2016 (2) TMI 1273 - AT - Income Tax

Income from house property computation - municipal taxes and maintenance charges deductibility while determining the income from house property - HELD THAT - The factum of payment of taxes/maintenance charges is not in dispute. It is also noted from para 2 of the assessment order itself that the assessee furnished the necessary details as called for and after due verification the same were kept on record. In the same breath the ld. Assessing Officer and also the ld. DR asserts that necessary details were not furnished. This assertion is contradicted by the finding contained in para -2 of the assessment order itself. Keeping in view the totality of facts and the circumstances we are of the view that income from house property is required to be computed on the basis of actual/bonafide rental value of letting out of the property. The municipal taxes and maintenance charges which the assessee has undisputedly paid has to be reduced from the rental income. Thereby to ascertain the actual value such charges has to be excluded from the rent. Our view find support from the decision in the case Neelam Cable Manufacturing Company 1997 (8) TMI 102 - ITAT DELHI-A and another decision of the Mumbai Bench of the Tribunal in Bombay Oil Industries 2000 (11) TMI 1225 - ITAT MUMBAI in Sherrif Construction 2008 (12) TMI 761 - ITAT BANGALORE . The ratio laid down in CIT vs Dalhousie Properties Ltd. 1984 (8) TMI 2 - SUPREME COURT holding that liability in respect of municipal of taxes which an owner has to discharge is eligible for deduction. Disallow interest paid for housing loan - Non following the procedure laid down in section 251(2) denying opportunity to the assessee of being heard - HELD THAT - As per section 251 which deals with power of the Ld. First Appellate Authority sub-section (2) says that the Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancements or reduction. It is also noted that in the impugned order even there is no whisper to the effect that any show-cause notice was issued to the assessee. Even from Form No.35 no such ground was raised. The Ld. Commissioner of Income Tax (Appeals) has committed jurisdictional error while coming to a particular conclusion. The Ld. Commissioner of Income Tax (Appeals) neither called a remand report from the Assessing Officer nor asked the assessee to substantiate the issue if he was not satisfied with the assessment so framed. Even otherwise no person should be condemned unheard unless and until opportunity is provided to him. The ratio laid down in Anusuya Suren Mirchandani vs ACIT 2013 (11) TMI 1660 - ITAT MUMBAI supports the case of the assessee. Identical ratio was laid down in Dr. Yogiraj Sharma vs ACIT 2014 (11) TMI 1191 - ITAT INDORE . Following the aforesaid decisions this ground of the assessee is allowed.

Summary

Issues:
1. Deductibility of municipal taxes and maintenance charges while determining income from house property.
2. Disallowance of interest paid for housing loan without following the procedure laid down in section 251(2) of the Income Tax Act, 1961.

Issue 1: Deductibility of Municipal Taxes and Maintenance Charges:
The assessee challenged the disallowance of municipal taxes and maintenance charges amounting to Rs. 30,807 while determining income from house property. The assessee argued that the charges should be deducted based on actual rental value, supported by relevant case law. The Assessing Officer disallowed the claim citing lack of leave and license agreement. However, the Tribunal found that the necessary details were furnished by the assessee and upheld the deduction of charges. The Tribunal emphasized that income from house property should be computed based on actual rental value, deducting municipal taxes and maintenance charges, which the assessee had paid. The decision was supported by various precedents affirming the deductibility of such charges, leading to the allowance of this ground of the assessee.

Issue 2: Disallowance of Interest on Housing Loan:
The second ground raised by the assessee related to the direction to disallow interest of Rs. 5,22,592 paid for a housing loan without following the procedure under section 251(2) of the Income Tax Act. The assessee argued that no notice under section 251(2) was issued, denying the opportunity to be heard. The Tribunal noted that the Commissioner of Income Tax (Appeals) directed the disallowance without providing a reasonable opportunity to the assessee to show cause against it, as required by the Act. The Tribunal found that the absence of a show-cause notice and the failure to follow due process constituted a jurisdictional error. Relying on relevant case law, the Tribunal allowed this ground of the assessee, emphasizing the importance of providing an opportunity to be heard before making adverse decisions. Consequently, the appeal of the assessee was allowed in this regard.

In conclusion, the Appellate Tribunal ITAT Mumbai ruled in favor of the assessee on both issues, allowing the deduction of municipal taxes and maintenance charges while determining income from house property and setting aside the disallowance of interest on a housing loan due to procedural irregularities.