2019 (2) TMI 274 - AT - Income Tax

Addition as deemed rental income from a vacant property - Held that - CIT(A) has not at all considered the provisions of section 23(1)(c) when the property remained vacant throughout the year. Restore this issue to the file of the CIT(A) with a direction to pass a speaking order in the light of the provisions of section 23(1)(c). Needless to say, CIT(A) shall decide the issue as per fact and law, after giving due opportunity of being heard to the assessee. Hold and direct accordingly. The grounds raised by the assessee are allowed for statistical purposes. Allowance of entire expenses on adhoc basis - Held that - Considering the machinery repair and office repair expenses as not being personal in nature, the CIT(A) restricted the disallowance to ₹ 3 lakh. It is the submission of the ld. counsel for the assessee that in the subsequent year, the Assessing Officer has restricted the disallowance to 20% of such expenses. Considering the totality of the case, disallowance of ₹ 3 lakhs appears to be on higher side. Therefore, restrict the disallowance to ₹ 2.5 lakh. The ground raised by the assessee is partly allowed.

Summary

Issues involved:
1. Addition of deemed rental income from a vacant property
2. Disallowance of expenses and restriction of disallowance amount

Issue 1: Addition of deemed rental income from a vacant property

The case involved the assessee, an individual deriving income from garments business, who owned two house properties. The Assessing Officer made an addition of ?1,99,609 as deemed rental income from a vacant property based on the NAV of the property for the current year. The CIT(A) upheld this addition, stating that the Assessing Officer was justified in adding the net annual value based on the last year's rental value. The assessee challenged this before the Tribunal, arguing that the property was not let out due to non-availability of a suitable tenant, and thus, the provisions of section 23(1)(c) should apply. The Tribunal found that the CIT(A) did not consider section 23(1)(c) and directed the issue to be reconsidered in light of this provision and relevant decisions cited. The Tribunal allowed the appeal for statistical purposes.

Issue 2: Disallowance of expenses and restriction of disallowance amount

The Assessing Officer disallowed certain expenses debited in the Profit & Loss Account, suspecting them to be personal in nature, and made an addition of ?4 lakhs to the total income of the assessee. The CIT(A) partially allowed the appeal by restricting the disallowance to ?3,00,000 after considering certain expenses as not personal in nature. The assessee appealed this decision before the Tribunal, arguing that the disallowance was on the higher side. The Tribunal agreed and restricted the disallowance to ?2.5 lakhs. Consequently, the appeal filed by the assessee was partly allowed for statistical purposes.

In conclusion, the Tribunal addressed the issues of addition of deemed rental income from a vacant property and the disallowance of expenses in a detailed manner, ensuring that the provisions of the Income Tax Act were correctly applied and relevant decisions were considered. The Tribunal's decision provided clarity on the application of the law in these specific circumstances, resulting in a partial allowance of the appeal for statistical purposes.