Harish Chander Suri Vs. Assistant Commissioner of Income - Court Judgment

Excerpt:
1. these appeals of the assessee for asst. yrs. 1991-92 and 1992-93 are directed against the orders of the cit under s. 263 of the act. s/shri harish chander suri, har kishan suri and baldev raj suri are brothers.they are co-owners of the property no. a-23, vishal enclave, new delhi situated on main najafgarh road. each of the brothers is having 1/3rd share in the said property.2. during the previous year relevant to asst. yr. 1991-92, the property was let out to hotel surya deluxe @ rs. 4,400 p.m. and suri sons @ rs. 1,000 p.m. besides, the basement has been separately rented out to some persons for an annual rent of rs. 66,600. thus, the gross annual rent of rs. 1,31,400 was derived from the property which was equally shared by the three co-owners. the assessment in the case of harish chander was completed on a total income of rs. 3,83,460 which includes a gross annual rent of rs. 28,638 for asst. yr. 1991-92. for asst. yr. 1992-93, the assessment was completed on a total income of rs. 6,62,840 which includes his share of annual rent of rs. 37,549 from the said property.subsequently harish chander suri along with the brother co-owners entered into an agreement with goodwill foods (p) ltd., an indian company incorporated under the companies act having registered office at b-8/a, kailash colony, new delhi-48. goodwill foods (p) ltd. is engaged in the business of fast food restaurant. by the agreement, dt.30th june, 1992 goodwill foods (p) ltd. agreed to pay a minimum monthly rent of rs. 1,35,000 or the amount equivalent to 8 per cent of net monthly sales of the company, whichever is higher. the owners of the property agreed to let out the basement consisting of 765 sq. ft. and the ground floor approximately 2,807 sq. ft. along with the right of use of basement passage, staircase, etc. to the company. on the basis of the valuation report dt. 30th september, 1993, by surinder sahni, registered valuer, the gross annual rent of the property no. a-23, vishal enclave, new delhi, has been determined at rs. 16,96,800. the net annual rent comes to rs. 11,31,200.3. on the basis of the above facts, the cit was of the view that the ao did not make proper enquiries to determine the annual value of the property within the meaning of s. 23(1)(a) of the it act, 1961, while assessing the income from the house property and accepted the rental income as declared by the assessee. he, therefore, held that the assessment order passed under s. 143(3) of the act was erroneous and prejudicial to the interest of the revenue. he accordingly issued notice under s. 263 of the it act for asst. yr. 1991-92 on 22nd march, 1996, directing the assessee to give reasons along with the supporting documentary evidences personally or through authorised representative as to why the assessment order under s. 143(3) for the asst. yr.1991-92 should not be revised. the reply was to reach by 25th march, 1996, positively failing which the matter was to be disposed of on the basis of the materials on record without any further reference to the assessee. on the date fixed vijay kumar choudhary, ca and h.k. suri appeared and filed written replies. it was submitted that reasonable opportunity was denied to the assessee by issue of notice on 22nd march, 1996, and directing the assessee to comply with the requirements by 25th march, 1996. since the assessee could not consult the senior counsel to prepare the reply, it was submitted that further opportunity should be given. the case was adjourned to 27th march, 1996 denying the request of the assessee to adjourn it to 29th march, 1996. it was the case of the assessee that the rent paid by one tenant for a portion of the building will not necessarily change the value of other portions which were let out much earlier. the rent paid by goodwill foods (p) ltd. was on the basis of the agreement entered into on 30th june, 1992.in the absence of any contemporaneous evidence of rent realised by the assessee being lower than the rent for other similar properties in the locality, it cannot be said that the rent paid by the other tenants was not the fair rent. it was further submitted that hotel surya deluxe was let out part of the property consisting of approximately 160 sq. ft. on the ground floor and approximately 2,450 sq. ft. on the first and second floors in the year 1982 at a monthly rent of rs. 4,000 p.m.without any additional benefit. the aforesaid area is situated on the inside lane having approach road of approximately 30 ft. another portion on the ground floor on the same side with an approximate area of 850 sq. ft. was let out to jatinder suri, proprietor of suri sons at a rent of rs. 1,000 p.m. it was further submitted that the building is earmarked only as residential property and therefore, fetching any rental on commercial rate is ruled out. litigation is also stated to have been initiated by the delhi development authority. it was, therefore, submitted that there was no case for treating the order of the ao as erroneous or prejudicial to the interest of the revenue and the proceedings under s. 263 should be dropped. the cit, however, did not accept the submissions and set aside the order partially observing as follows : "the assessee has not furnished any municipal assessment of the property of recent or past years on the basis of which, the ao could determine the annual value of the property. however, it would not be out of place to mention that figure of assessment for the municipal tax purposes is only a piece of evidence and it cannot override the figure of actual rent, as the basis for determination of annual value, when such figure of actual rent is available to the ao. [cit vs. h.p. sharma (1980) 122 itr 675 (del)]. if the actual rent received or receivable is in excess of the notional annual value, the actual rent shall be deemed under s. 23(1)(b) to be the annual value (supra). 