2021 (12) TMI 1253 - AT - Income Tax

Income from house property - recognized basis for determination of the ALV - AO did not accept the declaration of ALV of Greater Kailash-II property as according to him the Municipal Corporation value did not represent the true market value of the property as per the section 23(1)(a) - HELD THAT - The submission of the assessee that she was declaring income from business/profession during the Assessment Year 2014-15 and 2016-17, could not be controverted by the Ld. DR. - also that because of loss during the year, the same was ignored. Further, it is held in various decisions that municipal lettable value is recognized basis for determination of the ALV. Identical issue had come up before the Mumbai Bench of the Tribunal in the case of Pankaj Wadhwa 2019 (1) TMI 937 - ITAT MUMBAI wherein, the Tribunal held that where the assessee declared annual lettable value from house property having regard to municipal rateable value, in view of the fact that municipal rateable value is recognised for determination of ALV, there was no justification for action of Assessing Officer in disregarding the municipal rateable value for determination of ALV and substitution thereof by some expected rent to be received by the assessee. Since, the assessee in the instant case has declared the deemed income from the ground and first floor on the bases of municipal rateable value and the basement was used for her profession/business activity, therefore, respectfully following the decision of the Mumbai Bench of the Tribunal in the case of Pankaj Wadhwa vs ITO cited (supra), hold that the ld. CIT(A) was not justified in confirming the action of the Assessing Officer - Decided in favour of assessee.

Issues Involved:

1. Determination of deemed annual lettable value (ALV) for the property at E-30, Greater Kailash-II, New Delhi.
2. Consideration of the basement's use for commercial purposes.
3. Validity of the re-revised return filed by the assessee.
4. Reliance on the municipal rateable value versus market rental value.

Issue-wise Detailed Analysis:

1. Determination of Deemed Annual Lettable Value (ALV):

The Assessing Officer (AO) determined the deemed ALV of the property at E-30, Greater Kailash-II, New Delhi, to be ?18,00,000/- per annum based on a market survey conducted by an inspector. The inspector estimated the prevailing rental value of commercial and residential floors to be ?40,000/- to ?60,000/- per month. The AO considered ?50,000/- per floor per month as the reasonable market rental value, leading to an annual rental value of ?18,00,000/-. After allowing a standard deduction under section 24 of the Income Tax Act, the AO determined the income from house property to be ?12,60,000/-.

2. Consideration of the Basement's Use for Commercial Purposes:

The assessee claimed that the basement of the property was used for her professional activities, supported by evidence such as income tax returns for previous years and house tax payments to the MCD for commercial use. However, the AO and the CIT(A) rejected this claim, stating that the assessee did not show any business income or loss from the basement. The CIT(A) upheld the AO's decision, noting that the use factor "4" in the municipal records indicating commercial use was insufficient to satisfy the conditions under section 22 of the Income Tax Act, which requires the property to be occupied for business or profession chargeable to income tax.

3. Validity of the Re-revised Return Filed by the Assessee:

The assessee filed a re-revised return declaring total income of ?18,64,162/-, which included the deemed income from the Greater Kailash-II property. The AO did not accept this re-revised return, citing the Supreme Court's decision in the case of Goetze India Ltd. vs CIT, which states that fresh claims cannot be admitted by the AO without revising the ITR. The re-revised return was barred by the limitation of time.

4. Reliance on Municipal Rateable Value versus Market Rental Value:

The AO and CIT(A) did not accept the municipal rateable value as the basis for determining the ALV, arguing that it did not represent the true market value of the property. Instead, they relied on the market survey conducted by the inspector. The CIT(A) referenced the Delhi High Court's decision in CIT vs Moni Kumar Subba, which held that the municipal rateable value could be a rational yardstick but is not binding on the AO if it does not represent the correct fair rent.

Tribunal's Decision:

The Tribunal found merit in the assessee's arguments and noted that the assessee had declared income from business/profession in previous years, which was ignored by the lower authorities. The Tribunal also cited decisions from other cases, including Pankaj Wadhwa vs ITO, which supported the use of municipal rateable value for determining ALV. The Tribunal held that the CIT(A) was not justified in confirming the AO's action and directed the AO to delete the addition. The appeal filed by the assessee was allowed.

Conclusion:

The Tribunal allowed the appeal, directing the deletion of the addition made by the AO and CIT(A) based on the market rental value, and accepted the municipal rateable value as the basis for determining the ALV. The Tribunal emphasized the importance of considering the assessee's declared business/professional income and the municipal rateable value in determining the ALV.

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