2017 (6) TMI 172 - AT - Income Tax

Addition on account of Notional income from House property from a house kept vacant for self occupation - Entitlement for the benefit of the section 23(2) - Held that - In the instant case, the property was not occupied by the owner and therefore, provision of section 23(2)(a) of the Act are not applicable. The provision of section 23(2)(b) of the Act are also not applicable, as the owner of the property was not staying at other place due to his employment, business or profession carried out at other place. In the circumstances, the assessee was not allowed to avail benefit of section 23(2) of the Act, irrespective of the fact whether the property was residential or commercial Weather the assessee was running retail shop ? - Held that - The assessee has not filed property tax return form for the year under consideration. The only evidence relied by the Revenue, is the affidavit of the assessee filed before the Municipal Corporation of Delhi. No other evidences as to the structure of the building of commercial nature, in relevant period has been brought on record. No evidences have been filed by the assessee for expenditure in respect of change of a structure from residential to commercial in the year under consideration. The affidavit was filed on 29/06/2007, which is corresponding to the assessment year 2008-09. In the affidavit, the assessee has claimed that she was running retail shop in the premises. No period has been specified since when the assessee was running shop. In our opinion, from this affidavit it cannot be presumed that the assessee was running retail shop in the year corresponding to the assessment year 2007-08 i.e. the assessment year in consideration. In absence of any other evidences to support that the property was commercial in the year under consideration, the contention of the Assessing Officer and Ld. CIT-A, cannot be accepted. Estimation of monthly rent - Held that - CIT-(A) has not held in clear terms, whether the property was residential or commercial and he has not given any basis for estimating monthly rent of ₹ 1,80,000/-. The rent has been estimated in the ad-hoc manner, which cannot be permitted in law. In the circumstances, we feel it appropriate to restore issue to the file of the Assessing Officer to make enquiries as deemed fit and decide afresh whether during the year, property in question was residential or commercial and determine the annual lettable value, for which the property could be let out in the year under consideration, on the basis of documentary evidences, like rent deed of surrounding area etc. It is needless to mention that assessee shall be afforded sufficient opportunity of hearing on the issue in dispute. Accordingly, the grounds No. 1.2 to 1.4 of the appeal are allowed for statistical purposes.

Issues Involved:

1. Deletion of addition on account of notional income from house property.
2. Classification of property as commercial based on subsequent year's conversion charges.
3. Presumption of monthly rent by the Assessing Officer without evidence.
4. Estimation of Annual Lettable Value (ALV) by CIT(A) without evidence.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Notional Income from House Property

The assessee contended that the house property was kept vacant for self-occupation and thus, the notional income should be deleted under section 23(2) of the Act. The Tribunal examined the provisions of section 23(2), which allows the annual value of a house to be taken as nil if it is occupied by the owner for residence or if the owner cannot occupy it due to employment, business, or profession elsewhere. Since the property was neither occupied by the owner nor was the owner staying elsewhere due to employment, the Tribunal concluded that the benefit of section 23(2) was not applicable. Accordingly, the ground was dismissed.

Issue 2: Classification of Property as Commercial Based on Subsequent Year's Conversion Charges

The assessee challenged the CIT(A)'s finding that the property was commercial in the assessment year 2007-08 based on conversion charges paid in March 2008. The Tribunal noted that the affidavit for conversion was filed on 29/06/2007, corresponding to the subsequent assessment year. The Tribunal held that the affidavit did not specify the period since when the property was used commercially. The Tribunal found no evidence to support that the property was commercial in the assessment year 2007-08. Hence, the contention of the Assessing Officer and CIT(A) that the property was commercial was not accepted, and the issue was restored to the Assessing Officer for fresh determination.

Issue 3: Presumption of Monthly Rent by the Assessing Officer Without Evidence

The assessee disputed the monthly rent of ?200 per square foot presumed by the Assessing Officer, arguing that the actual size of the plot was 160 square meters, not 600 square meters. The Tribunal found that the Assessing Officer had taken the constructed area of the property as 600 square meters based on the affidavit. The Assessing Officer's estimation was based on local property dealer statements, but no concrete evidence was provided. The Tribunal decided that the issue required further inquiry and should be determined based on documentary evidence.

Issue 4: Estimation of Annual Lettable Value (ALV) by CIT(A) Without Evidence

The assessee challenged the CIT(A)'s estimation of ALV at ?21,60,000/- as arbitrary and without basis, especially when the municipal ALV was only ?3,56,864/-. The Tribunal noted that the CIT(A) did not provide a clear basis for the estimated monthly rent of ?1,80,000/-. The Tribunal found the estimation to be ad-hoc and not permissible in law. Therefore, the issue was restored to the Assessing Officer to determine the ALV based on documentary evidence, such as rent deeds of surrounding areas.

Conclusion:

The Tribunal dismissed the ground regarding the deletion of notional income but allowed the grounds related to the classification of the property and the estimation of ALV for statistical purposes. The issues were restored to the Assessing Officer for fresh determination with sufficient opportunity for the assessee to present evidence. The appeal was partly allowed for statistical purposes.

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