11. the assessee has tried to impress that the rent agreement between the owners of the property and goodwill foods (p) ltd. is not a reasonable bargain because of certain special features of the agreement and the uniqueness of tenant company. also that the oral rent agreement with the other tenants namely hotel surya deluxe and suri sons represented a normal reasonable bargain. it has been held, that a bargain between willing lessor and willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. an inflated or deflated rate of rent based upon fraud, emergency relationship and such other considerations may take it out of the bounds of reasonableness. (corpn. of calcutta vs. smt. padmarani air 1962 sc 151). thus, whereas the assessee has not given any evidence by which the agreement with the tenant company may be considered to be unreasonable at the same time the assessee's argument that the factum of relationship with other tenants to deflate the rent, cannot be held against the assessee is not tenable. the fact remains that the property has been occupied by the persons who are closely related with the owners of the property at a rental of less than rs. 1 sq. ft. whereas goodwill foods (p) ltd. has been charged @ rs. 45 per sq. ft. for a part of the same property. inspite of the fact that the company tenant is enjoying certain advantages and benefits with regard to its location and the agreement vis-a-vis other tenants, the differential between the rent charges remains far from explained. the portion of the property let out to the company tenant in the year 1992, was very much part of the property which could reasonably have fetched rental income higher than what has been returned by the assessee and assessed by the ao. 12. the ao has not made any effort to enquire or investigate the annual value of the property referred above which has resulted in under-assessment. in view of the above facts and circumstances of the case, therefore, it is seen that the ao's order, dt. 29th september, 1993 is erroneous and prejudicial to the interest of revenue inasmuch as the annual value of the property a-23, vishal enclave, new delhi has not been determined as per the provisions of the act. the ao is, therefore, directed to examine the annual value of the property and income from house property after giving the assessee reasonable opportunity of being heard. the assessment order, dt. 27th september, 1993 is, therefore, partially set aside only to meet the above direction." 4. similar view was taken for asst. yr. 1992-93 in the case of harish chander suri. following the above, the cit passed similar order under s. 263 of the act in the case of har kishan suri and baldev raj suri for the asst. yr. 1991-92 and 1992-93.5. the assessees are aggrieved and have come up in appeal before the tribunal. c.s. agarwal, the learned counsel, reiterated the same submissions and at the outset, argued that the assessee was not given proper opportunity. the cit in this case initiated the proceedings under s. 263 of the act for asst. yr. 1991-92 by issue of notice, dt.22nd march, 1996. the assessee was required to give reply and produce all the documentary evidence, etc. by 25th march, 1996. since the assessee has got only 3 days to prepare the reply and could not get the assistance of the counsel, the assessee was denied the opportunity required in law. as apparent from the order of the cit, the issue involves a property which was let out since 1982. the proceedings were initiated after more than 10 years in 1996. it is, therefore, not possible for the assessee to prepare the reply and furnish documentary evidence for such long period. on this ground itself, it is submitted that the order of the cit under s. 263 is liable to be set aside.6. continuing the argument, c.s. agarwal submitted that the order of the cit was based mainly on the provisions of s. 23(1)(a) of the act which provides that for the purpose of s. 22 the annual value of any property shall be deemed to be - (a) the sum for which the property might reasonably be expected to let from year to year. the cit while invoking this provision relied on the decision of the hon'ble supreme court in the case of liquidator, mahmudabad properties ltd. vs. cit (1972) 83 itr 470 (cal) and affirmed in liquidator of mahamudabad properties ltd. vs. cit (1980) 124 itr 31 (sc). the reliance according to c. s. agarwal is misplaced. in that case, the hon'ble calcutta high court was considering a building which was not let out. the property in question was in an uninhabitable condition and the same was not let out during the previous year and it was claimed that there was no annual value of the property. the hon'ble supreme court, however, held that the provisions of s. 23(1)(a) are applicable and, therefore, it has annual value which is to be considered. in the present case, the property was let out and there is no evidence to show that the rent was not fair and reasonable in comparison to similar property of the locality. in such a case, the provisions of s. 23(1)(b) are to be applied and the actual rent has to be taken as the annual letting value. there is, therefore, no reason to say that the actual rent received by the assessee is not fair market rent and the correct measure of the annual letting value of the property. in this regard, support is derived by the learned counsel from the decision of the hon'ble delhi high court in the case of balkishan kapur vs. ito (1996) 219 itr 141 (del). it is also submitted that the rent receivable is to be determined in terms of the actual rent receivable. if the receipt is uncertain, the market value cannot be taken but only the discounted value which is actually receivable should be taken into account in determining the annual value of the property. in this proposition, reliance was placed on the decision of the tribunal in the case of d.r. vadera & sons (huf) vs. ito (1993) 203 itr 15 (del).7. c. s. agarwal further submitted that the rent fixed in 1982 cannot be disturbed in the light of the decision of the hon'ble supreme court in the case of dewan daulat rai kapur vs. ndmc (1980) 122 itr 700 (sc) and the subsequent decision in the case of