2013 (7) TMI 1036 - AT - Income Tax

Adoption of annual letting value (ALV) of assessee property - Held that - The assessee is entitled to value property at NIL during the year u/s. 23(1)(c). Therefore, Assessing Officer is directed to accept the ALV at NIL and work out the loss under the head House Property accordingly.

Summary

Issues involved:
- Adoption of annual letting value (ALV) of assessee property.

Detailed Analysis:
1. The issue in this appeal pertains to the adoption of the annual letting value (ALV) of the assessee's property. The property in question, 'Times Tower' at Kamala Mills Compound, Lower Parel, Mumbai, was acquired on borrowed capital. The property was purchased in May 2006, with the occupancy certificate issued in December 2006, and the assessee taking possession in January 2007. The assessee claimed a NIL annual letting value due to the property being vacant and also claimed a loss by way of interest amounting to Rs. 86,05,179. The Assessing Officer determined the ALV at 10% of the property's cost, resulting in a restricted loss for the assessee. The CIT(A) upheld the Assessing Officer's decision, leading to the appeal.

2. The grounds raised by the assessee challenged the addition made by the Assessing Officer based on the cost of investment as the ALV of the property under section 23(1)(a) of the Income Tax Act, 1961. The assessee argued that efforts were made to let out the property, thus the ALV should be computed under section 23(1)(c) at NIL. Additionally, the assessee contended that if the ALV is to be computed under section 23(1)(a), it should be at Rs. 5,52,000 for the relevant three months. An additional ground seeking ALV at NIL was rejected.

3. The Tribunal, after hearing both parties and examining relevant case law, held that the Assessing Officer's method of determining the ALV based on the property's cost was incorrect. The Tribunal cited legal precedents emphasizing that the ALV should be determined based on the Annual Ratable Value established by municipal authorities. The Tribunal also noted that the CIT(A) incorrectly dismissed the assessee's contentions regarding the Municipal ratable value, as the assessee had provided the necessary information to the Assessing Officer.

4. The Tribunal further analyzed the application of section 23(1)(c) in the case, considering whether the property was held with an intention to let out. The Tribunal referred to a previous decision and concluded that if a property is held with the intent to let out and efforts are made towards that end, it qualifies as a let-out property under clause (c) of section 23(1). In this case, the Tribunal found that the assessee had taken steps to let out the property, as evidenced by correspondence with real estate brokers and resolutions of the board of directors authorizing the property's lease. As the property remained vacant despite efforts to let it out, the Tribunal determined that the ALV should be considered as NIL under section 23(1)(c).

5. Consequently, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to accept the ALV at NIL and calculate the loss under the head of 'House Property' accordingly. The judgment was pronounced on July 31, 2013.