1. All these appeals preferred by the Revenue are directed against the separate order dated 29-3-2011 in the case of Oberoi Construction Pvt. Ltd. for A.Y. 2007-08 and separate orders dated 22-3-2011 in the case of Oberoi Realty Ltd. for assessment years 2002-03, 2003-04, 2004-05, 2005-06 & 2006-07 passed by the ld. CIT (A) - 40, Mumbai. Since facts are identical and issues involved are common, all these appeals are disposed of by this common order for the sake of convenience.

ITA No. 4330/Mum/2011 (A.Y. 2007-08)

Briefly stated facts of the case are that the assessee company is engaged in the business of realty developer. Search & seizure action u/s 132(1) of the Income Tax Act, 1961 (the Act) were undertaken at the premises of Oberoi Group of assesses on 19-7-2007. In response to notice u/s 153A, the return was filed declaring total income of Rs. 4,24,37,950/-. However, the assessment was completed at an income of Rs. 4,93,33,790/- including addition of income from house property Rs. 83,32,258/-, under the normal provisions of the Act and at an income of Rs. 71,40,25,930/- u/s 115JB of the Act, vide order dtd. 24-12-2009 passed u/s 153 r.w.s. 143(3) of the Act.

2. On appeal, the ld. CIT(A) while sustaining the addition of share issue expenses Rs. 2,12,500/- deleted the addition made under the head income from house property Rs. 83,23,258/- and club expenses Rs. 5 lacs.

3. Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us by taking the following grounds of appeal:-

a. On the facts and circumstances of the case and in law, the CIT(A) failed to appreciate that the Annual Value as offered by the assessee was grossly understated and the A.O. was justified in determining Fair Market Value in terms of Sec. 23(1)(a) by re-computing annual letting value of the property of the basis of circumstantial evidenced.

b. On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition made at Rs. 88,33,333/- being notional annual letting value, which could form a part of "Annual Letting Value of the property", in terms sec. 23(1)(a) of the I.T. Act, 1961.

c. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in holding that the rateable value under the Municipal Laws has to be mandatorily adopted as annual value u/s 23(1)(a), disregarding the facts that the actual rental received were totally disproportionate considering the value of the property.

4. The brief facts of the above issue are that during the course of assessment proceedings, it was inter alia observed by the A.O. that the assessee in the year April, 2004 had rented out its flat on the 4th floor in Beachwood House, Juhu Tara Road, Juhu, Mumbai along with the terrace and swimming pool to M/s Aventis Pharma Ltd. (APL) which is an Multinational Pharmaceutical Company for a monthly rent of Rs. 1,00,000/- for the first 10 months which was later extended for a further period of 3 months at the rate of Rs. 10,83,333/- per month. The extension of license period was made following the specific request of the tenant. The total area of the flat given on lease was admeasuring approx. 3,500 sq. ft. with use of the terrace and swimming pool. As per the agreement, the assessee has received a refundable security deposit amounting to Rs. 3,50,00,000/. He further observed that the assessee had taken security deposit against the said premises to ensure that tenant will vacate the premises after the expiry of the lease period, proper payment of rent on due date, tenant will not misuse the property and tenant will not damage the premises or make any unauthorised alteration. He further observed that the security deposit is refundable upon vacation of the property by the tenant. Accordingly the assessee received a rental income of Rs. 31,66,667/- for the 12 months and offered the same for tax under the head "income from House Property". He further observed that the rateable value as per the Mumbai Municipal Corporation (MMC) is Rs. 1,58,372/- whereas the assessee has earned rent of Rs. 31,66,667/- for 12 months which is much higher than the Municipal valuation. Accordingly, the A.O. keeping in view the acceptance of interest free deposit determined the annual rateable value of R. 1,20,00,000/- by taking monthly license fees of Rs. 10,00,000/- and computed the income from house property as under:-

Annual Letting out value

Rs. 1,20,00,000/-

Property tax paid

(-) Rs. 96,774/-



Rs. 1,19,03,226

Deduction u/s 24(a) of the I.T. Act 1961 @ 30%

(-) Rs. 35,70,968

Total income in respect of property let out to APL

Rs. 83,32,258/-

5. On appeal the ld. CIT(A) following the decision of the Tribunal in DCIT v. Reclamation Realty India Pvt. Ltd. in ITA No. 1411/Mum/07 for A.Y. 2004-05 dtd. 26-11-2010, Honble High Court decision in CIT v. Prabhabai Bansali (: 141 ITR 419 (Cal) & M.V. Sonavala v. CIT (: 177 ITR 246 (Bom) held that the addition cannot be made in respect of notional return under the head Income from House Property and accordingly directed the A.O. to delete the addition. He also directed to reduce the permissible deduction u/s 24(a) of the Act by taking the revised annual value of the property.

