ORDER
NA THU RAM, A.M.
These are cross-appeals, preferred by the assessee as well as the Revenue, challenging the order of the CIT(A) for the asst. yr. 1989-90. Since the facts and issues involved are common we have heard these appeals together and the same are disposed of by this consolidated order.
2. We first take up the assessee’s appeal contained in ITA No. 3209/Del/1993. The first effective ground taken is against adopting the annual letting value of the property at Rs. 2,68,800 against the annual letting value declared at Rs. 48,000. The facts in brief are that the assessee-firm had constructed a property at C-45 and C-45/1 Lawrance Road, New Delhi and was given on rent to Gulab Beneficiary Trust on monthly rent of Rs. 4,000 w.e.f. 1st May, 1982, as per rent deed executed. Gulab Beneficiary Trust further let out the property to various tenants at annual rent substantially higher than that paid to the assessee-firm. The AO noted that beneficiaries of Gulab Beneficiary Trust were brothers, sons and grandsons of the partners of the assessee-firm. He also noted that Jasbir Singh and Niranjan Kumar are trustees of the trust and Jasbir Singh is partner and Niranjan Kumar is son of a partner of the assessee-firm. The Gulab Beneficiary Trust was in fact formed on 16th Oct., 1981 at a time when the construction of the property was nearing completion. According to the AO the trust was formed simply to divert the income of the firm and to reduce its tax liability. The AO further noted that as per cl. (5) of the rent agreement, the tenant trust was authorised to assign, transfer, sublet, underlet or part with the possession of the rented property or any part thereof in favour of any person or persons and rent agreement shall be deemed as consent of the landlord assessee-firm in writing in support thereof. This also strengthened the AO’s belief that the trust was formed only to divert the rental income. The AO further noted that during the year the trust received rental income of Rs. 2,68,800 whereas it paid rent to the assessee-firm only of Rs. 48,000. He also noted that immediately on receiving the property in question on rent the trust sublet the property in the financial year 1982-83 on a total rent of Rs. 1,02,900. He also noted that the trust income from property has been shown as loan by the assessee-firm and interest thereon has been paid. The assessee-firm has not deducted any tax on the interest credit in the account of the trust. The AO finally came to the conclusion that the trust was created only to divert the income of the assessee-firm to the beneficiaries of the trust who were closely related to the partners and accordingly he adopted the actual rent received during the current year at Rs. 2,68,800 from the property as income of the assessee-firm from house property in place of rental income shown at Rs. 48,000.
2.1 On appeal it was contended on behalf.of the assessee that the trust was created in 11.981 by Ishwar Chand who was neither related to the trust nor to the beneficiaries and the ALV shown since the very beginning had been accepted by the Department and there was no justification for taking the ALV of the property at Rs. 2,68,800 because the trust had given on rent the property taken on lease to different tenants at enhanced rent. It was also submitted that no doubt the principle of res judicata is not applicable in the income-tax matters, the proposition accepted for a considerable long period should not be altered by disturbing the finality of the matter already accepted. Attention was invited to the Tribunal’s decision in the case of SYnt. Godawah DeO Sehgal vs. TTO (19,92) 43 TTJ (DeNT11) 181 : (1992) 198 TTR 108 (AT) (Del)(TM) in which on difference of opinion between the Judicial Member and the Vice President the learned President ol the Tribunal as Third Member expressed the view that the same question cannot be agitated in subsequent year in the absence of fresh evidence. Certain other decisions were also relied upon on the applicability of the principles of res judicata in tax matters. The CIT(A) considered the provisions of s. 23 of the IT Act and finally came to the conclusion that since the property in question given to the trust on rent was immediately let out by the trust on annual rent of Rs. 2,68,800 the same has to be treat6d as annual letting value of the property for its assessment in the hands of the assessee-firm on given facts and the detailed discussion contained in paras 19 to 22 of his order. With such observations the action of the AO was upheld.
2.2 The learned counsel of the assessee has made a submission that the trust was formed in October, 1981 and the property was given on rent to the trust by the assessee-firm on 1st May, 1982 on monthly rent of Rs. 4,000 as per lease agreement executed. The trust subsequently sublet the property to various tenants and had been receiving the income from the property and the same has also been disclosed in the return filed for various assessment years. The Department has accepted the genuineness of the trust and assessed the income declared from subletting the said property. The assessment of the rent as received by the trust in the hands of the assessee-firm amounts to double taxation. He has also pointed out that assessments in the case of trust have been made on substantive basis and not on protective basis. The Department has also not taken any remedial action in the case of the trust. The learned counsel, therefore, pleaded that the rental income as received by the trust having already been assessed in the tands of the trust on substantive basis the assessment of the same income in the hands of the firm is not justified.