mrs. shiela kaushish vs. cit (1981) 131 itr 435 (sc). there is no finding by the cit that the rent received by the assessee is a collusive rent. there is also no finding that the rent received is not the standard rent. unless there is a finding that it is not the standard rent or the rent received is collusive in nature, it cannot be said that the annual value determined by the ao is erroneous and prejudicial to the interest of the revenue.c. s. agarwal further submitted that the reasoning of the cit in this case is totally wrong and erroneous. the assessee in this case let out the property in 1982. the rent fixed by the assessee is fair and reasonable, keeping in view the nature and location and the market rate of rent of the area. the assessee entered into another agreement after 10 years in 1992 with goodwill foods (p) ltd. for letting out the basement and the ground floor measuring approximately 765 sq. ft. and 2,807 sq. ft. respectively with the right of use of basement passage and staircase, etc. the rent fixed in 1992 cannot affect the genuineness of the earlier agreement in 1982. for this proposition, reliance was placed on the decision of the hon'ble madras high court in the case of addl. cit vs. mrs. leela govindan (1978) 113 itr 136 (mad).having regard to the above facts and circumstances, it is submitted that there is no case for invoking the power under s. 263 of the act particularly when the learned cit(a) did not give a specific finding and pin-point the order which is erroneous. the scope of interference under s. 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the section meant to get at sheer escapement of revenue which is taken care of by other provisions in the act. the prejudice that is contemplated under s. 263 is prejudice to the income-tax administration as a whole. sec. 263 is to be invoked not as a jurisdictional corrective or as a review of a subordinate's order in exercise of the supervisory power but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the revenue. in the absence of any specific error, the cit cannot merely set aside the order for finding out if any prejudice is caused to the revenue. reliance is placed on the decision in the case of venkatakrishna rice co. vs. cit (1987) 163 itr 129 (mad) and of the punjab & haryana high court in the case of cit vs. r. k. metal works (1978) 112 itr 445 (p&h).8. on the other hand p.k. sahu, the learned departmental representative supported the order of the cit. with regard to the opportunity provided to the assessee, it was submitted that the assessee has been fully given reasonable opportunity and it was also availed by the assessee.there is, therefore, no reason for claiming that proper opportunity was not given. the assessee is in the know of all the facts and, therefore, there was no necessity for giving further time as all the material facts are within the knowledge of the assessee. since the assessee has given adequate reply and no other material has been produced even today, there is no lack of opportunity provided to the assessee.with regard to the claim of the assessee that he was bound by the delhi rent control act and the rent fixed cannot be revised, it was submitted by p.k. sahu, the learned senior departmental representative that the contention was without any basis. the delhi rent control act is not applicable in the case of properties whose rent is in excess of rs. 3,500 p.m. there is, therefore, no law binding on the assessee to revise the rent received in the earlier years as the property is exempt from the purview of s. 3(c) of the delhi rent control act. relying on the decision in the case of cit vs. h. p. sharma (1980) 122 itr 675 (del), it is submitted by p. k. sahu, the learned senior departmental representative that municipal rate is not binding and it is the actual rent received which is material for determining the annual value of the property. in that view of the matter, it was necessary for the ao to go into the details and see whether the annual letting value shown by the assessee is fair and reasonable in the light of the recent agreement entered into by the assessee with goodwill foods (p) ltd. since the assessee in this case made substantial investment in the property and since part of the property was rented to the relatives, it is necessary for the ao to find out whether the rent was properly fixed keeping in view the market rent and the municipal rate, etc. as prevalent from time to time. since the ao has totally failed in this regard, the learned cit was fully justified in setting aside the order and directing the ao to make proper enquiry and redo the assessment in accordance with law.9. p. k. sahu, the learned senior departmental representative further submitted that when income was not properly computed in accordance with law and when no proper enquiry has been made, the cit has full power to invoke the provisions of s. 263 as held by the hon'ble delhi high court in the case of duggal & co. vs. cit (1996) 220 itr 456 (del) and also on the basis of the decision of the hon'ble madras high court in the case of k.a. ramaswamy chettiar vs. cit (1996) 220 itr 657 (mad). since the ao, in this case totally failed to make proper enquiry before accepting annual value shown by the assessee, it is submitted that the order of the cit is fully justified and there is no reasonable ground for interfering with the same. the learned senior departmental representative further submitted that the assessee in this case cannot be really aggrieved by the said order as the cit in this case only directed the ao to examine the facts and circumstances of the case and make proper enquiry in order to determine the annual value of the property and income from house property after giving the assessee reasonable opportunity of being heard. since the assessee has the right to represent his case before the ao and place on record whatever material evidence in support of the said contentions, it cannot be said that the assessee is aggrieved by the order of the cit as the cit has not decided on any of the