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Judgment
These assessee’s tw in appeals in IT A Nos. 6778 & 6779/Del/2025 for Assessment Years 2020-21 & 2021-22, arise against the CIT(A)-3, Gurgao n’s in case Nos. 10948/2019-20 and 10308/2020-21 both dated 1 1.08.2025, in proceedings u/s 147/143(3) of the Income Tax Act, 1961 (in short “the Act”), respectively.
Heard both the p arties at length. Case files peruse d.
It emerges during the course of hearing that the assessee/appellant herein is aggrieved against the learned CIT(A)’s actio n upho lding the assessment findings adding notional rent(s) of Rs.34,00,000/- and Rs.29,12,000/-; respectively, reading as under:
“4 . The abov e-mentioned appeals have bee n filed by the appellant i n connecti on with reas se ssment orders pass ed by D y. Commissioner of Inc ome Tax, Ce ntral Cir-2, Farida bad maki ng addition on acc ount of noti onal re nt of Rs.34,00,000 and Rs 29,12,000/- for AY 2020-21 and 2021-22 res pecti vely. Ther e was a searc h i n t he case of VDM gr oup on 09.02.2022 and duri ng search i n the office premises of S hri Rohit Jain at 11A-1 1B, Atmaram Ho use, Tolstoy Marg, New Delhi , rent agree ments wer e seized as Annexure A -7. The soci ety M/s Taks hila Educati on Soci et y had rent a greeme nt wit h M/s Idhayam Infr ahei ghts Pvt Ltd (for r ent of Basement, C-404, Defence C ol ony) and also with M/s Harmonia Consul tants Pvt Ltd (t he appellant) (for rent of Ground floor, C -404, Defenc e Col ony), both co mpani es havi ng co mmon address es C-404, GF, Defenc e Col ony, New Del hi - 110024 and common issues are i nvolved vide separ ate appeals for AYs 2020-21 and 2021-22.
I have car eful ly exami ne d t he var io us orders, submissi ons and material available on rec ord.
5. Gr ound of appeal no. 1 and 2
4.1The appellant had a rent a greement with M/s Takshila Educational Soci ety commencing from 01.04.2019 @ Rs 5,000/- per month a nd had earlier paid Rs.4,00,00,000/- as security to the appellant, M/s Idha yam Infrahei ghts Pvt. Ltd. The appel lant has ar gued non applicability o f t he s ecti on 23(1) for calcula tion of annual value of pr opert y and al so section 28 as business income. T he a ppell ant further states t hat order is arbit rary a nd illegal based on j urisdiction also. The case was centraliz ed by PCIT-1 , Kol kata as per powers as per law and si gnat ures of ACIT [Hqrs] for PC IT-1, Kolkata is valid i n the eyes of law and no i nfi rmity is found on this ground . Moreover, the app el lant participated in t he reass essme nt pro ceedi ngs wit hout raising a ny s ort of obj ec ti on. Furt her, t he issue of validity of t he communic ati ons by PCIT not conta ini ng DIN number if any has been stayed by H on'bl e S upreme C ourt i n the case of Brandix Ma uriti us H oldi ng Ltd.
4.2Regarding basis of maki ng additi on, it is seen that department has uneart hi ng the transaction thr ough a rent agreement, which was s eiz ed duri ng t he s earc h and the transaction mentio ned i n t he agreem ent its elf prove tha t it is very m uch inc rimi nati ng in natur e. The A O has incorporated pi ctur es of luxurio us property meas uring 325 sq. yar ds situated i n Defenc e Col ony, New Del hi fetchi ng merely Rs.5,000/- which is far less t hat t he actual fair r ent.