2.3 The learned counsel has further pointed out that the property was let out to the trust on annual rent of Rs- 48,000 as per the terms of the lease agreement. He has further pointed out that the ALV of these two properties was determined by the Municipal Corporation of Delhi (MCD) at Rs. 54,000 vide two separate orders, dt. 20th Nov., 1-985 effective from 13th -April, 1982. He further pointed out that the adjoining building No. C-44/1 of the same size was given on rent in 1985 on monthly rent of Rs. 2600. Therefore, looking to the standard rent fixed by the MCD and the rent fixed for the adjoining building in 1985 at Rs. 2500 the rent fixed for the present property in May, 1982 at Rs. 48,000 p.a. was fairly reasonable. What the trust subsequently charged from its tenants on subletting of the property is of no relevance. The reason for successive increase in rental income given by the learned counsel was that the Lawrance Road area gaifd bussiness iinportance in due course of time and further the premises were sublet to new tenants on vacation bv the old tenants whereas in the case of tlie assesjee-fdin tlie tenancy continued irom May, 1932 without any change and the assessee-firm could not raise the rent in view of the relevant provisions of Me Rent Control Act.
2.4 The learned counsel placed reliance on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Raghuvir Saran Charitable Trust (1991) 183 ITR 297 (Del) and submitted that the market rent of the property assessable under s. 23 of the IT Act cannot be more than the standard rent. He also placed reliance on the decisions in CIT vs. Raghuidr Saran Charitable Trust (supra), K.T. Doctor vs, CIT (1980) 15 CTR (Guj) 43 : (1980) 124 ITP 501 (Guj), CIT vs. O.P. Tandon & Ors. (1992) 103 CTR (Del) 129.- (1992) 195 ITR 688 (Del), CIT vs. R.S. Tandon & Ors. (1992) 103 CTR (Del) 228 : (1992) 195 ITR 297 (Del), ITO vs. Goswarm P. W Maharaja Kalyan (1981) 12 T T_J (Bom) 510 and Addl. CIT vs. Mrs. Lleela Govindan 1978 CTR (Mad) 187.- (1978) 113 ITR 136 (Mad). 2.5’rhe learned Departmental Representative on the other hand relied upon the orders of the lower authorities and further submitted that looking to the facts ii,,volved, the 1.0 was fully justified in adopting the rental income at Rs. 2,68,3U,I), oeing the market rent within the meanuing of s. 23 of the IT Act and accordingly no intelfeience is called for in ne finding given by the first appeilate authority.
2.6 We have considered the facts and the rival submissions. The facts as borne out from the records are that Gulab Beneficiary Trust was formed by Ishwar Chand with the corpus of Rs. 5,000 as per trustdeed, dt. 16th Oct., 1981. The trust received the possession of the said properties on lease from the assessee on monthly rent of Rs. 4,000 w.e.f. 1st May, 1982 as per lease agreement executed on 3rd May, 1982. The assessee-firm. has been receiving rent for the property from the trust @ Rs. 4,000 p-m. up to the current assessment year and the sarne has bear, disclosed and assessed by the Revenun- for the asst. vr. 1983-84 to 1988-89. The trust further sublet the properties to various tenants and received rent as per details below :
Asst. yr.
Rent received
1983-84
1,02,900
1984-85
1,60,800
1985-86
1,76,700
1986-87
1,73,700
1987-88
2,24,700
1988-89
2,85,800
1989-90
2,26,300
Necessary statement of rental income as given by the trust placed at pp. 40 to 46 of the paper-book. The trust has declared such rental income and the same along with certain other income stand assessed in the hands of the trust by the Department for various years as per details below :
Asst. yr.
Income assessed
1983-84
1,10,211
1984-85
1,45,254
1985-86
1,70,737
1986-87
1,44,868
1987-88
1,77,520
1988-89
2,27,070
1989-90
1,95,476
Assessment orders for the aforesaid years are placed at p. 29 to 39 of the paperbook. The AO while completing the assessments for various years had adopted the status of the trust as specified family trust, the shares of beneficiaries being determinate as per trust deed. The Revenue has not doubted the genuineness of the trust. The income has been assessed under s. 161(l) of the IT Act and the profit of the trust has been allocated among the beneficiaries.
