2017 (8) TMI 742 - AT - Income Tax

Assessment of notional rental income - self occupied property - assessee purchased two flats / properties - assessee has claimed that two flats are single residential unit used by the assessee therefore, no notional rent was required to be assessed with regard to the second flat / property - Held that - AO in assessment order admitted this fact that the entrance of the both the units was single one and the kitchen of both the units was also be single one. However, the assessee did the modification in accordance with her convenience. The assessee also produced some other evidences to prove this fact that both the units were being used as a single unit therefore, no notional rental value of the other unit was liable to be assessed. The assessee has sold both the units by virtue of agreement dated 24.06.2010 in which the Flat No. 1401/02 have been shown as single unit. The photograph of the entrance of the flat has already been placed on record which lies at Page No. 156 to 157 of the paper book. The photograph of the kitchen has also placed on record in which the single unit was being seen and the photographs are also lies at Page No. 159 of the paper book. The assessee also adduced the telephone bill in respect of Flat No. 1401 and 1402 which lies at Page No. 160 to 162. These telephone bills speaks that the telephone bills were being issued with the name of the assessee at the Flat No.1401/02. The builder also issued the receipt and payment of the legal cost, society share money and part payment of Flat No. 1401/02 with the name of the assessee which lies at Page No. 164 of the paper book. In view of the said document and observation recorded by the AO. It is quite clear that the assessee was using the Flat No. 1401/02 as a single unit. In the said circumstances, the notional income of the second flat 1402 is not liable to be assessed separately. The annual rental value of the Flat No. 1402 be treated as nil being no notional rental income is required to be assessed in respect of a single unit. - Decided in favour of assessee. Addition of expenses - disallowance in the process of calculating rental income on deemed let out property and disallowance was computed on the basis of annual rent of both the properties - Held that - While deciding the issue no. 1, we have arrived at this conclusion that the Flat No. 1401/02 were being used as a single unit therefore, disallowance on the basis of notional income doesn t seems justifiable. Moreover, the assessee did not claim any expenses against the said property. Therefore, in the said circumstances, we are of the view that the finding of the CIT(A) on this issue is not justifiable therefore, we set aside the finding of the CIT(A) on this issue and allowed the expenses. Accordingly, this issue decided in favour of the assessee

Summary

Issues Involved:
1. Disallowance of expenses for residential units under "Income from House Property."
2. Assessment of notional rental income for two residential units.
3. Disallowance of expenses amounting to ?3,89,280.

Issue No.1:
The assessee contended that two residential units should be treated as a single unit, thus no notional rent should be assessed for one of the properties. The Assessing Officer acknowledged that the units were being used as a single unit. Evidence such as photographs, telephone bills, and builder receipts supported this claim. The ITAT Mumbai also ruled similarly in previous cases. Consequently, the notional income for the second flat was deemed nil, and the CIT(A)'s decision was deemed incorrect. The finding was set aside in favor of the assessee.

Issue No.2:
The assessee did not press this ground during the argument, resulting in the issue being decided against the assessee.

Issue No.3:
The assessee challenged the disallowance of expenses amounting to ?3,89,280, arguing that no expenses were claimed in the income computation. The expenses were related to a residential flat reflected in the balance sheet. The ITAT Delhi case of Modern Info Technology P. Ltd. vs. ITO was cited in support. As it was established that the two flats were used as a single unit, disallowance based on notional income was deemed unjustifiable. Since no expenses were claimed, the CIT(A)'s decision was considered unjust, and the expenses were allowed. Therefore, this issue was decided in favor of the assessee against the revenue.

In conclusion, the appeal filed by the assessee was allowed, and the decision was pronounced on 14.07.2017.