2023 (1) TMI 1155 - AT - Income Tax

Income from House Property - Addition on account of notional rent - AO observed that in view of the provisions of section 23 of the Act, the deemed rental income of the property in question which remained vacant during the year was required to be taxed under the head Income from House Property - AO, confronted the assessee who stated that the property could not be let out due to poor access and for want of regularisation - HELD THAT - As decided in SH. KAMAL KUMAR 2022 (6) TMI 574 - ITAT DELHI has considered the property located in similar locality and, after elaborate discussion, has found that there was reasonable cause for not putting the property on rent. Since on similar facts in similarly located property, ITAT has found the reasonable cause for not putting the property on rent, it was sufficient to permit the assessee to get away from the rigors of notional rent. We note that the submissions of the assessee s counsel is that there was a sealing drive in the locality, so, it was difficult to find tenant and this was the reason the property could not be let out. It is the plea that identical facts were appreciated by the ITAT in the aforesaid order. Decide the issue in favour of the assessee. Addition of jewellery found in premises of the assesse - CIT-A held that sources of the jewellery have remained to be explained and accordingly, the ld. AO has rightly taxed it in the Assessment Year 2014-15 - HELD THAT - We find that on a query as to whether there is any evidence of the source of investment and the mode of payment, the ld. Counsel fairly accepted that these cannot be substantiated. In this view of the matter, in our considered opinion, the assessee has been granted reasonable relief by the AO. The addition sustained is appropriate, hence, we do not find any infirmity in the order of the Revenue authorities in this regard. - Decided against assessee.

Summary

Issues Involved:
1. Confirmation of addition on account of notional rent.
2. Addition on account of unexplained investment in jewelry.

Issue-wise Detailed Analysis:

1. Confirmation of Addition on Account of Notional Rent:

The primary issue in both appeals was the confirmation of addition on account of notional rent. The Assessing Officer (AO) observed that under Section 23 of the Income Tax Act, the deemed rental income of a property that remained vacant during the year should be taxed under the head 'Income from House Property.' The property in question was at Khasra No. 356-357, Sultanpur, M.G. Road, New Delhi. The AO estimated the Annual Lettable Value (ALV) of the property based on the rent of an adjacent property owned by the assessee's son and concluded that the vacancy allowance was not available since the property was not let out during the period.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] rejected the assessee's contention that the property could not be rented out due to poor access and lack of regularization, dismissing the affidavit provided by the assessee as a self-serving statement. The CIT(A) confirmed the AO's order.

The assessee appealed to the ITAT, arguing that in a similar case (Shri Kamal Kumar vs. ACIT), the ITAT had accepted that there was a reasonable cause for not renting out the property. The ITAT found the facts in the present case to be identical to the precedent case, where it was held that legal disabilities or physical impossibilities in creating a tenancy meant that the property was not available for rent, thus notional rent could not be taxed. Consequently, the ITAT set aside the orders of the authorities below and decided the issue in favor of the assessee.

2. Addition on Account of Unexplained Investment in Jewelry:

For the Assessment Year 2014-15, an additional issue was the confirmation of an addition of Rs. 50,70,190/- on account of jewelry found during a search and seizure operation. The AO noted that the assessee could not substantiate the source of investment or the mode of payment for the jewelry, and the bills provided did not mention the mode of payment. The AO allowed a portion of the jewelry as stridhan/gift but added the remaining amount to the total income of the assessee.

Upon appeal, the CIT(A) upheld the AO's decision, stating that the bills were unreliable due to unexplained sources of investment and the absence of wealth tax returns in preceding years. The CIT(A) considered the filing of wealth tax returns after the search as an attempt to legitimize the explanation.

The ITAT reviewed the case and noted that the assessee's counsel could not substantiate the source of investment or the mode of payment. The ITAT found that the AO had granted reasonable relief and upheld the addition sustained by the Revenue authorities.

Conclusion:

The ITAT allowed the assessee's appeal for AY 2013-14 regarding the notional rent issue, following the precedent set in a similar case. For AY 2014-15, the ITAT partly allowed the appeal, upholding the addition on account of unexplained investment in jewelry. The judgment was pronounced in the open court on January 17, 2023.