2.7 The AO has assessed the rental income as received by the trust in the hands of the assessee firm in the current year at Rs. 2,68,800. We, however, note from p. 46 of the paper-book which is statement of rent received by the trust, that the actual rent received by the trust during the current year was at only Rs. 2,26,300. There is no details available or reason given by the AO to adopt the rental income at Rs. 2,68,800 when the actual rent received was Rs. 2,26,300.
2.8 We also find that the MCD fixed the rateable value of the property at C-45 and C-45/1 Lawrance Road, Delhi at Rs. 27,000 each w.e.f. April, 1982 vide their order, dt. 20th Nov., 1985 (pp. 8 & 9 of the paper-book). The total rateable value for both the properties given on rent to the trust, therefore, comes to Rs. 54,000 whereas the assessee-firm has given the property to the trust on annual rent of Rs. 48,000. Looking to the rateable value as fixed by the MCD the rent fixed by the assessee-firm at Rs. 48,000 though little lower but cannot be said to be unduly unreasonable and there could be valid reasons for such variation. Moreover, the property continues to be under tenancy of the trust as per the lease agreement from May, 1982 without any change. As per the Rent Control Act the rent earlier fixed cannot also be increased without the mutual agreement of both the parties. Thus, the Department having accepted the genuineness of the trust and having assessed the rental income on substantive basis in the hands of the trust, there is no justification for assessing the rental income of the trust in the hands of the assessee-firm. This would also amount to double taxation and which is as per settled law is not permitted unless fresh material is brought on record to prove otherwise. We, however, note that the Revenue has not brought on record any evidence during the course of present assessment proceedings to prove that the trust was not genuine or bogus and the arrangement made between the assessee-firm and the trust was a sham and it was done with the sole motive of deduction in the tax liability. The AO has rather made no enquiry or investigation from the settlor of the trust, witnesses of the trust deed, trustees, nature and size of the property involved, tenants, etc. and there being no enquiry and no fresh material brought on record, the present action of the Revenue to assess the rent received by the trust in the hands of the assessee-firm is not based on any solid material evidence but it is the result of change of opinion. Though the principle of res judicata does not apply to the tax matters, but the decision taken by the Revenue in earlier years cannot lightly be altered unless there is sufficient material to support and such material, as we find from the records, is lacking.
2.9 We now consider and discuss certain decisions cited by the learned counsel of the assessee in support of its claim.
(a) ITO vs. Goswami P.W. Maharaj Kalyan (supra).-In this case the assessee let out its property to its tenant on certain rent and the tenant further sublet the property at three times the rent paid to the assessee. The Revenue assessed the property income at the amount charged by the tenant from the subtenant. It was held that standard rent must be taken as the rental value for s. 23 of the Act. The rent received from the tenant was the standard rent and the Revenue was not justified in not taking that rent.
(b) Add]. CIT vs. Mrs. Leela Govindan (supra).-It was held in the above case that the lessee might have sublet the building at a larger rent but what the assessee was entitled to get under the terms of the lease deed was only Rs. 225 per month as it could not be said that the rent fixed under the lease deed was not genuine or had been fixed under the lease deed at a lower figure for some ulterior reason or other. It is not open to Revenue to ignore the rent actually received by the assessee who could not claim more than that by reason of lease deed.
(c) Sint. Godawari Deid Sehgal vs, ITO (supra).-It was held that there is no res judicata in tax matters and the AO is not bound to take the same view as in the previous years of the assessment. But this principle has certain exceptions, namely, the earlier findings would be good and cogent evidence in subsequent years when the same question falls to be determined. If no fresh facts come to light on investigation, the AO is not entitled to reopen the same question on mere grounds of suspicion or change of opinion. This is based on principles of natural justice and expediency.
(d) CIT vs. Raghuidr Saran Charitable Trust (supra).-It was held by the Hon’ble High Court that the Tribunal was justified in holding that the market rent of the property could not be more than the standard rent.
2.10 Having considered all the facts and the ratio of the decisions cited supra, we are of the considered view that the Revenue was not justified in assessing the rental income of Rs. 2,68,800 claimed to be received by the trust in the hands of the assessee-firm against the rental income disclosed as per the lease agreement at Rs. 48,000. The addition made on this count is, therefore, directed to be deleted.
3. The second ground raised by the assessee is against sustaining the disallowance made as under :
Rs.
(a)
4,000
Out of ti avelling expenses
(b)
4,000
Out of scooter maintenance expenses
(c)
6,836
Out of machinery repairs expenses
(d)
10,000
Out of freight expenses
(e)
8,075
Under s. 43B being central sales-tax, paid before the due date of filing the return and evidence of deposit produced during the course of assessment proceedings.
