2015 (6) TMI 978 - AT - Income Tax

Computation of annual letting value and vacancy allowance - Held that - The assessee produced the receipt of the property tax as well as the summary of the property tax due demand in respect of the property at Jubilee Hills, Hyderabad before the CIT(A), but the CIT(A) has not considered the Municipal valuation of the said property while deciding the issue. As it is manifest from the assessment order, the AO accepted the annual letting value based on the Municipal value in respect of the properties situated at Bangalore. Therefore, the Municipal value in respect of the property at Jubilee Hills, Hyderabad is also required to be considered while determining the annual let out value u/s 23(1)(a) of the Act. Therefore, in the facts and circumstances of the case, as well as the in the interest of justice, we set aside this issue of determination of annual letting value in respect of the property at Jubilee Hills, Hyderabad to the record of the AO to re-do the exercise of computation of annual let out value, after considering the property tax payment record filed by the assessee. Vacancy allowance claimed by the assessee, we note that the assessee never let out the property at Jubilee Hills, Hyderabad. Therefore, the question of remaining the property vacant during the year for the purpose of vacancy allowance does not arise. Accordingly, the claim of the assessee is devoid of any merit, when the assessee never let out the property in question. Hence, the claim of vacancy allowance is rejected. Disallowance of cost of improvement, while computing the capital gain - Held that - Assessee has not produced any supporting evidence regarding the expenditure incurred by the assessee on account of improvement of the property in question, however, as pointed out by the learned counsel for the assessee, the property in question was purchased by assessee vide sale deed dated 19-10-1995 and as per the schedule of the property, there is no mention of any construction or any structure on the said property purchased by the assessee. We note that the assessee had sold the property vide sale deed dated 2nd December, 2008 and as per the schedule of the property, being part of the sale deed dated 2nd December, 2008 the property is described as House No. . Therefore, prima facie it appears that what is sold by the assessee is a constructed property. However, it is a matter of verification and examination. Accordingly, this issue is set aside to the record of the AO to examine the facts of any construction physically existing on the property in question at the time of sale, in comparison to the state of property at the time of purchase vide sale deed dated 19-10-1995. In case, it is found that the assessee has carried out any construction or improvement work in the property and also produced the record of payment of money then the claim of the assessee cannot be brushed aside, merely because the assessee has not produced the bills of the expenditure. - Decided in favour of assessee for statistical purpose.

Summary

Issues Involved:
1. Computation of annual letting value and vacancy allowance.
2. Disallowance of cost of improvement while computing capital gain.

Issue 1: Computation of Annual Letting Value and Vacancy Allowance:
The appellant, a Non-resident Indian, earned income from house property and capital gain from property sale. The dispute arose regarding the annual letting value of properties in Bangalore and Hyderabad. The AO estimated the annual letting value of the Hyderabad property at Rs. 90,000 for nine months, as the property was sold during the year. The appellant challenged this before the CIT(A), also claiming vacancy allowance for the Hyderabad property. The CIT(A) upheld the AO's decision. The appellant argued that the AO based the estimation on the Hyderabad property on lack of property tax receipt, which was later produced before the CIT(A). The Tribunal noted the AO accepted the Bangalore property's value based on municipal value but rejected the Hyderabad property's value due to lack of proof. The Tribunal remanded the issue to the AO to consider the property tax payment record. Regarding vacancy allowance, the Tribunal rejected the claim since the property was never let out.

Issue 2: Disallowance of Cost of Improvement:
The appellant, a joint property owner, sold a property in Hyderabad and claimed cost of improvement. The AO disallowed the claim due to lack of evidence. The CIT(A) agreed with the AO. The appellant contended the property was purchased without any construction and later sold as a house, justifying the claimed improvement cost. The appellant submitted an affidavit from the person who oversaw the construction. The Tribunal observed the property was sold as a house, indicating improvement. The Tribunal set aside the issue for the AO to verify if construction existed at the time of sale compared to purchase. If construction is confirmed, the claim cannot be rejected solely for lack of bills. The Tribunal allowed this ground of the appeal for statistical purposes.

In conclusion, the Tribunal partly allowed the appeal, remanding the computation of annual letting value and the verification of improvement cost to the AO for further examination and consideration of evidence presented.