2020 (7) TMI 498 - AT - Income Tax

Notional rental income on commercial property u/s 23(1)(a) - notional rental income on unsold stock u/s 23(1)(a) - HELD THAT - In the case in hand a show-cause notice for cancellation of lease was issued on 25.8.2013 and ultimately lease of plot was cancelled vide order dated 31.12.2015, therefore, we find force in the submission of assessee that after issuance of show-cause notice for cancellation of lease on which building was developed, the assessee was not entitled to let out occupied/constructed portion. We find force in the submission of the AR that after issuance of show-cause notice the assessee was not entitled to let out the property. Hence, taxing notional income of unoccupied portion of building on the basis of deemed annual letting value is not justified by the AO - we direct the AO to delete the disallowance. Considering the fact that we have accepted the contention of assessee was legally not entitled to let out the property. As noted that the issue is already been adjudicated by Tribunal in earlier year, wherein it is held that once, there is show cause notice issued to the assessee for cancellation of lease and finally the lease was cancelled vide order dated 31.12.2015 and the same was served to assessee on 01.01.2016. This being impossibility of renting out the property, the AO is not justified to charge notional rent from this property and assess the same as income from house property as deemed income. - Decided in favour of assessee.

Summary

Issues Involved:
Appeal against addition of notional rental income on commercial property under section 23(1)(a) of the Income-tax Act, 1961.

Detailed Analysis:

1. Issue of Addition of Notional Rental Income:
The appeal was against the addition made by the Assessing Officer in relation to notional rental income on a commercial property under section 23(1)(a) of the Income-tax Act. The appellant contested the addition based on the decision of the Hon'ble Delhi High Court in a specific case. The appellant argued that the calculation of notional rental income on commercial property was beyond the scope of section 24 of the Act. The commercial building in question, named 'Proxima,' was developed under a development agreement, with a certain area leased out while a portion remained unoccupied. The Assessing Officer computed the annual letting value (ALV) under section 23(1)(a) and added the notional rental income to the appellant's total income. The CIT(A) upheld the Assessing Officer's decision, relying on the Delhi High Court's judgment.

2. Tribunal's Decision and Analysis:
The Tribunal referred to its earlier decision in the appellant's case for the Assessment Year 2014-15, where a similar issue was addressed. The Tribunal considered various aspects, including the development agreement, the area retained by the appellant, and the leasing of a portion of the property to a specific entity. The Tribunal noted that a show-cause notice for lease cancellation was issued, leading to the cancellation of the lease, making it impossible for the appellant to rent out the property. Citing the earlier decision and the impossibility of renting out the property due to lease cancellation, the Tribunal concluded that the Assessing Officer was not justified in charging notional rent and assessing it as income from house property. Therefore, the Tribunal decided to delete the addition of notional rental income, as confirmed by the CIT(A), and allowed the appeal of the appellant.

3. Conclusion:
In conclusion, the Tribunal's decision favored the appellant by deleting the addition of notional rental income on the commercial property, considering the specific circumstances, including the cancellation of the lease, which rendered renting out the property impossible. The judgment highlighted the importance of legal precedents and specific factual circumstances in determining tax implications related to notional rental income on properties.