6. At the time of hearing, the ld. D.R. supports the order of the A.O.

7. On the other hand, the ld. Counsel for the assessee, at the outset, submits that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessees own case and in other cases as under:-

1

Oberoi Constructions Ltd. Vs. DCIT-CC-23 (ITA No.4366&4367/M/2011

2

Reclamation Realty India Pvt. Ltd. vs. DCIT 10(1)(ITA No. 1411/M/2007

3

DCIT 19(3) v. Vaishnav S. Puri (HUF))(ITA No. 70 46/4382/4747/M/2008

4

ITO 9(3)(2) v. Sphinx Hotels & Properties Pvt. Ltd. (ITA No. 4191/M/2007)

He, also placed on record the copy of the above orders. He, therefore, submits that the order passed by the ld. CIT(A) be upheld.

8. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the rateable value of the property as per Municipal Corporation is Rs. 1,58,372/- whereas the assessee has shown rent of Rs. 31,66,667/- for 12 months which is much higher than the annual municipal valuation.

9. In Oberoi Constructions Ltd. (supra) the Tribunal after considering the provisions of section 23 and the decision of the Tribunal in the case of Reclamation Realty India Pvt. Ltd. (supra) wherein it has been held that "we find that the Bombay High Court which is the jurisdictional High Court has held that the rateable value under the Municipal law has to be adopted as annual value u/s. 23(a) of the Act", has held that the A.O. has grossly erred by calculating the annual let out value by estimating the market value of the property at Rs. 7 crores and at the same time ignoring the fact that the Municipal Rateable Value given by the Government Authority i.e Mumbai Municipal Corporation at Rs. 1,55,310/-, is much lower than the actual rent received by the assessee and accordingly upheld the order passed by the ld. CIT(A) in deleting the addition made by the A.O. Similar view has been taken by the Tribunal in other cases cited supra.

10. In the absence of any contrary material or distinguishing feature brought on record by the Revenue, we respectfully following the consistent view of the Tribunal, hold that the A.O. was not justified in taking the gross ALV at Rs. 1,20,00,000/- under the head income from house property and accordingly we are inclined to uphold the findings of the ld. CIT(A) in deleting the addition made by the A.O. The grounds taken by the Revenue are, therefore, rejected.

ITA No. 4331/Mum/2011 for A.Y. 2002-03 (By Revenue)

ITA No. 4332/Mum/2011 for A.Y. 2003-04 ( -do- )

ITA No. 4333/Mum/2011 for A.Y. 2004-05 ( -do- )

ITA No. 4309/Mum/2011 for A.Y. 2005-06 and ( -do- )

ITA No. 4334/Mum/2011 for A.Y. 2006-07. ( -do- )

11. The common grounds No a and b taken by the Revenue in all these five appeals, except difference in amounts, taken from ITA No. 4331/M/2011 for A.Y. 2002-03 are as under:

a. On the facts and circumstances of the case and in law, the CIT(A) erred in holding that the provisions of section 2(22)(e) of the I.T. Act 1961 is not applicable in the case of assessee company without appreciating the facts that the deemed dividend has to be taxed on advances or loan to any concern as defined in Explanation 3(a) to section 2(22)(e), in which common shareholder is a member or a partner and such a shareholder has a substantial interest as defined in Explanation 3(b) of section 2(22)(e).

b. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs. 74,06,226/- being deemed dividend within the meaning of section 2(22)(e) of the I.T. Act 1961.

12. The brief facts of the above issue are that from the balance sheet of the assessee as at 31-3-2002, the A.O. observed that the assessee has credited share application money of Rs. 1,40,03,700/- from M/s New Dimension Consultants P Ltd. (NDCPL). He further observed that the share holding pattern of the assessee company and M/s NDCPL as at 31-3-2001 and 31-3-2002 was as under:-

Sl No.