issues.10. we have carefully considered the rival submissions in the light of the material placed on our record. with regard to the contention of the assessee regarding adequate provision of reasonable opportunity, we are of the view that the assessee has not been denied reasonable opportunity. though the time at the disposal of the assessee was limited, the opportunity as duly availed of and the assessee represented the case through his representative and also by a written submission. in that view of the matter, we reject the plea of the assessee regarding denial of reasonable opportunity to the assessee.11. with regard to the merits of the case, we are of the view that there is substantial merit in the claim of the assessee. the assessees are brothers and they have a property in which they are having 1/3rd share each. the property was let out, as per the details given at p. 63 of the paper-book since 1982. from the details, it is seen that hotel surya deluxe was given 5,000 sq. ft. at a rent of rs. 48,000 till 1988-89 and from 1988-89, it was increased to rs. 52,800. similarly, hotel surya deluxe was given a portion measuring 450 sq. ft. since 1983 for a rent of rs. 5,000 till 1987-88. similarly sanjeev pramod was given portion of the property on rent since 1982 to 1987. the other parts also were given out on rent from time to time. the rent received by the assessee and the co-owners have been accepted as declared from year to year. by agreement, dt. 30th june, 1992, goodwill foods (p) ltd. entered into agreement with the assessee for letting out 765 sq.ft. of the basement and 2,807 sq. ft. of the ground floor with the right to use the basement, passage and staircase, etc. the minimum amount agreed was rs. 1,35,000 p.m. or an amount equivalent to 8 per cent of net monthly turnover. this agreement in our view shows the increase in the market rate of house property in the area. it, however, cannot in our view convert the earlier genuine agreement into a non-genuine agreement and collusive unless there is specific material to show that the rent earlier fixed in the case of other tenants was not genuine and fixed with ulterior motives, etc. unless there is any evidence to establish that the rent actually received by the assessee in the earlier year was influenced by other considerations, the cit cannot ignore the actual rent received and direct enquiry into the genuineness of such rent fixed on the basis of subsequent agreement entered into by the assessee. this view has the support of the decision of the hon'ble madras high court in the case of addl. cit vs. mrs.leela govindan (supra), relied upon by the learned counsel of the assessee.the learned cit in this case did not give any finding that there is a specific error which resulted in prejudice caused to the revenue. the learned cit tried to deduce from the agreement entered into by the assessee with goodwill foods (p) ltd. in 1992 that the earlier rent was unreasonable. this view is untenable. unless the rent of these properties which were let out in 1982 is found to be unreasonable, as on 1982, the rent fixed from 1982 cannot be held to be unreasonable on the basis of the rent agreement in 1992. there is, therefore, no basis for questioning the rent fixed in 1982 on the basis of the future rent received by the assessee in 1992 for a new lease agreement, unless there is a specific finding that the rent agreed to earlier was influenced by other considerations.it is also noticed that these properties were let out to tenants who are also income-tax paying assessees. in such a case even if the rent was lower than the market rent or standard rent, there has to be a finding that prejudice was caused to the revenue by these concessional rents. if the tenants are also paying income-tax and for which deduction is claimed for the payment of rent, then the concessional rent sacrificed by the assessee will automatically be a benefit in the hands of the tenants and the profit will automatically be increased to the extent of the concession granted. unless the tenants are exempted from paying income-tax, we do not see how there would be prejudice caused to the revenue. unless the learned cit makes a prima facie case of error in the order of the ao which is prejudicial to the interest of the revenue, we are of the view that the provisions of s. 263 cannot be invoked by him for merely making a fishing enquiry to find out if there is any prejudice caused to the revenue.from the above facts, it is clear that the learned cit has not made out any prima facie case even for making enquiry. as pointed out earlier, the only provocation on the basis of which the learned cit considered the order of the ao to be erroneous and prejudicial is on the basis of the agreement entered into by the assessee in 1992 with goodwill foods pvt. ltd. that agreement is subsequent to the earlier agreements of 1982. naturally the rent will increase in 1992 as compared to 1982. if the reverse is the case here and the assessee entered into an agreement at a rent which is less than in 1982, then it will be a prima facie case for making proper investigations. in the present case, it is the other way round and there is no provocation for doubting the genuineness of the earlier agreement. there is also no evidence to show that the assessee has been refusing other offers from other parties at the cost of surrendering part of the rental income in favour of the earlier tenants. over and above, there is no evidence of any prejudice caused to the revenue particularly when both the parties are apparently income-tax paying assessees. what is loss to the assessee, even if, will be a gain in the hands of the other and the loss of the revenue in one hand will be a gain in the other. in view of these facts, we are of the view that the learned cit has not made out any case for invoking the power under s. 263 of the act. we hold accordingly and cancel the order under s. 263 of the act.for similar reasons, the appeals in the case of shri har kishan suri and shri baldev raj suri are also allowed.

