2017 (2) TMI 445 - AT - Income Tax

Determination of Annual Value u/s. 23(l)(a) - property lying vacant - Held that - Assessee has rightly assigned NIL Annual Lettable Value of the impugned 16 shops which were ready to be let out during the year but remained vacant throughout the year and the same was duly covered under the provisions of section 23(1)(c) of the Act. We accordingly set aside the order of ld. CIT(A), delete the impugned addition and allow the appeal of assessee. See case of Vikas Keshav Garud vs. ITO 2016 (7) TMI 942 - ITAT PUNE

Issues Involved:
1. Addition of ?13,02,000 by determining Annual Value u/s 23(1)(a) of the IT Act.
2. Computation of Annual Value at nil u/s 23(1)(c) due to property vacancy.
3. Alleged breach of law and Principles of Natural Justice by lower authorities.
4. Levying of interest u/s 234A/B/C/D of the Act.
5. Initiation of penalty u/s 271(1)(c) of the Act.

Detailed Analysis:

1. Addition of ?13,02,000 by determining Annual Value u/s 23(1)(a) of the IT Act:
The assessee reported a loss from house property and claimed a deduction for interest paid on properties that did not generate rental income during FY 2010-11. The Assessing Officer (AO) observed that the properties were not let out during the year and computed the Annual Lettable Value (ALV) u/s 23(1)(a) at ?18,60,000, applying a monthly rent of ?1,50,000 for 16 shops. After allowing a standard deduction of 30%, the AO added ?13,02,000 to the assessee's income. The CIT(A) upheld this addition, referencing the Andhra Pradesh High Court's decision in Vivek Jain vs ACIT, which stated that section 23(1)(c) applies only if the property was let out for some part of the year.

2. Computation of Annual Value at nil u/s 23(1)(c) due to property vacancy:
The assessee argued that the properties were let out in the previous year to ICICI Prudential Insurance Ltd. but remained vacant throughout the relevant year due to economic recession. The assessee contended that the ALV should be nil under section 23(1)(c) of the Act. The AR cited several cases, including AC Sreeram vs ACIT and ACIT vs Prabhata Sanghi, where properties intended to be let out but remained vacant were considered under section 23(1)(c), resulting in a nil ALV. The Tribunal referenced the Pune Tribunal's decision in Vikas Keshav Garud vs. ITO, which supported the assessee's argument that properties intended to be let out but remaining vacant should have a nil ALV under section 23(1)(c).

3. Alleged breach of law and Principles of Natural Justice by lower authorities:
The assessee claimed that the lower authorities ignored various submissions and explanations provided, constituting a breach of law and Principles of Natural Justice. However, the judgment did not specifically address this issue in detail, focusing instead on the substantive legal arguments regarding the computation of ALV.

4. Levying of interest u/s 234A/B/C/D of the Act:
The CIT(A) upheld the AO's decision to levy interest under sections 234A/B/C/D of the Act. The judgment did not provide a detailed analysis of this issue, as the primary focus was on the computation of ALV and the application of section 23(1)(c).

5. Initiation of penalty u/s 271(1)(c) of the Act:
The CIT(A) also upheld the AO's initiation of penalty proceedings under section 271(1)(c) of the Act. Similar to the issue of interest levy, the judgment did not delve into the specifics of the penalty initiation, concentrating on the primary dispute over the ALV computation.

Conclusion:
The Tribunal, after considering the arguments and relevant case law, concluded that the assessee had rightly assigned a nil ALV for the properties that remained vacant throughout the year under section 23(1)(c) of the Act. The Tribunal set aside the CIT(A)'s order, deleted the addition of ?13,02,000, and allowed the assessee's appeal. The judgment emphasized the intention to let out the property and the economic conditions that prevented its rental, aligning with the purposive interpretation of section 23(1)(c).

← Previous Next →