2018 (10) TMI 1685 - AT - Income Tax

Income from house property - rental value assessed by municipal authorities for computing the deemed rent u/s 23(1) (a) - HELD THAT - As decided in assessee's own case for the A.Y. 2012-13 as adjudicated on the basis of the decision of Bombay High Court in the case of CIT Vs. Tip Top Typography 2014 (8) TMI 356 - BOMBAY HIGH COURT . It is specifically held that only value fixed by the municipal authority can be a rational yardstick for computing deemed rent u/s 23(1)(a) of the Act. Since, the matter of controversy has been fully covered by decision of the Hon ble ITAT in the assessee s own case (supra). Therefore, we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee.

Summary

Issues Involved:
1. Addition of ?63,95,231 under "Income from House Property" and confirmation of ?12,60,000 by CIT(A).
2. Addition of ?12,00,000 by CIT(A) without notice of enhancement.
3. Initiation of penalty u/s 271(1)(c) and interest u/s 234.

Detailed Analysis:

1. Addition of ?63,95,231 under "Income from House Property" and confirmation of ?12,60,000 by CIT(A):

The assessee filed a return declaring an income of ?5,17,190, which was processed under section 143(1) of the I.T. Act, 1961. The case was selected for scrutiny, and notices under sections 143(2) and 142(1) were issued. The assessee received rental income of ?6,00,000 per annum, showing a monthly rent of ?50,000 for a flat with a security deposit of ?7,50,00,000. The AO observed that the rental value was low compared to another flat in the same society, which had a rental value of ?8,05,000 per month and a security deposit of ?84,00,000. The AO assessed the market rental value of the assessee's flat at ?91,36,044, deducting 30% u/s 24A, resulting in an assessed income of ?63,95,231. The CIT(A) confirmed an addition of ?12,60,000. The ITAT referenced the assessee's own case for A.Y. 2012-13, where it was held that the rental value assessed by municipal authorities should be considered for computing deemed rent u/s 23(1)(a). The ITAT allowed the assessee's claim, setting aside the CIT(A)'s finding.

2. Addition of ?12,00,000 by CIT(A) without notice of enhancement:

The CIT(A) added ?12,00,000 on account of security deposit, which was not initially added by the AO, amounting to an enhancement without notice to the appellant. The ITAT referenced the decision in CIT vs. Tip Top Typography, which emphasized that the municipal rateable value could be a rational yardstick for computing deemed rent. The ITAT found that the CIT(A)'s addition was not justified as it was not based on any enhancement notice and was contrary to the principles set out in the referenced case law.

3. Initiation of penalty u/s 271(1)(c) and interest u/s 234:

The AO initiated penalty proceedings under section 271(1)(c) and charged interest under section 234. Given that the ITAT allowed the assessee's appeal on the primary issues, the basis for the penalty and interest charges was undermined. The ITAT's decision to set aside the CIT(A)'s findings and allow the assessee's claims effectively nullified the grounds for the penalty and interest, leading to their deletion.

Conclusion:

The ITAT allowed the appeal filed by the assessee, setting aside the CIT(A)'s findings on all contested issues. The addition of ?12,60,000 under "Income from House Property" was deleted, the ?12,00,000 added by the CIT(A) without notice was quashed, and the penalty and interest charges were nullified. The judgment emphasized the importance of adhering to municipal rateable values and following due process in enhancement notices. The decision was pronounced in the open court on 31.10.2018.