2021 (3) TMI 719 - AT - Income Tax

Income from house property - ALV determination - annual letting value of the property in question by taking an instance of property let out to DRT for a rent @ 8.78 per sq.ft - HELD THAT - Assessing Officer has taken the ALV as the rate of rent in respect of a building situated in the area, however, the Assessing Officer has not given the assessee a fair opportunity to raise the objection against adopting the said rate of rent as fair market rental value of the property in question while determining the ALV of the property. There is not dispute that in case the Assessing Officer finds that the rental income shown by the assessee is not in the parity of the reasonable expected sum for letting out of the property in terms of section 23 (1) - AO can proceed to determine the annual letting value. The Annual letting value of the property is the sum which is reasonably expected to be fetched by letting out for the property from year to year basis. Thus, the reasonable and proper criteria for determining the annual letting value is the fair market rental for which the property can be reasonably let out from year to year. AO has though adopted the rate of rent as it was agreed upon between the parties in respect of property in the vicinity however, the assessee did not give the opportunity to the assessee to present its case against such adoption of the annual letting value. The Assessing Officer has also not taken the facts which might have influenced the fair market rental value of the property being the difference in the locality of the properties, the area let out advantage and disadvantage if any attached to the properties. Therefore, the Assessing Officer has adopted the said rent without even giving a show cause notice to the assessee CIT (A) though confirmed the order of the Assessing Officer however, the comparable of the rate adopted by the Assessing Officer not been examined by the Ld. CIT (A). Accordingly, in the facts and circumstances of the case the matter is set aside to the record of the Assessing Officer for re-adjudication of the same - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Addition of rental income by Assessing Officer under income from house property.

Analysis:

Issue 1: Addition of rental income by Assessing Officer under income from house property
The appeal before the Appellate Tribunal ITAT Allahabad concerned the addition of rental income by the Assessing Officer under the head income from house property. The Assessing Officer determined the fair market rental value of the property based on a comparable instance of a property let out to Debt Recovery Tribunal. The Assessing Officer computed the Annual Letting Value (ALV) of the property and added the difference to the total income of the assessee. The assessee challenged this action before the Ld. CIT (A) but was unsuccessful. The Ld. AR of the assessee argued that the Assessing Officer did not dispute the actual rent received by the assessee and made the addition without determining the fair market rental value of the property as per the provisions of the Income Tax Act. The Ld. AR contended that the decision of the Assessing Officer was arbitrary and unjustified. On the other hand, the Ld. DR argued that there was no written agreement for the rental, and the decision in a similar case was not binding precedent due to lower tax effect. The Appellate Tribunal noted that the Assessing Officer did not give the assessee a fair opportunity to object to the rate of rent adopted as the fair market rental value. The Tribunal set aside the matter to the Assessing Officer for re-adjudication after providing an appropriate hearing to the assessee and determining the annual letting value in accordance with the law. Consequently, the appeal of the assessee was allowed for statistical purposes.

This detailed analysis of the judgment provides insights into the legal issues involved, arguments presented by both parties, and the reasoning behind the Tribunal's decision to set aside the matter for re-adjudication.