2023 (4) TMI 804 - AT - Income Tax

Income from house property - Vacancy allowance - deemed income / fictitious income - Computing notional rent u/s 23(l)(a) as against the income declared by the Appellant in the return of income - HELD THAT - As per the terms and conditions of the agreement, by which the lessee may terminate the said agreement anytime during the currency of the said agreement by giving a prior written notice of three months (3 months). Accordingly, the lessee bank has given 3 months notice on 18.01.2016 to the assessee, to terminate the agreement with effect from 18.04.2016. Therefore, during the financial year 2016-17, the assessee has received 18 days rent from 01.04.2016 to 18.04.2016, which the assessee has offered for tax in the relevant AY.2017-18. After 18.04.2016 the property was vacant, as the assessee could not get any customer to let out the property. We note that on rental income TDS has been deducted by the ICICI Bank during the current year. ICICI Bank has issued a letter to the assessee, which shows that the lease agreement has been terminated by the ICICI Bank on 18.04.2016. Based on this factual position, the assessee has received the rental as rent income only for eighteen days in the AY.2017-18 which has already been offered for tax on which TDS has also been deducted. Therefore, since the assessee has not received rental income from 19.04.2016 to 31.03.2017, hence, hypothetical rent should not be taxed in the hands of the assessee. Therefore, we note that assessee has disclosed the actual rent received by him, therefore fictitious rental income should not be taxable in the hands of the assessee. Neither the AO nor before the Ld. CIT(A) has demonstrated with cogent evidences that assessee has let out the property for the remaining period from 19.04.2016 to 31.03.2017. Therefore the notional rental income assessed by the AO should be deleted - Appeal filed by the assessee is allowed.

Summary

Issues Involved:
The issues involved in this case are:
1. Natural justice violation in framing the appellate order.
2. Addition of Rs. 50,29,290 as income under the head 'Income from House Property'.
3. Liberty to add, alter, delete, or modify grounds during the hearing.

Issue 1: Natural Justice Violation:
The appeal pertains to Assessment Year (AY) 2017-18 and challenges the order passed by the Learned Commissioner of Income Tax (Appeals) arising from an assessment order under section 143(3) of the Income Tax Act, 1961. The grounds of appeal raised by the assessee include contentions about the order being framed in breach of natural justice principles and being passed without proper opportunity for the appellant to be heard. The appellant argued that the order was perverse and lacked application of mind to the facts on record.

Issue 2: Addition of Income from House Property:
The Assessing Officer noted a significant difference between the amount credited in Form 26AS and the income shown in the assessee's return. Specifically, the AO observed that rent income of Rs. 25,92,000 from ICICI Bank Limited was not included in the house property income of the assessee. Despite the assessee's explanation that the rent was for the previous year, the AO added Rs. 50,29,290 as income under the head 'Income from House Property'. The assessee contended that no such addition was warranted, and even if necessary, the computation was arbitrary and excessive.

Issue 3: Liberty to Modify Grounds:
The appellant sought liberty to add, alter, delete, or modify the grounds raised during the hearing, indicating a request for flexibility in presenting arguments or contentions as the case progresses.

In the case, the appellant, an individual, leased property to ICICI Bank Limited. The Assessing Officer added Rs. 50,29,290 as income under 'Income from House Property' due to discrepancies in rent income disclosure. The appellant argued that the rent received was only for 18 days in the relevant assessment year, supported by termination of the lease agreement by ICICI Bank. The Tribunal found that the actual rent received for the period had been declared and taxed, and the notional rent assessed by the AO was unwarranted. Considering the evidence presented, the Tribunal allowed the appeal, deleting the notional income assessed by the AO.