2024 (11) TMI 1099 - AT - Income Tax

Assessment u/s 153A - computing the income under the head Income from House Property - Addition for unabated assessment years - whether no incriminating material found during the search ? - HELD THAT - Additions proposed by the Assessing Officer relates back to AY 2013-14 onwards. It is clear from the above information that the assessee has not disclosed any rental income for the abovesaid properties during the AY 2013-14 onwards. It is not clear how the property at Goa was utilised by the family. If these properties were under utilisation of the family members during the AYs 2013-14 to 2015-16, we noticed that all these properties were already disclosed in the Balance Sheet of the Trust dated 31.03.2013. Therefore, the emails found during the search are not an incriminating material for the AYs 2013-14 and 2014-15. Considering the fact that the family has started the discussion of exploring the various options only through email dated 20.02.2015. Accordingly, the assessments u/s 153A for AYs 2013-14 2014-15 are unabated and without any incriminating material, therefore, the addition made in these assessment years are accordingly directed to be deleted. These assessment years are unabated assessment years and no addition can be made without there being any incriminating material. Accordingly, ground no.1 raised by the assessee in AYs 2013-14 2014-15 are allowed and other grounds raised by the assessee are also allowed due to the fact that the legal ground raised in ground no.1 is allowed. The grounds are consequential in nature. Accordingly, the appeals in AYs 2013-14 2014-15 are allowed. Coming to the AYs 2015-16 and 2016-17, we observed that there is trail of emails exchanged by the family members as per which the property under consideration are under commercial exploitation by one of the beneficiaries of the trust. It is a fact on record that the beneficiary has disclosed the income earned from the property in his personal return of income, however it should have been income of the assessee. We cannot say that there is no incriminating material for these assessment years under consideration i.e. 2015-16 and 2016-17. Accordingly, ground no.1 raised in AYs 2015-16 2016-17 are dismissed. Assessment of annual lettable value - trust has utilised the properties at Goa for commercial exploitation and gave the same to one of the beneficiaries - HELD THAT - Considering the AY 2016-17 as the base year, since the property was exploited fully during this year. The amount lettable value cannot be more than Rs.8.39 lakhs. Therefore, we direct the Assessing Officer to treat the ALV as Rs.8.39 lakhs for both the years and allow the standard deduction of 30% on the above ALV and bring to tax the net ALV at Rs.5,87,300/- to the income for the AY 2015-16 and AY 2016-17 Vatika Professional Point commercial property held by the assessee - As brought to our notice that property under consideration was finally disposed off by the assessee in AY 2025-26 without actually any profit till such time the property was never let out due to various conditions prevailing during the period. Therefore, there is no incriminating material found during the search relating to this property. Accordingly, the additions made by the Assessing Officer from AYs 2013- 14 to 2016-17 are deserved to be deleted and without any incriminating material, considering the fact that these assessment years are unabated. Determination of ALV of property - property at Gurugram - Assessee should have disclosed annual municipal value as rental income as against the ALV adopted by the Assessing Officer which is determined by the AO through commission as per which it was estimated on the information gathered from the properties located in the same vicinity. However, it is only an estimation and as submitted by the beneficiary, it clearly shows that it does not give such rental income. It is also a fact that assessee has not properly exploited the property still the assessee has incurred huge loss. It is not commercially viable from the information available on record. Further there is no material brought on record by the AO that the assessee has exploited the property subsequent to AY 2016-17. Keeping the information available on record, it is not fair to estimate the rental income on the presumption basis. Therefore, we direct the AO to adopt the municipal value of the property as ALV as per municipal valuation and we direct AO accordingly. As per the information available on record, we observed that assessee was not in a position to let out the property on rent and various information available on record clearly show that it was not commercially lettable. It was also brought on record that assessee has disposed off abovesaid properties in AY 2025-26 without letting out the property and absorbing the maintenance charges over the years. After considering the facts on record, it is not appropriate for estimating the income when the property itself was not let out as held in the case of Rustomjee Evershine Joint Venture 2023 (7) TMI 1305 - ITAT MUMBAI and Chalet Hotels Ltd. 2023 (10) TMI 837 - ITAT MUMBAI It was held that ALV may be adopted alternatively keeping the generally expected rent from these properties. As per the information available on record, it is appropriate to estimate the same. We noticed that the assessee has prayed for 2% of the investment. But in actual, the commercial properties fetch 8% to 10% in the Metro Cities. In our view, estimating at 5% of the investment value is appropriate. Accordingly, we direct the Assessing Officer to adopt 5% of the value of investment as ALV for the properties under consideration. After standard deduction, the annual income of Rs.6.65 lakhs may be added as income of the assessee.

