2020 (1) TMI 721 - AT - Income Tax

Enhancement of annual letting value (ALV) of the house property - assessee is a co owner of a residential flat, a part of which is given out on rent - HELD THAT - In assessee's case it is a residential house and a part of which is rented out. On a perusal of the material on record, we find that neither the AO nor Commissioner (Appeals) has made any enquiry with the Municipal Authorities or any other Government agencies to find out the market rent of assessee's property. Without making any such enquiry, the valuation of Municipal Authorities furnished by the assessee could not have been rejected, that too, without considering assessee's claim that the comparable cases referred to by the Assessing Officer are not at all comparable since they are commercial properties. Determination of ALV @ ₹ 1,00,000, per month by learned Commissioner (Appeals) is without any basis and is on a pure estimation. Therefore, when the assessee had furnished a valuation from the Municipal Authorities determining the ALV at ₹ 79,380, the same could not have been rejected without valid and cogent reasoning. In view of the aforesaid, we are inclined to accept assessee's claim that ALV of the property has to be determined at ₹ 79,380, as per the valuation of Municipal Authorities and thereafter assessee's share shall be determined for addition under the head income from house property. Accordingly, we set aside the impugned order of the learned Commissioner (Appeals) and direct the AO to determine the income from house property keeping in view our observations herein above.

Summary

Issues:
- Addition made on account of enhancement of annual letting value (ALV) of the house property.

Analysis:
The appeal was filed against an order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2011-12. The issue raised by the assessee was regarding the addition made on account of the enhancement of the annual letting value (ALV) of the house property. The assessee, a resident individual, had initially declared a total income of ?75,73,399, offering an amount of ?18,455 under "Income From House Property" and showing rent received of ?30,000. The Assessing Officer, upon scrutiny, determined the ALV of the property at ?1,35,540 per month, resulting in an addition to the assessee's income. The assessee contended that the ALV determined by the Municipal Authorities should be adopted, but both the Assessing Officer and the Commissioner (Appeals) did not accept this valuation.

The Commissioner (Appeals) acknowledged that the ALV determined by the Assessing Officer was on the higher side and estimated the fair rent at ?1,00,000 per month. It was directed that only 1/3rd share of the assessee should be considered for addition based on the fair rent value. The Authorized Representative argued that the property was primarily used for residence and only a small part was rented out to a partnership firm. The comparable cases cited by the Assessing Officer were commercial properties, not residential like the assessee's property. The Departmental Representative supported the Commissioner (Appeals) for reducing the ALV determined by the Assessing Officer.

Upon review, the Tribunal found that the ALV should be determined at ?79,380 as per the valuation by the Municipal Authorities, and the assessee's share should be considered for addition under the head of income from house property. It was noted that neither the Assessing Officer nor the Commissioner (Appeals) had made any inquiry with the Municipal Authorities to ascertain the market rent of the property. The Tribunal concluded that the ALV should not have been rejected without valid reasoning and set aside the Commissioner (Appeals) order, directing the Assessing Officer to determine the income from house property in line with the Tribunal's observations.

In conclusion, the appeal was partly allowed in favor of the assessee, emphasizing the importance of considering the valuation by the Municipal Authorities and determining the ALV based on valid reasoning rather than estimation.