2022 (2) TMI 1054 - AT - Income Tax

Income from house property - Annual value determination - addition of Deemed Rent of house properties lying vacant for whole of the year - deemed annual value @ 5% of value of investment in house property was calculated by ld. CIT(A) - Rejection of assessee contention that properties were not let in past years and letting in future years does not entitle the assessee to relief granted in section 23(1)(c) - HELD THAT - We find that the AO has computed 10% of the value of investments in house property whereas the ld. CIT(A) reduced the amount to 5% of the value of investments. Both decisions are on ad-hoc basis. The rent realized by the assessee in the subsequent years is on record with all the evidences. Hence, we deem it proper to refer the matter back to the file of the AO to compute the income from house property as per the municipal value in accordance with the provisions of Section 23(1) of the Income Tax Act, 1961. Appeal of the assessee is allowed for statistical purpose.

Issues Involved:

1. Addition of ?10,46,249 on account of deemed rent of vacant house properties.
2. Computation of deemed rent not in conformity with municipal valuation.
3. Deemed annual value exceeding municipal valuation.
4. Ad-hoc calculation of deemed annual value at 5% of investment value.

Issue-Wise Detailed Analysis:

1. Addition of ?10,46,249 on account of deemed rent of vacant house properties:

The assessee contested the addition of ?10,46,249 as deemed rent for properties that remained vacant throughout the year. The assessee argued that the annual value should be "Nil" under section 23(1)(c) of the Income Tax Act, 1961, as the properties were intended to be let out but could not find suitable tenants. The Assessing Officer (AO) disagreed and added a notional annual value calculated at 10% of the properties' cost. The CIT(A) reduced this to 5%, but the assessee maintained that the properties were not in self-occupation and should be considered as vacant with an annual value of "Nil."

2. Computation of deemed rent not in conformity with municipal valuation:

The assessee argued that the deemed rent calculation of ?10,46,249 at 5% of the investment value was not aligned with the municipal valuation. The assessee provided evidence, including property tax challans and returns, showing the municipal value of the properties as ?16,000 and ?52,698, totaling ?68,698. The assessee contended that the annual value should not exceed this municipal valuation.

3. Deemed annual value exceeding municipal valuation:

The assessee further argued that even if the annual value were to be computed under section 23(1)(a), it should not exceed the municipal value or standard rent. The actual rent realized in FY 2016-17 for the properties was ?2,54,400, which was presented as evidence. The assessee highlighted that the rent fetched by adjoining properties was significantly lower than the deemed annual value calculated by the CIT(A).

4. Ad-hoc calculation of deemed annual value at 5% of investment value:

The assessee contended that the CIT(A)'s calculation of deemed annual value at 5% of the investment value was arbitrary and lacked justification. The assessee provided a comparative analysis of rental income from similar properties, showing that the actual rent was much lower than the deemed rent calculated by the CIT(A). The Tribunal found that both the AO and CIT(A) had made ad-hoc decisions without substantial evidence, and it was deemed appropriate to refer the matter back to the AO to compute the income from house property as per the municipal value in accordance with section 23(1) of the Income Tax Act, 1961.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, directing the AO to recompute the income from house property based on the municipal value, ensuring compliance with the provisions of section 23(1) of the Income Tax Act, 1961. The Tribunal emphasized the need for a computation based on actual municipal valuation rather than arbitrary percentages of investment value. The order was pronounced in the open court on 15/02/2022.

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