ITAT Delhi Grants Relief To Senior Advocate Maninder Singh In Dispute Over Rent On Properties Used For Legal Practice

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has recently granted relief to Senior Advocate and former Additional Solicitor General of India Maninder Singh.

The tribunal held that no annual letting value (ALV) could be computed on three residential properties which he used for his legal practice.

The tribunal reversed the Principal Commissioner of Income Tax's (PCIT) order under Section 263 of the Income Tax Act, 1961, which had directed a revision of the assessment on the grounds that the Assessing Officer had failed to properly examine the ALV and depreciation claims.

The Bench of Vice President Mahavir Singh and Accountant Member Krinwant Sahay held that the Assessing Officer had made the necessary enquiries and that the PCIT had not established that the assessment order was erroneous and prejudicial to the interests of the Revenue.

“The AO has done all the verifications and enquiries on this issue. Hence, in our view, no ALV can be computed while framing assessment, which AO has rightly done. Hence we find no error in the order of the Assessing officer and there is no prejudice caused to the revenue on this account,” the tribunal observed.

The ALV dispute concerned three properties: F-11, Jangpura Extension, 7, Block 171, Sunder Nagar, and E-6, Defence Colony. The PCIT had questioned why no ALV had been declared from these properties and alleged that the Assessing Officer had not made the necessary enquiries during the assessment.

During the assessment proceedings, the Assessing Officer had sought details of the properties owned or acquired by Singh and the house-property income declared from them. Singh furnished the details in his reply dated March 5, 2024. The Assessing Officer also made enquiries concerning rental income from properties in which Singh had a co-ownership interest before passing the assessment order on March 28, 2024.

The PCIT subsequently issued a show-cause notice under Section 263. Among other things, the PCIT questioned whether the properties were being used for professional purposes and took the view that ALV had to be determined for portions not used for the assessee's residence.

Singh's counsel argued before the tribunal that the properties were used for his legal practice, including for his juniors, staff and clients. Although the properties were registered as residential premises, counsel submitted that advocates were permitted to carry on professional activities from residential premises under Clause 15.8 of the Master Plan for Delhi 2021, subject to the prescribed conditions.

The tribunal noted that the PCIT had not rejected Singh's contention that F-11, Jangpura Extension, 7, Block 171, Sunder Nagar, and E-6, Defence Colony were being used for his legal profession. It also observed that the Assessing Officer had examined the details furnished by Singh and had not computed ALV because the properties were being used for professional work.

The tribunal held that the PCIT could not invoke revisionary powers merely by taking a different view on the same material examined during the assessment. It consequently reversed the PCIT's order on the ALV issue.

The second issue concerned the depreciation claimed on the properties at E-6, Defence Colony, and 7, Block 171, Sunder Nagar. The PCIT had questioned the depreciation claimed on the ground that depreciation could be allowed on the building but not on the land.

Singh's counsel argued that the consideration paid for the properties was composite and that the sale deeds did not separately allocate the actual consideration paid towards land and building. The separate values reflected in the documents were based on circle rates and were used for determining stamp duty, counsel submitted.

The tribunal agreed that the sale consideration recorded by the sub-registrar was composite. It noted that, although the land and building had been valued separately for the purpose of applying circle rates, the sale consideration itself had not been divided between the two.

The tribunal also relied on earlier decisions of the Delhi ITAT, including National Housing Bank v. DCIT and ITO v. Millennium Spire India Management (P) Ltd., concerning depreciation where the consideration for land and building was composite.

“Even now before us, no contrary decision has pointed out, and moreover, the Sub-registrar in the subject properties, i.e. Defence Colony and Sunder Nagar properties, the entire sale consideration is a composite consideration and going by the facts, we are of the view that there is no error in the order of the Assessing Officer and no prejudice has been caused to the revenue. Hence, we affirm the order of the AO and reverse the order of the learned PCIT on this issue passed under Section 263 of the Act,” the tribunal held.

It further observed that the depreciation issue was debatable and that revision under Section 263 could not be exercised merely because the PCIT preferred a different view. Relying on the decisions in CIT v. Gabriel India Ltd. and CIT v. Max India Ltd., the tribunal held that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.

The tribunal accordingly reversed the PCIT's order on the depreciation issue as well and allowed Singh's appeal.

For Singh: Vartik Chuksi, CA, Advocates Prabhas Bajaj and Rishabh Yadav appeared

For Revenue: Dr. Rajinder Kaur, CIT DR, appeared for the Revenue.