Name of the shareholder

No. of shares held in assessee

No. of shares held in NDCPL

31.3.01

31.3.02

31.3.01

31.3.02

1

Vikas Oberoi

100

11,00,000

10

30,000

2

Ranvir Oberoi

100

4,00,000

10

20,000

3

Santosh Oberoi

100

5,00,000

10

10,000



Total

300

20,00,000

30

60,000

From the above, the A.O. observed that Mr. Vikas Oberoi held 55% of the shares in the assessee company and 50% of the share in the company M/s NDCPL. He further observed that M/s NDCPL is not engaged in the business of giving loans and advance. Thus according to the A.O. all the conditions in respect of treating the monies advanced by M/s NDCPL to the assessee as deemed dividends as per the provisions of section 2(22)(e) were satisfied. On being asked, it was inter alia submitted by the assessee that the amount received by KPPL were not withdrawn/appropriated by the share holders of the company for personal benefits or interest, therefore, the present case falls beyond the clutches of section 2(22)(e) of the Act. However, the A.O. did not accept the assessees explanation. According to the A.O. Mr. Vikas Oberoi is beneficial share holder of KPPL which has received advance in the garb of share application money of Rs. 74,06,226/- from NDCPL of which Mr. Vikas Oberoi is a beneficial share holder and hence the provisions of section 2(22)(e) are applicable and accordingly he made an addition of Rs. 74,06,226/- to the total income of the assessee.

13. On appeal the ld. CIT(A) while relying on the decision of Honble jurisdictional High Court in CIT vs. Universal Medicare Private Limited (2010) 324 ITR 264 (Bom) held that the appellant company is not holding any shares in NDCPL, hence, the addition cannot be made in the hands of the appellant company and accordingly deleted the addition made by the A.O.

14. At the time of hearing the ld. D.R. supports the order of the A.O.

15. On the other hand the ld. Counsel for the assessee submits that since the assessee company is not holding any share in NDCPL therefore in view of the decision of Special Bench of the Tribunal in ACIT v. Bhaumik Colour (P.) Ltd. (2009) 118 ITD 1 and Universal Medicare Private Limited (supra), the order passed by the ld. CIT(A) in deleting the addition be upheld.

16. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee company is not holding any share in NDCPL i.e. neither the assessee company is a registered share holder nor beneficial share holder in the said company.

17. In Bhaumik Colour (P.) Ltd. (SB) (supra), it has been held (para 41, at page 27 of 118 ITD):

On the first question : Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than shareholder.

On the second question: The expression shareholder referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is registered shareholder but not the beneficial shareholder then the provisions of section 2(22)(e) will not apply.

18. In CIT V/s Universal Medicare Private Limited (2010)324 ITR 263 (Bom), their Lordships after considering the aforesaid decision of the Special Bench of the Tribunal has held (page 269, Placitum 10):

The definition does not alter the legal position that dividend has to be taxed in the hands of the share- holder. Consequently in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee. We may in concluding note that the basis on which the assessee is sought to be taxed in the present case in respect of the amount of Rs. 32,00,000 is that there was a dividend under section 2(22)(e) and no other basis has been suggested in the order of the Assessing Officer.

Respectfully following the above decisions, we hold that the provisions of section 2(22)(e) are not applicable to the case of the assessee and accordingly we are inclined to uphold the findings of the ld. CIT(A) in deleting the addition made by the A.O. The grounds taken by the Revenue are, therefore, rejected.

19. Common grounds of appeal No. c, d & e taken from ITA No. 4331/M/2011 for A.Y. 2002-03 except difference in figures read as under:-

c. On the facts and circumstances of the case and in law, the CIT(A) failed to appreciate that the Annual Value as offered by the assessee was grossly understated and the A.O. was justified in determining Fair Market Value in terms of Sec. 23(1)(a) by re-computing annual letting value of the property of the basis of circumstantial evidences.

d. On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition made at Rs. 19,44,793/- being notional annual letting value, which could form a part of "Annual Letting Value of the property", in terms sec. 23(1)(a) of the I.T. Act, 1961.

e. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in holding that the rateable value under the Municipal Laws has to be mandatorily adopted as annual value u/s 23(1)(a), disregarding the facts that the actual rental received were totally disproportionate considering the value of the property.

20. At the time of hearing both the parties have agreed that the facts of the above issue are similar to the facts of the case in ITA No. 4330/Mum/2011 for A.Y. 2007-08, therefore, the plea taken by them in the said appeal may be considered while deciding the above grounds of appeals.

21. Having carefully heard the submissions of the rival parties and perusing the material available on record and in absence of any distinguishing feature brought on record by the parties, we direct the A.O. to follow our findings recorded in paras 9 to 11 of this order. We hold and order accordingly. The grounds taken by the Revenue are, therefore, rejected. In the result, Revenues appeals stand dismissed.

Order pronounced in the open court on 13.6.2012.