Judgment:
1. These appeals of the assessee for asst. yrs. 1991-92 and 1992-93 are directed against the orders of the CIT under s. 263 of the Act. S/Shri Harish Chander Suri, Har Kishan Suri and Baldev Raj Suri are brothers.

They are co-owners of the property No. A-23, Vishal Enclave, New Delhi situated on main Najafgarh Road. Each of the brothers is having 1/3rd share in the said property.

2. During the previous year relevant to asst. yr. 1991-92, the property was let out to Hotel Surya Deluxe @ Rs. 4,400 p.m. and Suri Sons @ Rs. 1,000 p.m. Besides, the basement has been separately rented out to some persons for an annual rent of Rs. 66,600. Thus, the gross annual rent of Rs. 1,31,400 was derived from the property which was equally shared by the three co-owners. The assessment in the case of Harish Chander was completed on a total income of Rs. 3,83,460 which includes a gross annual rent of Rs. 28,638 for asst. yr. 1991-92. For asst. yr. 1992-93, the assessment was completed on a total income of Rs. 6,62,840 which includes his share of annual rent of Rs. 37,549 from the said property.

Subsequently Harish Chander Suri along with the brother co-owners entered into an agreement with Goodwill Foods (P) Ltd., an Indian company incorporated under the Companies Act having registered office at B-8/A, Kailash Colony, New Delhi-48. Goodwill Foods (P) Ltd. is engaged in the business of fast food restaurant. By the agreement, dt.

30th June, 1992 Goodwill Foods (P) Ltd. agreed to pay a minimum monthly rent of Rs. 1,35,000 or the amount equivalent to 8 per cent of net monthly sales of the company, whichever is higher. The owners of the property agreed to let out the basement consisting of 765 sq. ft. and the ground floor approximately 2,807 sq. ft. along with the right of use of basement passage, staircase, etc. to the company. On the basis of the valuation report dt. 30th September, 1993, by Surinder Sahni, registered valuer, the gross annual rent of the property No. A-23, Vishal Enclave, New Delhi, has been determined at Rs. 16,96,800. The net annual rent comes to Rs. 11,31,200.

3. On the basis of the above facts, the CIT was of the view that the AO did not make proper enquiries to determine the annual value of the property within the meaning of s. 23(1)(a) of the IT Act, 1961, while assessing the income from the house property and accepted the rental income as declared by the assessee. He, therefore, held that the assessment order passed under s. 143(3) of the Act was erroneous and prejudicial to the interest of the Revenue. He accordingly issued notice under s. 263 of the IT Act for asst. yr. 1991-92 on 22nd March, 1996, directing the assessee to give reasons along with the supporting documentary evidences personally or through authorised representative as to why the assessment order under s. 143(3) for the asst. yr.

1991-92 should not be revised. The reply was to reach by 25th March, 1996, positively failing which the matter was to be disposed of on the basis of the materials on record without any further reference to the assessee. On the date fixed Vijay Kumar Choudhary, CA and H.K. Suri appeared and filed written replies. It was submitted that reasonable opportunity was denied to the assessee by issue of notice on 22nd March, 1996, and directing the assessee to comply with the requirements by 25th March, 1996. Since the assessee could not consult the senior counsel to prepare the reply, it was submitted that further opportunity should be given. The case was adjourned to 27th March, 1996 denying the request of the assessee to adjourn it to 29th March, 1996. It was the case of the assessee that the rent paid by one tenant for a portion of the building will not necessarily change the value of other portions which were let out much earlier. The rent paid by Goodwill Foods (P) Ltd. was on the basis of the agreement entered into on 30th June, 1992.

In the absence of any contemporaneous evidence of rent realised by the assessee being lower than the rent for other similar properties in the locality, it cannot be said that the rent paid by the other tenants was not the fair rent. It was further submitted that Hotel Surya Deluxe was let out part of the property consisting of approximately 160 sq. ft. on the ground floor and approximately 2,450 sq. ft. on the first and second floors in the year 1982 at a monthly rent of Rs. 4,000 p.m.

without any additional benefit. The aforesaid area is situated on the inside lane having approach road of approximately 30 ft. Another portion on the ground floor on the same side with an approximate area of 850 sq. ft. was let out to Jatinder Suri, proprietor of Suri Sons at a rent of Rs. 1,000 p.m. It was further submitted that the building is earmarked only as residential property and therefore, fetching any rental on commercial rate is ruled out. Litigation is also stated to have been initiated by the Delhi Development Authority. It was, therefore, submitted that there was no case for treating the order of the AO as erroneous or prejudicial to the interest of the Revenue and the proceedings under s. 263 should be dropped. The CIT, however, did not accept the submissions and set aside the order partially observing as follows : "The assessee has not furnished any municipal assessment of the property of recent or past years on the basis of which, the AO could determine the annual value of the property. However, it would not be out of place to mention that figure of assessment for the municipal tax purposes is only a piece of evidence and it cannot override the figure of actual rent, as the basis for determination of annual value, when such figure of actual rent is available to the AO. [CIT vs. H.P. Sharma (1980) 122 ITR 675 (Del)]. If the actual rent received or receivable is in excess of the notional annual value, the actual rent shall be deemed under s. 23(1)(b) to be the annual value (supra).

