No real Rental Income received from  litigation  filed  for recovery of arrears of Rent: ITAT deletes addition made on account notional Rental Income [Read Order]

The Income Tax Appellate Tribunal (ITAT) Delhi bench while deleting the addition made on account of notional Rental Income, observed that no real rental income received from litigation filed for recovery of arrears of the rent.

Assessee, JAH Developers Pvt. Ltd. leased a hotel Jaisal Villa along with all furniture, fixture and fittings for three years which was leased out to M/s. SRM Heritage Jaisalmer on the monthly rental of Rs. 15 lac per month.

During assessment proceedings, it was found that the assessee in the computation of income has not declared any income from leasing out of the property.

Assessing officer contented that assessee has received composite rental income of Rs. 1,92,60,000/- from the said property which was not declared in the computation of income and thus rightly treated as undisclosed income of the assessee.

Aggrieved by the order assesee filed appeal before CIT(A), who allowed the appeal. Against the order revenue filed appeal before the tribunal.

On behalf of the assessee, Ramesh Goel, counsel argued that an identical issue was raised by the Assessing Officer for AY 2015-16 and the CIT(A) after considering the explanation supported by documentary evidence of assessee deleted the addition.

Further counsel for assesee argued that In order to recover unpaid rent and retake control of the leased property from the tenant, the assessee  filed a case with the Jaisalmer Rent Controller Authority in Rajasthan because the lessee failed to pay any rent to the assessee during the financial year 2014–15.

Thus, he stated that there is no actual rent that has been received by the appellant due to the litigation and the company has not booked any income in its books of accounts. It is further stated that AO has taken this income on the basis of agreement and treated the entire amount on notional basis as per mercantile system of accounting.

Amit Katoch, Counsel for Revenue supported the decision of the assessing officer.

During the proceedings the tribunal considered the observation of CIT(A)  that  “where the actual rental income is not received and not to be taxed with reference to explanation below to sec 23(1) of the Act r.w.r. 4 of the I.T Rules 1962 then the addition on account of notional rental income under the head income from other sources is not tenable”.

After considering the facts submitted and circumstances, the two member bench of  Dr. B.R.R. Kumar(Accountant Member) and  Chandra Mohan Garg (Judicial Member) held that when no real rental income has been earned and received by the assessee, then no such income can be held as taxable in the hands of assessee on account of notional rental income under the head income from other sources.

To Read the full text of the Order CLICK HERE

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