2019 (12) TMI 515 - AT - Income Tax

Addition of income - notional and estimated rent - deduction u/s 24(1) - HELD THAT - As per books of account, this property was shown as a part of the fixed assets which means that the property was shown in the books of account as business assets of the assessee. Since the property was under construction, therefore, the same cannot be considered house property for the purpose of section 22 of the Act until and unless the construction of the house is completed in all respects - The AO has not considered the state of the building in question whether it is a bare structure without having all the basic amenities/ facilities and compared the same with another property which was let out on rent. Therefore, once the property in question is shown by the assessee as part of its fixed assets and it was used only for the stay of the security guard and driver of the assessee without charging any rent then said property cannot be assessed to income tax u/s 22 of the Act - the addition made by the AO on account of income from house is not justified and the same is deleted - in favor of assessee. Disallowance of expenses - repair and maintenance expenses - HELD THAT - As regards the repairs and maintenance expenses incurred in respect of property bearing No. 125, Mahaveer Nagar-1, Kota, the AO determined the annual rental value and allowed deduction u/s 24 of the Act, however the said addition made by the AO to the income from house property is deleted and consequently the repairs and maintenance expenses to the extent of said property shall be capitalized as assessee has claimed that construction was not completed during the year under consideration - There are no reason to interfere with the order of the authorities below in disallowing the said of expenditure on account repairs and maintenance - decided against assessee. Appeal of the assessee allowed in part.

Summary

Issues:
1. Addition made on the determination of fair rental value of a property.
2. Disallowance of repairs and maintenance expenses.

Analysis:

Issue 1: Addition made on the determination of fair rental value of a property
The assessee's appeal challenged the addition made by the Assessing Officer (AO) regarding the determination of fair rental value under section 23(1)(a) of the Act for House No. 125, Mahaveer Nagar-1, Kota. The AO observed that the property was shown in the fixed assets of the assessee as a part of the business assets, with construction ongoing. The AO conducted an on-spot inquiry and found that the property was being used by two individuals, but the assessee explained that it was for security purposes and not rented out. The AO determined the fair rental value based on a similar property let out by the assessee. However, the Tribunal held that since the property was under construction and used for security by the assessee's staff without rent, it cannot be considered as house property for taxation under section 22 of the Act. The Tribunal emphasized that the property was claimed as a business asset and used for business purposes, thus deleting the addition made by the AO.

Issue 2: Disallowance of repairs and maintenance expenses
The second ground of appeal by the assessee was related to the disallowance of repairs and maintenance expenses amounting to &8377;32,717. The AO disallowed this expense for two properties, including the one mentioned above. The Tribunal upheld the disallowance for the property assessed under income from house property, as a 30% deduction was already allowed under section 24 of the Act. However, concerning the property under construction, the Tribunal found that the addition made by the AO was deleted, and repairs and maintenance expenses were to be capitalized. As a result, the Tribunal dismissed the appeal on this ground, upholding the disallowance of repairs and maintenance expenses for the property in question.

In conclusion, the Tribunal partly allowed the appeal of the assessee, deleting the addition made on the fair rental value determination while upholding the disallowance of repairs and maintenance expenses for the relevant properties.