11. The assessee has tried to impress that the rent agreement between the owners of the property and Goodwill Foods (P) Ltd. is not a reasonable bargain because of certain special features of the agreement and the uniqueness of tenant company. Also that the oral rent agreement with the other tenants namely Hotel Surya Deluxe and Suri Sons represented a normal reasonable bargain. It has been held, that a bargain between willing lessor and willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency relationship and such other considerations may take it out of the bounds of reasonableness. (Corpn. of Calcutta vs.

Smt. Padmarani AIR 1962 SC 151). Thus, whereas the assessee has not given any evidence by which the agreement with the tenant company may be considered to be unreasonable at the same time the assessee's argument that the factum of relationship with other tenants to deflate the rent, cannot be held against the assessee is not tenable. The fact remains that the property has been occupied by the persons who are closely related with the owners of the property at a rental of less than Rs. 1 sq. ft. whereas Goodwill Foods (P) Ltd. has been charged @ Rs. 45 per sq. ft. for a part of the same property. Inspite of the fact that the company tenant is enjoying certain advantages and benefits with regard to its location and the agreement vis-a-vis other tenants, the differential between the rent charges remains far from explained. The portion of the property let out to the company tenant in the year 1992, was very much part of the property which could reasonably have fetched rental income higher than what has been returned by the assessee and assessed by the AO. 12. The AO has not made any effort to enquire or investigate the annual value of the property referred above which has resulted in under-assessment. In view of the above facts and circumstances of the case, therefore, it is seen that the AO's order, dt. 29th September, 1993 is erroneous and prejudicial to the interest of Revenue inasmuch as the annual value of the property A-23, Vishal Enclave, New Delhi has not been determined as per the provisions of the Act. The AO is, therefore, directed to examine the annual value of the property and income from house property after giving the assessee reasonable opportunity of being heard. The assessment order, dt. 27th September, 1993 is, therefore, partially set aside only to meet the above direction." 4. Similar view was taken for asst. yr. 1992-93 in the case of Harish Chander Suri. Following the above, the CIT passed similar order under s. 263 of the Act in the case of Har Kishan Suri and Baldev Raj Suri for the asst. yr. 1991-92 and 1992-93.

5. The assessees are aggrieved and have come up in appeal before the Tribunal. C.S. Agarwal, the learned counsel, reiterated the same submissions and at the outset, argued that the assessee was not given proper opportunity. The CIT in this case initiated the proceedings under s. 263 of the Act for asst. yr. 1991-92 by issue of notice, dt.

22nd March, 1996. The assessee was required to give reply and produce all the documentary evidence, etc. by 25th March, 1996. Since the assessee has got only 3 days to prepare the reply and could not get the assistance of the counsel, the assessee was denied the opportunity required in law. As apparent from the order of the CIT, the issue involves a property which was let out since 1982. The proceedings were initiated after more than 10 years in 1996. It is, therefore, not possible for the assessee to prepare the reply and furnish documentary evidence for such long period. On this ground itself, it is submitted that the order of the CIT under s. 263 is liable to be set aside.

6. Continuing the argument, C.S. Agarwal submitted that the order of the CIT was based mainly on the provisions of s. 23(1)(a) of the Act which provides that for the purpose of s. 22 the annual value of any property shall be deemed to be - (a) the sum for which the property might reasonably be expected to let from year to year. The CIT while invoking this provision relied on the decision of the Hon'ble Supreme Court in the case of Liquidator, Mahmudabad Properties Ltd. vs. CIT (1972) 83 ITR 470 (Cal) and affirmed in Liquidator of Mahamudabad Properties Ltd. vs. CIT (1980) 124 ITR 31 (SC). The reliance according to C. S. Agarwal is misplaced. In that case, the Hon'ble Calcutta High Court was considering a building which was not let out. The property in question was in an uninhabitable condition and the same was not let out during the previous year and it was claimed that there was no annual value of the property. The Hon'ble Supreme Court, however, held that the provisions of s. 23(1)(a) are applicable and, therefore, it has annual value which is to be considered. In the present case, the property was let out and there is no evidence to show that the rent was not fair and reasonable in comparison to similar property of the locality. In such a case, the provisions of s. 23(1)(b) are to be applied and the actual rent has to be taken as the annual letting value. There is, therefore, no reason to say that the actual rent received by the assessee is not fair market rent and the correct measure of the annual letting value of the property. In this regard, support is derived by the learned counsel from the decision of the Hon'ble Delhi High Court in the case of Balkishan Kapur vs. ITO (1996) 219 ITR 141 (Del). It is also submitted that the rent receivable is to be determined in terms of the actual rent receivable. If the receipt is uncertain, the market value cannot be taken but only the discounted value which is actually receivable should be taken into account in determining the annual value of the property. In this proposition, reliance was placed on the decision of the Tribunal in the case of D.R. Vadera & Sons (HUF) vs. ITO (1993) 203 ITR 15 (Del).