4.3The appellant is e njoyi ng the fr uits of securit y deposits year after year, which is refundabl e and not a onetime r eceipt or i nc ome of the appellant. The r ent agre ement is getting renewe d at regul ar i nt ervals since 2013 and lat est agreement was r enewed we f 01.04.2 019 for two years p eriod. Thus, each time same securi ty deposit amount of Rs 4 crores giv en ori gi nall y is made part of the rent agre ement, which clearly es tabl ishes that apa rt from Rs 5,0 00 monthl y rent as per agreeme nt, the inte rest amount on sec urity deposit is tacitly co nstr ued to be income of the appell ant by way of a c olourable device i n the form of s uch agree ment. The AO has clea rly poi nt ed o ut c omparativ e r entals in Def ence Col ony ar ea of New Delhi and a r ent of Rs 2. 50 to 3.00 lakh per mont h for the siz e of the pro perty could be f etched. The AO has been reaso nabl e i n taki ng i nteres t rate of SB I i n arri vi ng at the i ncome not offere d t o taxation by this rent al agr eement . Furthe r cl aim of deductio n u/s 24 @ 30% cannot be al lowed as the s ame was not clai med ori gi nal ly suo moto .
4.4The appellant has relied on various cas e laws incl udi ng Asia n Hot els case, but appellant's facts a re different as discussed above. I als o place reliance on t he decisi on i n t he ca se of S obha Inte riors (P .) Ltd Vs DCIT [2016] 76 taxma nn.c om 275 (Ba ngalor e - Trib.), wherei n the H on'ble tri bunal held that whi le c omputing ALV of hous e property let o ut by assess ee, noti onal interest on inte rest free security deposit has to be taken into consideratio n - Held, yes [In favour o f r evenue ]. Similarly, re gardi ng adopting a c olourable re nt agre ement, i n the case of Pramila Estates (P.) Ltd Vs ITO [2009] 27 SOT 133 (Mumbai ) t he r ent fixed i n agreeme nt was found to be abnormall y low as compar ed to market rent and it was concl uded that the re nt agreeme nt bet ween assesse e-co mpany and 'R ' was generated as a device not only to reduce tax liability of assessee-company but also wit h a vi ew to allow 'R' t o enj oy f rui ts of pr operty of assessee-c ompany and the addition made on account of deeme d r ent added was sustai ned.
4.5The onus was upon the appellant to fur nish a satisfactory e xplanati on for the sa me; s uch onus has not bee n discharged duri ng appellat e proceedi ngs as w ell. Ther efore, it is held that the AO was j usti fied i n ma ki ng such addition.
Thus, t he additi on made by t he A O on account of t he inte rest on Rs.4, 00,00,000/- base d o n prevalent SBI rat es tr eati ng t he same as the deemed rent received by the appella nt, is hel d to be reas onable a nd fair and aft er adj usting rent already s hown, the addi ti on of notional rent amo unti ng t o Rs.34,00,000 and Rs. 29,12,000/- is hereby co nfirmed for AYs 2020-21 and 2021-22 res pectivel y.
5.Gr ound of appeal No. 5 is ge neral i n na tur e.
6.In resul t, bot h t he appeal s ar e hereby dismi ssed.”
This is what leaves the assessee aggrieved.
I have given my thoughtful consideration to the assessee’s and the Revenue’s respective vehement submissions. It is made clear that what all both the learned author ities have done is to add notional interest on the assessee’s intere st free security deposit(s) amounting to Rs.4,00,00,000/-, as deemed rent u/s 23(1) of the Act which is over and above the actual rent agreed between the par ties amounting to Rs.5 ,000/- per month. That being the case, the Revenue could hardly dispute that case law (2011) 333 ITR 38 (Delhi) (FB) CIT Vs. Mo ni Kumar Subba has already settled the very issue in the assessee’s favour and against the departme nt that such a no tional interest co uld not form part of the actual rent u/s 23(1) of the Act. I accordingly draw stro ng support therefrom to reverse both the learned lower authorities’ action adding the imp ugned notional interest income as income from house pro perty in the assessee’s hand s.
No other ground or argument has been pressed.
These assessee’s tw in appeals ITA No s. 6 778 & 6779/Del/2025 are allowed in above terms. A copy of this common order be placed in the respective case files.