2020 (8) TMI 308 - AT - Income Tax

Determination of Income from house property - Suppression of rental income - Whether assessee is statutorily entitled to deduction of standard deduction @30% u/s 24 from the aforesaid alleged suppressed rental income? - HELD THAT - AO was required to follow the procedure laid down in section 23 of the Act. He has to call for the evidence and prove that this property could fetch this much rent instead of unnecessarily pointing out peripheral defects in the agreement of the assessee. He could have determined annual letting value of the property. Both the Revenue authorities have miserably failed to follow procedure contemplated in section 23. The assessee has given a concession in rent to its tenant on the basis of some hard facts. It has been brought to my notice that this project never materialized, and M/s.Bharti Wallmart Pvt.Ltd. could not open the business centre. Inspite of that, they have paid rent for five years on the basis of this agreement. We could appreciate the case of the AO, if he has made reference to the rent deed of adjoining properties and pointed out that this leased property could be fetch this much rent, and therefore, the annual letting value of the assessee s house property is to be determined equivalent to the amount on which original rent fixed between the assessee and BWP. After going through all the details no addition is required to be made by the AO. Rental income shown by the assessee deserves to be accepted in the absence of any other material collected by the AO. The addition by the AO is hereby deleted, and the ground of appeal of the assessee is allowed.

Summary

Issues:
1. Addition of rental income by the Assessing Officer
2. Entitlement to deduction of standard deduction under section 24 of the Income-tax Act

Analysis:

Issue 1: Addition of Rental Income
The case involved the appeal of an assessee against the order of the ld.CIT(A)-2, Ahmedabad regarding the addition of rental income by the Assessing Officer. The Assessing Officer proposed an addition of ?12,19,612 to the total income of the assessee, as there was a difference between the rent receivable and the rental income offered by the assessee. The AO doubted the authenticity and enforceability of the Addendum Lease Agreement provided by the assessee, leading to the addition. The assessee contended that the Addendum Lease Agreement was necessitated due to hindrances caused by construction activities, resulting in a 40% reduction in rent. The Tribunal held that the Revenue authorities failed to follow the procedure under section 23 of the Income Tax Act to determine the annual letting value of the property. It was noted that the AO did not provide evidence to support a higher rental value for the property. The Tribunal concluded that the rental income shown by the assessee deserved acceptance, and the addition made by the AO was deleted, thereby allowing the appeal of the assessee.

Issue 2: Entitlement to Deduction of Standard Deduction
The second ground raised by the assessee was regarding the entitlement to a deduction of standard deduction under section 24 of the Income-tax Act. The assessee claimed that even if the addition to rental income was to be made, they were entitled to a deduction of standard deduction at the rate of 30%. However, the ld.CIT(A) did not consider or record a finding on this alternative claim of the assessee. The Tribunal's decision primarily focused on the first issue of the addition of rental income, and there was no specific mention or discussion regarding the entitlement to the deduction of standard deduction under section 24 of the Income-tax Act in the judgment.

In conclusion, the Tribunal allowed the appeal of the assessee concerning the addition of rental income, highlighting the failure of the Revenue authorities to follow the prescribed procedure under section 23 of the Income Tax Act. The judgment did not delve into the second issue of the entitlement to deduction of standard deduction under section 24 of the Income-tax Act, as the decision primarily revolved around the first issue of the addition of rental income.