7. C. S. Agarwal further submitted that the rent fixed in 1982 cannot be disturbed in the light of the decision of the Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapur vs. NDMC (1980) 122 ITR 700 (SC) and the subsequent decision in the case of Mrs. Shiela Kaushish vs. CIT (1981) 131 ITR 435 (SC). There is no finding by the CIT that the rent received by the assessee is a collusive rent. There is also no finding that the rent received is not the standard rent. Unless there is a finding that it is not the standard rent or the rent received is collusive in nature, it cannot be said that the annual value determined by the AO is erroneous and prejudicial to the interest of the Revenue.

C. S. Agarwal further submitted that the reasoning of the CIT in this case is totally wrong and erroneous. The assessee in this case let out the property in 1982. The rent fixed by the assessee is fair and reasonable, keeping in view the nature and location and the market rate of rent of the area. The assessee entered into another agreement after 10 years in 1992 with Goodwill Foods (P) Ltd. for letting out the basement and the ground floor measuring approximately 765 sq. ft. and 2,807 sq. ft. respectively with the right of use of basement passage and staircase, etc. The rent fixed in 1992 cannot affect the genuineness of the earlier agreement in 1982. For this proposition, reliance was placed on the decision of the Hon'ble Madras High Court in the case of Addl. CIT vs. Mrs. Leela Govindan (1978) 113 ITR 136 (Mad).

Having regard to the above facts and circumstances, it is submitted that there is no case for invoking the power under s. 263 of the Act particularly when the learned CIT(A) did not give a specific finding and pin-point the order which is erroneous. The scope of interference under s. 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the section meant to get at sheer escapement of revenue which is taken care of by other provisions in the Act. The prejudice that is contemplated under s. 263 is prejudice to the income-tax administration as a whole. Sec. 263 is to be invoked not as a jurisdictional corrective or as a review of a subordinate's order in exercise of the supervisory power but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the Revenue. In the absence of any specific error, the CIT cannot merely set aside the order for finding out if any prejudice is caused to the Revenue. Reliance is placed on the decision in the case of Venkatakrishna Rice Co. vs. CIT (1987) 163 ITR 129 (Mad) and of the Punjab & Haryana High Court in the case of CIT vs. R. K. Metal Works (1978) 112 ITR 445 (P&H).

8. On the other hand P.K. Sahu, the learned Departmental Representative supported the order of the CIT. With regard to the opportunity provided to the assessee, it was submitted that the assessee has been fully given reasonable opportunity and it was also availed by the assessee.

There is, therefore, no reason for claiming that proper opportunity was not given. The assessee is in the know of all the facts and, therefore, there was no necessity for giving further time as all the material facts are within the knowledge of the assessee. Since the assessee has given adequate reply and no other material has been produced even today, there is no lack of opportunity provided to the assessee.

With regard to the claim of the assessee that he was bound by the Delhi Rent Control Act and the rent fixed cannot be revised, it was submitted by P.K. Sahu, the learned Senior Departmental Representative that the contention was without any basis. The Delhi Rent Control Act is not applicable in the case of properties whose rent is in excess of Rs. 3,500 p.m. There is, therefore, no law binding on the assessee to revise the rent received in the earlier years as the property is exempt from the purview of s. 3(c) of the Delhi Rent Control Act. Relying on the decision in the case of CIT vs. H. P. Sharma (1980) 122 ITR 675 (Del), it is submitted by P. K. Sahu, the learned Senior Departmental Representative that municipal rate is not binding and it is the actual rent received which is material for determining the annual value of the property. In that view of the matter, it was necessary for the AO to go into the details and see whether the annual letting value shown by the assessee is fair and reasonable in the light of the recent agreement entered into by the assessee with Goodwill Foods (P) Ltd. Since the assessee in this case made substantial investment in the property and since part of the property was rented to the relatives, it is necessary for the AO to find out whether the rent was properly fixed keeping in view the market rent and the municipal rate, etc. as prevalent from time to time. Since the AO has totally failed in this regard, the learned CIT was fully justified in setting aside the order and directing the AO to make proper enquiry and redo the assessment in accordance with law.

9. P. K. Sahu, the learned Senior Departmental Representative further submitted that when income was not properly computed in accordance with law and when no proper enquiry has been made, the CIT has full power to invoke the provisions of s. 263 as held by the Hon'ble Delhi High Court in the case of Duggal & Co. vs. CIT (1996) 220 ITR 456 (Del) and also on the basis of the decision of the Hon'ble Madras High Court in the case of K.A. Ramaswamy Chettiar vs. CIT (1996) 220 ITR 657 (Mad). Since the AO, in this case totally failed to make proper enquiry before accepting annual value shown by the assessee, it is submitted that the order of the CIT is fully justified and there is no reasonable ground for interfering with the same. The learned Senior Departmental Representative further submitted that the assessee in this case cannot be really aggrieved by the said order as the CIT in this case only directed the AO to examine the facts and circumstances of the case and make proper enquiry in order to determine the annual value of the property and income from house property after giving the assessee reasonable opportunity of being heard. Since the assessee has the right to represent his case before the AO and place on record whatever material evidence in support of the said contentions, it cannot be said that the assessee is aggrieved by the order of the CIT as the CIT has not decided on any of the issues.

