2017 (1) TMI 52 - AT - Income Tax

Annual letting value - Property deemed to be let out - benefit of vacancy allowance - Held that - In the case on hand the assessee has claimed that prior to the lease agreement produced before the Assessing Officer it was not possible for the assessee to let out the property and therefore it claimed the benefit of vacancy allowance. In the absence of any contrary finding that the assessee has deliberately not let out during the year under consideration, it cannot be presumed. Therefore pre-letting out period cannot be deemed to be let out the property. In any case, if the provisions of section 23(1)(c) of the Act are to be understood that the vacancy allowance is available only in the case where the property is already let out and there is a vacancy in between then the deeming provision of section 23(4) r.w.s. 23(1) shall also be understood that in case of vacancy of the property in between from the initial letting out, it will be deemed as let out. Therefore, these provisions cannot be applied when there is a time lag between the acquisition of the property and letting out of the property and there is no allegation of deliberate unreasonable delay in letting out of the property. Thus the addition made by the Assessing Officer is not justified and the same is deleted. Addition on account of deemed advance - Assessing Officer has made an addition of income as notional interest @ 12% p.a. on deemed advance received from the tenant - Held that - There is no dispute that as per the lease agreement the advance was received by the assessee only in the next assessment year at the time of execution of the lease agreement. Therefore there is no justification in making the addition by deeming the advance from the tenant. The Assessing Officer has not disputed the fact that the advance was received only at the time of lease agreement therefore, the addition of notional interest is highly arbitrary action on the part of the Assessing Officer as there is no actual benefit received by the assessee. Hence, the said addition made by the Assessing Officer is absolutely illegal and without any basis and accordingly deleted. Addition by applying the guiding value as per section 50C as cost of purchase of the property - Held that - The provisions of section 50C are applicable only for the purpose of capital gains. The said provisions postulate a deemed full value of consideration received or accruing as a result of transfer of capital asset. Therefore for the purpose of computation of Capital Gains irrespective of the actual consideration received or accruing on transfer of the capital asset being land or building or both the full value consideration will be adopted as the valuation for the purpose of stamp duty valued by the stamp valuation authority. In the case on hand the assessee has purchased the property in question and therefore the provisions which are meant for computation of capital gains and deemed consideration cannot be applied as it is only for the receipt or accruing amount in the hand of the seller as a result of capital asset. Therefore the said provision cannot be applied in assessing the income under Section 69 of the Act. It is pertinent to note that an amendment in this regard has been brought to the provision of section 56(2)(vi) w.e.f. 1.4.2010 therefore, the said provision is also not applicable for the year under consideration. Thus the addition is not justified and the same is deleted. Assessee appeal allowed.

Issues Involved:
1. Determination of Annual Letting Value (ALV) of properties at Langford Road and Airport Road.
2. Addition of deemed advances received from tenants.
3. Addition of notional interest on deemed advances.
4. Application of Section 50C of the Income Tax Act regarding the value of the Jayanagar property.
5. Addition based on the difference between the guidance value and the actual amount paid for the property.

Issue-wise Detailed Analysis:

1. Determination of Annual Letting Value (ALV) of Properties at Langford Road and Airport Road:
The assessee contested the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] that the properties at Langford Road and Airport Road were let out, arguing that there was no evidence to support this claim. The assessee asserted that the properties were under renovation and thus could not have been let out during the financial year 2006-07. The Tribunal considered the rival submissions and relevant material on record, including the lease agreement which indicated that the properties were let out in the subsequent year. The Tribunal concluded that the vacancy allowance under Section 23(1)(c) of the Income Tax Act, 1961, should be available to the assessee, as the properties were not deliberately kept vacant. The Tribunal referenced the case of Smt. Shakuntala Devi Vs. DCIT, which supported the assessee's claim that properties intended to be let out but remaining vacant should have their ALV determined as nil.

2. Addition of Deemed Advances Received from Tenants:
The Assessing Officer (AO) had estimated deemed advances for three properties based on a lease agreement from the subsequent year and applied an interest rate of 12% per annum on these advances, bringing ?39,300 to tax as 'income from other sources.' The Tribunal found this addition unjustified, as the advances were received only in the next assessment year at the time of executing the lease agreement. The Tribunal deemed the addition of notional interest as arbitrary and without basis, thus deleting it.

3. Addition of Notional Interest on Deemed Advances:
The Tribunal reiterated that the AO's action of adding notional interest on deemed advances was arbitrary and lacked justification. Since the advances were received only in the subsequent assessment year, there was no actual benefit to the assessee during the year under consideration. Consequently, the Tribunal deleted the addition of notional interest.

4. Application of Section 50C of the Income Tax Act Regarding the Value of the Jayanagar Property:
The AO made an addition based on the difference between the purchase consideration and the stamp duty valuation of the Jayanagar property, applying Section 50C of the Act. The Tribunal noted that Section 50C applies only to the computation of capital gains and not to the assessment of income under Section 69. The Tribunal referenced the case of CIT Vs. Chandni Buchar, where it was held that Section 50C's deeming provisions could not be applied to the purchaser. The Tribunal concluded that the addition made by the AO was not justified and deleted it.

5. Addition Based on the Difference Between the Guidance Value and the Actual Amount Paid for the Property:
The AO added ?7,52,698 based on the difference between the guidance value mentioned in the sale deed and the actual amount paid for the property. The Tribunal held that in the absence of any legally acceptable evidence indicating that the assessee paid more than the disclosed amount, the addition could not be justified. The Tribunal referenced the decision in CIT Vs. Chandni Buchar, emphasizing that valuation for stamp duty purposes cannot substitute the actual consideration passed to the seller without positive evidence. Thus, the Tribunal deleted the addition.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting all the contested additions made by the AO and confirmed by the CIT(A). The Tribunal's decision was pronounced in the open court on 31st August 2016.

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