I-T - ALV based on municipal rateable value cannot be turned down without cogent reasons: ITAT
By TIOL News Service
MUMBAI, MAY 04, 2018: THE ISSUE IS - Whether, for the purpose of rejecting municipal rateable value, the Revenue needs cogent reasons to do so. YES is the ANSWER.
Facts of the case:
The assessee company is the owner of the property at Cuffe Parade, Mumbai. During the relevant year, it had entered into a leave & license agreement with TATA Motors for a monthly compensation of Rs.50,000/- and interest free refundable deposit of Rs.2.35 crores w.e.f Dec 31, 2007. In pursuence of the same, the AO sought information from a Govt. Registered Valuer to provide the market value of the flat so let out for the year 2007. In reply, the market value for the said flat based on the stamp duty ready reckoner was referred as Rs.4,07,29,273/- and Rs.6,79,30,523/- in 2007 and 2009 respectively. Upon being confronted by AO with the said fact, the assessee stated that the municipal rateable value should be considered as the value referred to in section 23(1)(a). Hence, it was contended that since the rent received was more than the municipal ratable value, the former should be taken as the ALV. The AO did not agree with such contention and concluded that if it was shown that rateable value under municipal laws did not represent the correct fair rent, then the AO might determine the same on basis of evidence placed on the record. The AO opined that the interest-free deposit of Rs.2.35 crores had influenced the monthly rent consideration. He therefore, estimated it at 10% of Rs.6,79,30,523/- amounting to Rs.67,93,052/- per year which amounted to Rs.5,66,088/- per month. In view of enhancement of ALV to Rs.67,93,052/-, the AO after allowing deduction @ 30% u/s 24, made addition of Rs.43,35,136/- as income from house property.
On appeal, the FAA held that rent received by assessee was appropriate estimation of ALV u/s 23(1)(a). Hence, adjustment made by AO by adopting 8% of the value determined by him, was deleted.
Tribunal held that,
++ it is to be noted that jurisdictional High Court in the case of Tip Top Typography, concluded that the market rate in the locality is an approved method for determining the fair rental value but it is only when the AO is convinced that the case before him is suspicious, determination by the parties is doubtful that he can resort to enquire about the prevailing rate in the locality. Thus, the municipal rateable value may not be binding on the AO. The Bombay High Court has unequivocally expounded that the municipal lettable value cannot be disregarded straight away, for disregarding the same there must be cogent and reliable material. The AO must not make guess work or act on conjecture and surmise. Coming to the present case, it is found that except for the surmises, no cogent material was available to the AO in rejecting the municipal lettable value;
++ a reading of the letter written by government valuer shows that the valuer had clearly mentioned that he has never visited the said property under reference. In such circumstances, by no stretch of imagination, it can be said that the AO had any material much less cogent at that to disregard the municipal lettable value and the binding precedent from the jurisdictional High Court. The AO has not mentioned that he has himself visited the premises. In these circumstances, the FAA has passed a very reasonable order by placing reliance upon the proper and germane case laws. Accordingly, there is no infirmity in the same.
(See 2018-TIOL-653-ITAT-MUM)
