum for which subject property might reasonable be expected to let out is to be ascertained by making further enquiries. That apart, Hon'ble Bombay High Court, in the case of Smt. Smitaben N Ambani V CWT (2009-TIOL-86-HC-MUM-WT) and while dealing with the scope of expression "the sum for which the property might be reasonably expected to let from year to year", has observed that rateable value, as determined by the Municipal Corporation, shall be the yardstick. In view of these discussions, in our considered view, the reasons for reopening the assessment cannot be sustained in law, and are contrary to the plain provisions of statute and law as laid down by Hon'ble Jurisdictional High Court
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