2017 (9) TMI 1146 - AT - Income Tax

Addition u/s 23(1)(a) - deemed rent - vacant property / vacancy allowance - 3 properties not offered for tax under the head House properties - AR submitted that out of two flats treated as deemed let out, the flat no.2B was let out in 2003 but vacant since then and therefore the provisions of 23(1)(c) - Held that - We find merit in the contention of the ld.AR that once the property is let out and at any point of time this remained vacant during the same cannot be brought to tax resorting to provisions of section 23(1)(c) of the Act. The issue in the case of assessee is supported by the various decisions referred to and relied upon by the ld.AR in the case of Informed Technologies India Ltd (2017 (2) TMI 744 - ITAT MUMBAI). Tribunal direct the AO to delete the addition in respect of Otters flat No.2B by sustaining the addition in respect of second flat viz Peace Heaven. Accordingly, the ground taken by the assessee is partly allowed. Disallowance being 10% out of vehicle-telephone expenses - Held that - We find that the ld.CIT(A) has passed a very reasoned order by upholding the disallowance at 10% of the total expenses on the basis of the decision in assessee s own case in the assessment year 2006-07(supra). Since, the assessee has not furnished any details of expenses during the course of assessment proceedings before the AO or the CIT(A) and therefore the AO is not in a position to verify the expenses. Accordingly, we are inclined to uphold the order of the ld. CIT(A) on this issue. Accordingly, dismissed.

Summary

Issues involved:
1. Addition of rental income from properties under section 23(1)(a) of the Income Tax Act.
2. Disallowance of vehicle and telephone expenses at 10%.

Issue 1: Addition of rental income from properties under section 23(1)(a) of the Income Tax Act:

The appellant challenged the addition of rental income by the Assessing Officer (AO) under section 23(1)(a) of the Act amounting to ?2,14,665. The AO treated two properties as deemed let out and calculated the income based on an 8% rental rate. The appellant contended that one of the properties had been vacant since 2003 and should not be subject to section 23(1)(c). The appellant relied on precedents to support their argument. The Tribunal agreed with the appellant, stating that once a property is let out and subsequently remains vacant, it cannot be taxed under section 23(1)(c). Citing relevant case law, the Tribunal concluded that the appellant correctly determined the Annual Letting Value (ALV) at Nil for one property and directed the AO to delete the addition for that property while upholding the addition for the other property.

Issue 2: Disallowance of vehicle and telephone expenses at 10%:

The AO disallowed ?41,179 (10% of total expenses) towards personal use in vehicle and telephone expenses as the appellant failed to provide details during assessment. The CIT(A) upheld the disallowance citing the Tribunal's decision in a previous year's case. The Tribunal found the CIT(A)'s decision reasonable, considering the lack of expense details provided by the appellant. Thus, the Tribunal upheld the disallowance at 10% based on the Tribunal's earlier ruling in the appellant's case for the assessment year 2006-07.

In conclusion, the Tribunal partly allowed the appellant's appeals by directing the deletion of the addition in one property under section 23(1)(a) and upholding the disallowance of 10% of vehicle and telephone expenses. The Tribunal's decision was based on the specific circumstances of each issue and relevant legal interpretations and precedents.