In ITO v. Sudhir Omprakash Bahl, the Mumbai ITAT held that the income tax authorities cannot determine the annual rent value on notional basis by ignoring the actual rent received by the asessee which is lesser than the fair value.
While dismissing a departmental appeal, the bench followed the ratio of the Bombay High Court wherein the Court held that the Department can re-fix the rent only when it is established that the assessee has committed fraud, collusion or attempted to inflate or deflate rent because of relationship or such other consideration.
In the instant case, the Assessing Officer made an addition of Rs. 46,46,371/- under the head ‘income from house property’ on the basis of fair rent by finding that assessee shown lesser rental income compared to that shown by owners in respect of flats located in the same building.
However, the first appellate authority, on first appeal, deleted the addition relying on the Bombay High Court decision in assessees’ own case. CIT(A) while doing so, also found that fair rent determined by the AO was not in accordance with section 23(1)(a) of the Income Tax Act, considering the facts and circumstances of the case.
The bench noticed the decision of the Bombay High Court in the above case wherein the Court relied on the decision in Tip Top Typographics and specifically stated the law does not permit the revenue to reject the amount determined as rent or license fees by the assesse on mere doubt or suspicion. The Court in this case, noted that “there has to be cogent and satisfactory material to indicate that the rent or fees determined by the parties are not indicative of the fair or market rent. The Annual Letting value has to be determined and decided only in such cases where there is established fraud, collusion or an attempt is made by the parties to inflate or deflate the rent because of relationship or such other consideration, otherwise the determination of the rent or fees between the lessor and the lessee cannot be said to be influenced by any exigencies aforesaid for the Income Tax Authorities to determine and decide the Annual Letting-Value.”
Following the above decision, the bench upheld the order of the first appellate authority.
Read the full text of the Order below.
