2011 (4) TMI 1383 - AT - Income Tax

Computation of Income from House Property u/s 23(1)(c) - Fair Market value of Vacant portion - Assessee's property remained vacant for not working of the lift so no income was earned - As per CIT(A), assessee is allowed 30% deduction u/s 24, hence ALV of property is taken as ₹ 73241 HELD THAT - It is noticed that claim of assessee was it made all the efforts to let out the property, but the same could not be let out because the property was situated at 5th floor and the lift was not working. In a similar issue, in the case of PREMSUDHA EXPORTS (P.) LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 10, MUMBAI 2007 (5) TMI 348 - ITAT MUMBAI , it was held that during the whole year, the assessee made continuous efforts to let out the property and under these circumstances, this property could be called to be let out property. Since the property had been held to be let out property, its annual letting value could only be worked out as per Section 23(1)(c) and since the rent received or receivable from the said property during the year was nil the same was to be taken as the annual value of the property in order to compute the income from house property Therefore, we are of the view that since the rent received or receivable from the property in question during the year was nil, the same was to be taken as the annual value of the property in order to compute the income from house property as provided in Section 23(1)(c). We, therefore, set aside the order of the ld.CIT(A)

Summary

Issues Involved:
1. Validity of notice issued under Section 148.
2. Reason to believe that income has escaped assessment.
3. Validity of proceedings under Section 148.
4. Sustenance of addition of Rs. 73,241 as income from property.
5. Applicability of Section 23(1)(c) regarding annual letting value (ALV) for a vacant property.
6. Retention of additions of Rs. 38,717 and Rs. 14,156 towards the income of the appellant.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148:
The appellant argued that the Assessing Officer (AO) erred in issuing the notice under Section 148. However, during the hearing, the appellant's counsel did not press this ground. Accordingly, this issue was dismissed as not pressed.

2. Reason to Believe That Income Has Escaped Assessment:
The appellant contended that there was no reason to believe that income had escaped assessment. This ground was also not pressed by the appellant's counsel during the hearing and was dismissed.

3. Validity of Proceedings Under Section 148:
The appellant challenged the initiation and conclusion of proceedings under Section 148. Similar to the first two grounds, this issue was not pressed during the hearing and was dismissed.

4. Sustenance of Addition of Rs. 73,241 as Income from Property:
The primary issue for adjudication was the sustenance of the addition of Rs. 73,241 by the Commissioner of Income Tax (Appeals) [CIT(A)]. The appellant had disclosed income from salary but had not shown any income from house property. The AO found that the appellant owned a property that had been vacant since the financial year 2002-03 and estimated the fair market rent at Rs. 20,000 per month, adding Rs. 2,40,000 to the appellant's income. The CIT(A) partially sustained this addition by calculating the annual letting value (ALV) at Rs. 1,04,630 and allowing a 30% deduction, resulting in an addition of Rs. 73,241.

5. Applicability of Section 23(1)(c) Regarding ALV for a Vacant Property:
The appellant argued that the property had remained vacant due to the non-operational lift and that efforts were made to let it out. The CIT(A) had previously accepted the appellant's claim for the assessment year 2005-06, but for the year under consideration, the CIT(A) applied Section 23(1)(a) and determined the ALV based on an estimated increase in rent.

The Income Tax Appellate Tribunal (ITAT) considered a similar case (Premsudha Exports (P.) Ltd. vs. ACIT) where it was held that the intention to let out the property and efforts made to do so were sufficient to invoke Section 23(1)(c). The ITAT concluded that since the rent received or receivable was nil, the ALV should also be nil, thereby setting aside the CIT(A)'s addition of Rs. 73,241.

6. Retention of Additions of Rs. 38,717 and Rs. 14,156 Towards the Income of the Appellant:
The appellant also contested the retention of additions of Rs. 38,717 and Rs. 14,156. However, these grounds were not pressed during the hearing and were dismissed.

Conclusion:
The ITAT allowed the appeal partly by setting aside the addition of Rs. 73,241 related to the ALV of the vacant property, following the precedent set in the Premsudha Exports case. The other grounds raised by the appellant were dismissed as not pressed. The order was pronounced in open court on 29.4.11.