2012 (3) TMI 571 - AT - Income Tax

Summary

Issues Involved:
1. Whether the annual value of the property should be considered nil as per the provisions of sec. 23(1) of the I.T Act.
2. Whether the municipal valuation should be disregarded in the calculation of annual value.
3. Whether the cost of acquisition of the entire property should be adopted for the purpose of annual value without excluding the cost related to the unexploited land.

Summary:

Issue 1: Annual Value of Property u/s 23(1)
The primary grievance of the assessee was the addition made by the AO and confirmed by the CIT(A) regarding the annual letting value of the house property, which remained vacant during the year under consideration. The assessee argued that the property was vacant due to the economic slowdown and hence, the annual value should be nil as per sec. 23(1)(a). However, the AO determined the annual value at Rs. 18,75,000/- and after allowing a deduction u/s 24, brought Rs. 13,12,850/- to tax as income from house property. The CIT(A) upheld this addition, stating that the annual value should be the sum for which the property might reasonably be expected to be let from year to year, irrespective of actual income received.

Issue 2: Municipal Valuation
The CIT(A) observed that the municipal valuation should be disregarded in calculating the annual value. The AO had used the cost method to determine the annual value, which was confirmed by the CIT(A) as reasonable.

Issue 3: Cost of Acquisition and Unexploited Land
The assessee contended that the cost of acquisition for the entire property should not include the cost related to the unexploited land. However, the CIT(A) did not exclude the cost related to the unexploited land while determining the annual value.

Tribunal's Decision:
The Tribunal noted that a similar issue had been adjudicated in the case of Smt. Shakuntala Devi Vs. DDIT, where it was held that if a property is held with an intention to let out and efforts are made to let it out, it could be considered as a let-out property under sec. 23(1)(c). Since the facts of the present case were similar, the Tribunal decided in favor of the assessee, setting aside the order of the CIT(A) and deleting the addition made by the AO.

Conclusion:
The appeal of the assessee was allowed, and the addition made by the AO and sustained by the CIT(A) was deleted. The Tribunal followed the precedent set in the case of Smt. Shakuntala Devi, determining that the annual value should be nil if the property was intended to be let out but remained vacant.