(f)
5,000
Out of telephone expenses.
(g)
14,555
Out of depreciation claimed.
3.1 We find that the assessee-firm is running an oil mill involving the processes of extracting oil from oil seeds. The assessee in the manufacturing and P&L a/c claimed expenses on various counts and the AO made disallowance therefrom under each head and the CIT(A) in certain cases upheld the disallowances made or reduced the same on due consideration of the facts involved.
3.2 We have heard the learned representatives of the assessee as wen as the Revenue and also considered the facts relating to each disallowance. On the consideration of the facts and material available we sustain/reduce/delete various disallowances made as under :
Travelling expenses
Rs. 1,000 disallowance sustained.
Scooter maintenance expenses
1/6th disallowance sustained of the claim of Rs. 14,870
Machinery repair expenses
Disallowance deleted.
Freight expenses
Disallowance of Rs. 10,000 sustained.
Telephone expenses
1/10th of the total expenses of Rs. 35,554 sustained.
Depreciation
1/6th of the depreciation claimed sustained
Depreciation on machinery installed at C-45 and C-45/1 Lawrance Road, Delhi
Disallowance made of Rs. 2861 sustained.
As regards the disallowance made under s. 43B the assessee has shown ESI of Rs. 104, PF of Rs. 8, and CST of Rs. 8,075 as outstanding liability in the balance sheet. The assessee is claimed to have made the payment of CST to the extent of Rs. 7,687 and necessary evidence is said to have been filed along with the return. Before the CIT(A) it was claimed that such evidence was given during the assessment proceedings. If the assessee made the payment of CST within the time allowable for filing of the return under s. 139(l) and produce necessary evidence in support of such payment either with the return of income or during the assessment proceedings, no addition on the account could be made. There is no detail given before us about the amount and date of payment of CST. We, therefore, restore this issue to the file of the AO with the direction to verify the payment of CST and in case it is found to be paid within the period available for filing of the return undet s. 139(l) no addition to the extent of payment made be made. The issue, of course, is to be decided by the AO after affording reasonable opportunity of being heard to the assessee.
4. We now take up the Revenue’s appeal being IT A No. 3990/Del/ 1991.
4.1 the first ground taken by the Revenue is against allowing a relief of Rs. 40,000 out of freight expenses after admitting additional evidence which was against r. 46A of the IT Rules. The assessee-firm claimed the total expenses on account of freight at Rs. 2,82,587 under the head “freight inward” and Rs. 1, 14,387 under the head “freight outward”. The AO found that most of the paym
“Vere in cash and the same were not fully supported by the vouchers or acknowledgment by the receiving party. The AO, therefore, made a disallowance of Rs. 40,000. The CIT(A) reduced such disallowance to Rs. 10,000.
4.2 We have heard the learned representative of the Revenue as well as the assessee and also considered the facts involved. We find that the AO has not brought on record any material to justify the disallowance of Rs. 40,000. Disallowance made was rather on estimate basis. The CIT(A) appreciating the facts, nature of the expenses incurred, reduced the disallowance to Rs. 10,000. We also note that no additional evidence was adduced before us influencing his decision. Considering all the facts and circumstances involved the disallowance sustained by the CIT(A) at Rs. 10,000 is considered to be justified and calls for no interference.
5. The second ground raised by the Revenue is that the CIT(A) erred in allowing interest of Rs. 67,800 which was debited to the P&L a/c and credited to Gulab Beneficiary Trust. The AO noted that the assessee-firm received loan from Gulab Beneficiary Trust out of the rental income received. Having referred to the finding given with respect to the rental income, the AO held the view that the said loan amount in fact belonged to the assessee-firm and, therefore, there was no question of payment of interest to self. The interest claimed in the name of Gulab Beneficiary Trust at Rs. 67,800 was thus disallowed. On first appeal it ‘V\,as contended on behalf of the assessee that the trust has been accepted as gentiine and is separate legal entity and the same was also being assessed as such since 1983-84. Disallowance of interest paid to the trust is, therefore, not justified. The CIT(A) held the view that once the independent legal entity of the trust has been accepted by the Department, interest on its deposits should be allowed. With such observations he directed to allow the interest claimed.
5.1 We have heard the representative of both the parties and also considered the facts.-In view of our finding given on the ground relating to assessment of rental income in the appeal of the assessee we see no infirmity in the order of the CIT(A) and the same is upheld.
6. In the result, assessee’s appeal is partly allowed whereas the Revenue’s appeal is dismissed.