10. We have carefully considered the rival submissions in the light of the material placed on our record. With regard to the contention of the assessee regarding adequate provision of reasonable opportunity, we are of the view that the assessee has not been denied reasonable opportunity. Though the time at the disposal of the assessee was limited, the opportunity as duly availed of and the assessee represented the case through his representative and also by a written submission. In that view of the matter, we reject the plea of the assessee regarding denial of reasonable opportunity to the assessee.

11. With regard to the merits of the case, we are of the view that there is substantial merit in the claim of the assessee. The assessees are brothers and they have a property in which they are having 1/3rd share each. The property was let out, as per the details given at P. 63 of the paper-book since 1982. From the details, it is seen that Hotel Surya Deluxe was given 5,000 sq. ft. at a rent of Rs. 48,000 till 1988-89 and from 1988-89, it was increased to Rs. 52,800. Similarly, Hotel Surya Deluxe was given a portion measuring 450 sq. ft. since 1983 for a rent of Rs. 5,000 till 1987-88. Similarly Sanjeev Pramod was given portion of the property on rent since 1982 to 1987. The other parts also were given out on rent from time to time. The rent received by the assessee and the co-owners have been accepted as declared from year to year. By agreement, dt. 30th June, 1992, Goodwill Foods (P) Ltd. entered into agreement with the assessee for letting out 765 sq.

ft. of the basement and 2,807 sq. ft. of the ground floor with the right to use the basement, passage and staircase, etc. The minimum amount agreed was Rs. 1,35,000 p.m. or an amount equivalent to 8 per cent of net monthly turnover. This agreement in our view shows the increase in the market rate of house property in the area. It, however, cannot in our view convert the earlier genuine agreement into a non-genuine agreement and collusive unless there is specific material to show that the rent earlier fixed in the case of other tenants was not genuine and fixed with ulterior motives, etc. Unless there is any evidence to establish that the rent actually received by the assessee in the earlier year was influenced by other considerations, the CIT cannot ignore the actual rent received and direct enquiry into the genuineness of such rent fixed on the basis of subsequent agreement entered into by the assessee. This view has the support of the decision of the Hon'ble Madras High Court in the case of Addl. CIT vs. Mrs.

Leela Govindan (supra), relied upon by the learned counsel of the assessee.

The learned CIT in this case did not give any finding that there is a specific error which resulted in prejudice caused to the Revenue. The learned CIT tried to deduce from the agreement entered into by the assessee with Goodwill Foods (P) Ltd. in 1992 that the earlier rent was unreasonable. This view is untenable. Unless the rent of these properties which were let out in 1982 is found to be unreasonable, as on 1982, the rent fixed from 1982 cannot be held to be unreasonable on the basis of the rent agreement in 1992. There is, therefore, no basis for questioning the rent fixed in 1982 on the basis of the future rent received by the assessee in 1992 for a new lease agreement, unless there is a specific finding that the rent agreed to earlier was influenced by other considerations.

It is also noticed that these properties were let out to tenants who are also income-tax paying assessees. In such a case even if the rent was lower than the market rent or standard rent, there has to be a finding that prejudice was caused to the Revenue by these concessional rents. If the tenants are also paying income-tax and for which deduction is claimed for the payment of rent, then the concessional rent sacrificed by the assessee will automatically be a benefit in the hands of the tenants and the profit will automatically be increased to the extent of the concession granted. Unless the tenants are exempted from paying income-tax, we do not see how there would be prejudice caused to the Revenue. Unless the learned CIT makes a prima facie case of error in the order of the AO which is prejudicial to the interest of the Revenue, we are of the view that the provisions of s. 263 cannot be invoked by him for merely making a fishing enquiry to find out if there is any prejudice caused to the Revenue.

From the above facts, it is clear that the learned CIT has not made out any prima facie case even for making enquiry. As pointed out earlier, the only provocation on the basis of which the learned CIT considered the order of the AO to be erroneous and prejudicial is on the basis of the agreement entered into by the assessee in 1992 with Goodwill Foods Pvt. Ltd. That agreement is subsequent to the earlier agreements of 1982. Naturally the rent will increase in 1992 as compared to 1982. If the reverse is the case here and the assessee entered into an agreement at a rent which is less than in 1982, then it will be a prima facie case for making proper investigations. In the present case, it is the other way round and there is no provocation for doubting the genuineness of the earlier agreement. There is also no evidence to show that the assessee has been refusing other offers from other parties at the cost of surrendering part of the rental income in favour of the earlier tenants. Over and above, there is no evidence of any prejudice caused to the Revenue particularly when both the parties are apparently income-tax paying assessees. What is loss to the assessee, even if, will be a gain in the hands of the other and the loss of the Revenue in one hand will be a gain in the other. In view of these facts, we are of the view that the learned CIT has not made out any case for invoking the power under s. 263 of the Act. We hold accordingly and cancel the order under s. 263 of the Act.

For similar reasons, the appeals in the case of Shri Har Kishan Suri and Shri Baldev Raj Suri are also allowed.