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2015 (1) TMI 1104 - AT - Income TaxAnnual Value of the property u/s. 23(l)(a) - Fair rental value - CIT(A)deleted the addition made by Assessing Officer in the annual letting value of the property u/s 23(1)(a) of the Income Tax Act on account of notional interest on interest free deposits received by the assessee - Held that - Where the Assessing Officer has not conducted any enquiry or investigation and by following the Judgment of Hon'ble Jurisdictional High Court in the case of CIT Vs. Tip Top Typography (2014 (8) TMI 356 - BOMBAY HIGH COURT), we do not find any reason to interfere with the order of CIT(A) qua this issue as AO has not determined the fair market rent of the property as per section 23(1)(a) but he has simply made the addition on account of notional interest to the actual rent received by the assessee. Therefore, the action of Assessing Officer is not sustainable when there is no finding by the Assessing Officer that the actual rent received by the assessee is less than the fair market rental value of the property - Decided in fvaour of assessee.
Issues Involved:
1. Estimation of Annual Value of Property under Section 23(1)(a) of the Income Tax Act, 1961. 2. Impact of Interest-Free Deposits on Annual Value Calculation. 3. Consideration of Precedent Case Law in Determining Annual Value. Issue-Wise Detailed Analysis: 1. Estimation of Annual Value of Property under Section 23(1)(a) of the Income Tax Act, 1961: The primary issue in this appeal is whether the CIT(A) erred in deleting the addition made by the Assessing Officer (A.O.) regarding the annual letting value of the property under Section 23(1)(a) of the Income Tax Act. The A.O. had added notional interest on interest-free deposits received by the assessee to the annual letting value. The property in question, Flat No. 213, Sunita Ridge Road, Mumbai, is let out to Bank of Tokyo Mitsubishi Ltd. since 1987 with a current rent of Rs. 95,000 per month. The A.O. noted that the assessee received an interest-free deposit of Rs. 2.25 crores and added 12% notional interest to the annual letting value. 2. Impact of Interest-Free Deposits on Annual Value Calculation: The CIT(A) deleted the addition made by the A.O., following the Tribunal's decision in the case of Ashok M. Wadhwa. The Ld. DR argued that the interest-free deposit had a direct nexus with the rent rate and influenced the determination of rent, citing the Hon'ble Punjab & Haryana High Court's decision in CIT Vs. K. Streetlite Electric Corporation and the Hon'ble Delhi High Court's decision in CIT Vs. Moni Kumar Subba. Conversely, the Ld. Authorized Representative contended that the A.O. did not determine the fair market rent as per Section 23(1)(a) and merely added notional interest, which is unsustainable without finding that the actual rent was less than the fair market rental value. 3. Consideration of Precedent Case Law in Determining Annual Value: The Tribunal considered various judgments, including the Hon'ble Jurisdictional High Court's decision in CIT Vs. Tip Top Typography. The Tribunal emphasized that the A.O. must determine the reasonable rent expected to be fetched by the property and compare it with the actual rent received. If the A.O. suspects that interest-free deposits deflate or inflate the rent, he must conduct a proper enquiry and gather cogent material to support his findings. In this case, the A.O. did not conduct any such enquiry or investigation. The Tribunal cited the Hon'ble Jurisdictional High Court's observation that the A.O. must not rely on conjectures and must have definite and positive material indicating that the parties have suppressed the prevailing rate. Conclusion: The Tribunal concluded that since the A.O. did not conduct any enquiry or investigation to determine the fair market rent as per Section 23(1)(a), the addition on account of notional interest could not be justified. The Tribunal upheld the CIT(A)'s order, finding no reason to interfere with it. Consequently, the appeal of the revenue was dismissed. Order Pronounced: The order was pronounced in the open court on January 16, 2015.
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