2012 (9) TMI 831 - AT - Income Tax

Determination of annual letting value (ALV) in terms of section 23(1) - as per Municipal Valuation or market value as contended by Revenue - assessee owns two commercial premises, however, no income from house property was shown in the return of income on ground that neither the property nor any part of the said property was let out during the year - Held that - It has not been disputed that both the properties have not been let out at all and, therefore, annual value has to be determined as per section 23(1)(a). From the plain reading of the section, it would be seen that nowhere it has been provided that market rent is to be applied for the purpose of determining ALV. Rather, it envisages that property might reasonably be expected to let from year to year . For the purpose of Section 23(1)(a), the municipal valuation has been held to be correct value for determining ALV by various Courts. Assessing Officer directed to adopt the municipal valuation/rateable value adopted by the municipal authorities - Decided in favor of assessee

Summary

Issues involved:
Determination of annual letting value (ALV) under Section 23(1) based on municipal valuation or market rate.

Analysis:

Issue 1: Determination of ALV based on market rate or municipal valuation

Facts: The appeal was against the order of the CIT(A) for the assessment year 2008-2009 concerning the determination of ALV under Section 23(1) for two commercial properties owned by the assessee.

Assessing Officer's Findings: The Assessing Officer calculated the deemed rent based on market rates obtained through an inquiry by an Income Tax Inspector, resulting in a higher ALV.

Assessee's Argument: The assessee contended that as the properties were not let out, the ALV should be determined based on municipal valuation rather than market rates.

CIT(A) Decision: The CIT(A) rejected the assessee's argument, citing a Full Bench decision of the Delhi High Court and upheld the Assessing Officer's calculation based on market rates.

Appellate Tribunal's Decision: The Tribunal analyzed various case laws and held that for properties not let out, municipal valuation should be the basis for determining ALV. The Tribunal directed the Assessing Officer to adopt municipal valuation for calculating ALV, partially allowing the assessee's appeal.

Legal Precedents: The Tribunal referenced several judgments, including M.V. Sonawala, Parkpaper Industries, Smitaben Ambani, and DCIT Vs. Reclamation Realty India Pvt. Ltd., supporting the use of municipal valuation for ALV determination.

Conclusion: The Tribunal ruled in favor of the assessee, emphasizing that for properties not let out, municipal valuation should be the basis for determining ALV. The decision aligned with established legal precedents and directed the Assessing Officer to adopt municipal valuation for calculating ALV, partially allowing the assessee's appeal.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the legal reasoning behind the decision.