The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has remanded the matter back to AO to compute the income from house property as per the municipal value.
The assessee, Pavel Garg is an individual earning income from salary, house property and interest. The assessee filed his return of income on 30.09.2013 declaring income of Rs. 1,09,45,520/-. The case was selected for scrutiny assessment.
During the course of assessment proceedings, the assessee submitted that their annual value was “Nil” by virtue of the provisions of section 23(1)(c) of the Income Tax Act, 1961. The Assessing Officer did not agree with the assessee’s contention and added notional annual value calculated @10% of cost of the abovementioned properties to the returned income of the assessee.
The assessee submitted that he intended to let out the property during the year under consideration. However, he could not find any suitable tenant and, therefore, both properties remained vacant during the year under consideration. As soon as he found tenant, he let out both properties in succeeding year 2016-17. As evidence of properties actually let out in FY 2016-17, assessee submitted Rent Agreement, Monthly Rent Bills raised by assessee upon tenants with service tax charged thereon and Bank Statement highlighting the receipt of rent cheques from tenants. The assessee contended that courts have held that the phrase “is let” used in section 23(1)(c) means “is intended to be let”.
The assessee further submitted that it is not the case of AO that the impugned properties were in self-occupation of assessee. Therefore, the annual value of the said two vacant, intended to be let out, actually let out in succeeding year and never in self- occupation of assessee, was “Nil” by virtue of section 23(1)(c).
It was argued that the deemed annual value @ 5% of value of investment in house property was calculated by ld. CIT(A) on ad-hoc basis without bringing on record any reason or justification to substantiate the rate of 5%, ignoring the actual rent fetched by adjoining house properties and admitted by the AO during the course of assessment proceedings without drawing any adverse inference in respect thereof.
The coram of Judicial Member Amit Shukla and Accountant Member, B.R.R. Kumar has held that the AO has computed 10% of the value of investments in house property whereas the CIT(A) reduced the amount to 5% of the value of investments. Both decisions are on ad-hoc basis. The rent realized by the assessee in the subsequent years is on record with all the evidences. Hence, we deem it proper to refer the matter back to the file of the AO to compute the income from house property as per the municipal value in accordance with the provisions of Section 23(1) of the Income Tax Act, 1961.
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