Summary

Issues Involved:

1. Legality of additions made under the head "Income from House Property" for unabated assessment years.
2. Assessment of annual lettable value of properties in Goa under Section 22 & 23 of the Income Tax Act.
3. Entitlement of the assessee Trust to the benefit of Section 23(2) of the Act.
4. Computation of annual lettable value of properties and the justification of additions made.
5. Denial of benefit of self-occupied property status to the assessee Trust.

Detailed Analysis:

1. Legality of Additions for Unabated Assessment Years:

The assessee contended that for the Assessment Years (AYs) 2013-14 to 2016-17, which were unabated, no incriminating material was found during the search to justify additions of Rs. 12,60,000/- and subsequent amounts in later years. The assessee argued that the assessments were made without reference to any incriminating material, as required for unabated assessments under Section 153A. The Tribunal agreed that no incriminating material was found for AYs 2013-14 and 2014-15, thus directing the deletion of additions for these years. However, for AYs 2015-16 and 2016-17, the Tribunal observed that emails and other documents indicated commercial exploitation of properties, justifying the additions.

2. Assessment of Annual Lettable Value of Properties in Goa:

The properties in Goa, used by a beneficiary for business purposes, were assessed under Section 23. The assessee argued that these properties were used for business and thus should not be assessed under "Income from House Property." The Tribunal noted that while the properties were used for commercial purposes by a beneficiary, the income should have been declared by the Trust. As the properties were commercially exploited, the Tribunal upheld the addition but adjusted the annual lettable value to align with the actual income declared by the beneficiary.

3. Entitlement to Benefit under Section 23(2):

The assessee Trust claimed entitlement to the benefit of Section 23(2), arguing its status as an 'individual' due to its beneficiaries being individuals. The Tribunal, however, noted that the Trust did not declare any property as self-occupied in its return of income and found the claim unsustainable without proper declaration and evidence. The Tribunal upheld the denial of the benefit, emphasizing the need for clear declarations in the return.

4. Computation of Annual Lettable Value and Justification of Additions:

The assessee challenged the computation of annual lettable value by the Assessing Officer (AO), arguing it was fallacious and unjustified. The Tribunal directed the AO to adopt the municipal value as the annual lettable value, considering the lack of commercial viability and the absence of income from the properties in question. For properties in Gurugram, the Tribunal found the properties were not let out and directed the AO to estimate the annual lettable value at 5% of the investment value, considering the market conditions.

5. Denial of Benefit of Self-Occupied Property Status:

The Tribunal addressed the issue of the self-occupied property status, noting that the Trust did not make the necessary declarations in its returns to claim such a status. The Tribunal emphasized that without proper declarations and evidence, the claim for self-occupied status could not be entertained. The Tribunal upheld the denial of this benefit, reinforcing the requirement for compliance with statutory provisions and proper documentation.

Conclusion:

The Tribunal allowed the appeals for AYs 2013-14 and 2014-15 due to the absence of incriminating material, setting aside the assessments for these years. For AYs 2015-16 to 2019-20, the appeals were partly allowed, with adjustments to the annual lettable value and directions for the AO to reassess based on municipal values and market conditions. The Tribunal's decision highlights the importance of incriminating material for additions in unabated assessments and the need for accurate declarations and evidence for claiming benefits under the Income Tax Act.