2022 (7) TMI 807 - AT - Income Tax

Income from House Property - ALV estimation - Fair Market rent determination - assessee contended that the earlier ALV cannot be Fair Rental Value as the tenant at that time was a Corporate Entity and Municipal Corporation has estimated rent - HELD THAT - It is an undisputed fact that for F.Y. 2012-13 relevant to A.Y. 2013-14, the same property of the assessee fetched a rent of Rs.22 lakhs per annum with the actual rent received of Rs.11 lakhs for Six Months from Volkswagon India Pvt. Ltd. We find that same property was let out to the Daughter of the assessee in F.Y. 2013-14 relevant to the present Assessment Year under consideration for a meagre amount of Rs.5,500/- per annum as rent. The assessee was neither able to explain such disproportionate amount in rent received neither before the Sub-ordinate Authorities, nor before this Tribunal. Assessee was repeatedly saying that it is for the AO to prove why there has been such discrepancy in the rent amount. The legal scenario is very clear that once such a discrepancy has been demonstrated and examined by the Department, the onus is on the assessee to establish the reasons for such disparity in rental income. AO has not considered any outside property comparable rents nor has taken into consideration any other extraneous circumstances, but has only considered the disparity of rent in assessee s own property, on one hand what he had received during the A.Y. 2013-14 and on the other, what he has received in A.Y. 2014-15. It is the duty of the assessee to explain this disparity with possible reasons and materials on record, otherwise, the tax levied on such income is definitely justified. Subordinate Authorities have well examined that because of the relationship factor between the assessee and his Daughter out of natural love and affection, the value of rent was determined at such a lesser amount of Rs.5,500/- per annum, whereas the same property was rented out to a third party in just the preceding A.Y. 2013-14 for a much more higher value, therefore, it is nothing but the relationship aspect which has reduced the rent of the property and it has been well explained in the respective orders of the Subordinate Authorities. Dis-proportionate rental income received on one hand from a third party and on the other from his own Daughter were examined by the AO in relation to the same property of the assessee and therefore the order of the AO has been upheld by the ld.CIT(A). Therefore, no reason to interfere with the findings of the ld.CIT(A) which is upheld. The grounds of appeal of the assessee are dismissed.

Summary

Issues:
Addition of income from House Property based on Annual Let out Value (ALV) calculation.

Analysis:
The appeal was made by the assessee against the addition of Rs.16,89,243 to the Income from House Property by the Assessing Officer (AO) and upheld by the ld. Commissioner of Income Tax (Appeals). The dispute arose from the calculation of the ALV of a property in Pune for the Assessment Year 2014-15. The property was initially let out to a corporate entity for a higher rent, but in the relevant year, it was let out to the assessee's daughter for a significantly lower amount. The AO estimated the ALV at Rs.24,20,000 based on the previous year's rent and market trends, leading to the addition in income. The assessee argued that the actual rent received from a third party in the previous year should not be the basis for ALV calculation.

The ld. CIT(A) rejected the assessee's contentions, stating that the actual rent received from the third party was a fair representation of the property's market value. The decision of the Hon'ble Bombay High Court in a similar case was cited, emphasizing the importance of actual rent received in determining ALV. The assessee failed to provide substantial evidence to justify the significant decrease in rent when letting the property to the daughter compared to a third party. The Tribunal concurred with the lower authorities, emphasizing the onus on the assessee to explain the rental disparity adequately.

The Tribunal highlighted the relationship factor between the assessee and his daughter as the primary reason for the reduced rent, attributing it to natural love and affection. The disparity in rental income from the same property let out to different parties was deemed justifiable based on the relationship aspect. The Tribunal upheld the lower authorities' decision, concluding that the reasons for the rental difference were adequately explained in the orders. The appeal of the assessee was dismissed, affirming the addition to the Income from House Property.

In conclusion, the Tribunal upheld the addition to the Income from House Property based on the ALV calculation, emphasizing the importance of actual rent received and the onus on the assessee to justify any significant rental disparities. The relationship aspect between the assessee and his daughter was deemed the primary reason for the reduced rent, leading to the dismissal of the appeal.