2022 (6) TMI 1143 - AT - Income Tax

Income from house property - AO observed that in view of the provisions of section 23 deemed rental income of the property at Delhi, which remained vacant during the year was required to be taxed under the head Income from House Property - assessee as confronted that house was very old and partly damaged and was not in a livable condition - AO got field verification done and rejected the explanation and estimated the ALV of the property at Rs. 12,00,000/- for the AY 2008-09 and added an annual enhancement of 10% on the same for the subsequent years - AO held that since the property was not let out at any time during the period, the vacancy allowance was not available to the appellant - HELD THAT - AO has not based the estimate on any reasonable working in determining the annual letting value. No description of the property as to the area and the market rates prevalent for rentals has been brought on record. Since, the annual value determined is devoid of any rational endorsement, we hereby delete the addition made by the revenue authorities. Appeal of assessee allowed.

Summary

Issues:
1. Assessment under section 153A of the Income Tax Act, 1961.
2. Addition of rental income by the Assessing Officer.
3. Disallowance of vacancy allowance under section 23(1)(c) of the Income Tax Act.

Analysis:
1. The appeals were filed against the orders of the ld. CIT(A)-31, New Delhi dated 12.12.2016, concerning assessment under section 153A of the Income Tax Act, 1961. The Search and seizure operation under section 132 of the Act in the AKN group of cases led to the initiation of proceedings under section 153A, requiring the appellant to file returns of income for different assessment years.

2. The Assessing Officer made additions on account of rental income for the assessment years under consideration. The AO observed discrepancies in the rental income declared by the assessee, specifically related to a property in Delhi. Despite the assessee's explanation about the property's unlivable condition, the AO estimated a notional rent and determined the annual value of the property, resulting in additional income.

3. During the appellate proceedings, the AR submitted that the property was old, unlivable, and not let out due to lack of tenant interest. The AR argued for the benefit of vacancy allowance under section 23(1)(c), contending that the actual rent receivable should be considered Nil. The ITAT disagreed with the AO's assessment, noting the lack of rational basis for determining the annual letting value and the absence of market rate information. Consequently, the ITAT deleted the additions made by the revenue authorities, allowing the appeals of the assessee.

In conclusion, the ITAT, comprising Sh. Saktijit Dey, Judicial Member, and Dr. B. R. R. Kumar, Accountant Member, ruled in favor of the assessee, overturning the additions made by the Assessing Officer regarding rental income and vacancy allowance disallowance. The decision emphasized the importance of rational assessment and supporting evidence in determining taxable income under the Income Tax Act, ultimately leading to the allowance of the appeals.