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Issues: Valuation of perquisite rent-free accommodation
Issue 1: Valuation of perquisite rent-free accommodation The appeal was made against the CIT(A) order regarding the valuation of perquisite rent-free accommodation. The appellant contested the addition to income from salary based on the valuation of perquisite at Rs. 14,01,878 by the Assessing Officer, as opposed to Rs. 1,20,000 declared by the appellant. The appellant argued that the valuation was correct as per applicable rules, relying on municipal valuation for the flat and emphasizing no interest earned on deposits. Alternatively, the appellant proposed adopting the Assessing Officer's valuation of Rs. 35,000 per month. The appellant pleaded for deletion of the additional notional valuation of Rs. 12,81,878 for the rent-free accommodation. Issue 2: Determination of total income based on perquisites While various grounds were raised by the assessee, they all related to the valuation of perquisites for computing total income. The Assessing Officer observed discrepancies in the computation of accommodation perquisites for a rent-free flat provided by the employer, leading to the reassessment of the total income. The Assessing Officer considered factors such as the sale price of the flat, interest-free deposits to the landlord, and prevailing market rent to estimate the fair rental value of the accommodation. Analysis: The Tribunal examined the matter in light of the amended provisions of Rule 3(a) of the Income-tax Rules, effective from 1-4-2001. The amended rules simplified the valuation of perquisites for residential accommodation, basing it on the actual lease rent paid or 10% of the salary, whichever is lower, without considering fair rental value. The Tribunal highlighted the distinction between the old and amended rules, emphasizing that under the amended rules, fair rental value no longer played a role in determining the perquisite value for rent-free accommodation. The Tribunal noted that the employer had paid yearly rent of Rs. 1,20,000, which was lower than 10% of the employee's salary at Rs. 14,01,878. As per the amended Rule 3, the actual lease rent paid was deemed the value of the perquisite for the rent-free accommodation. Therefore, the Tribunal directed the Assessing Officer to accept the perquisite value declared by the assessee, deleting the addition made by the CIT(A) based on the incorrect valuation. The Tribunal also emphasized that interest on security deposits should not be factored in while determining the fair rental value, aligning with previous court decisions. In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the CIT(A) order and confirming the perquisite value declared by the assessee for the rent-free accommodation, in accordance with the amended rules that no longer consider fair rental value in such assessments.
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