Rent which was Neither Received nor Accrued cannot be brought to Tax: ITAT [Read Order]

The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) has held that rent which was neither received nor accrued cannot be brought to tax.

The assessee company, Surti Chemicals P. Ltd. purchased a property which was already let out to Rave Entertainment Pvt. Ltd. (tenant) by a lease deed. The said lease deed was assigned in favor of the assessee company by assignment of lease deed executed and which is effective from 18.12.2008 on the same terms and conditions. The assessee submitted a copy of the rent chart for the financial years 2009-10 to 2012-13. Perusal thereof shows that there was transfer of tenancy from Rave Entertainment Pvt. Ltd. to Reliance Mediaworks Ltd. and the area measuring 2946.34 sq. ft. was surrendered. In support thereof, the tenant Reliance Media works Ltd. addressed a letter to the assessee whereby it was confirmed that after discussion and multiple meetings the area of 2946.34 sq. ft. has been surrendered out of total area of 35,580.75 sq. ft. The effective area will be 32,634.41 sq. ft. all other terms and conditions of the lease deed will be the same. The Rent ledger clearly shows that w.e.f. 01.07.2009, the rent has been paid by the tenant Reliance Media works Ltd. to the assessee for 32,634.41 sq. ft. area occupied by it.

The AO and CIT(A) on appeal have rejected the letter of surrender by saying that copy of a surrender letter cannot be treated as evidence and that it does not prove that surrender of the leased area was agreed upon by both the parties. Aggrieved, the assessee is in appeal before ITAT.

The assessee submitted that he is in possession of the surrendered area but could not let it out to any other party as the said Mall could not get success. He emphasized that notional rent which was neither received nor accrued to him cannot be brought to tax.

The Appellate Tribunal observed that the rent receipt on the basis of area occupied by the tenant Reliance Media works Ltd. which has been accepted by the predecessor AO in the assessment framed under Section 143(3) of the Act for the assessment year 2012-13. The facts remain the same in the succeeding assessment year 2013-14, presently under consideration. In Radhasoami Satsang vs. CIT [193 ITR 321 (SC)], the Supreme Court observed that though strictly speaking res judicata does not apply to income-tax proceedings where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.

The Coram of Narendra Kumar Billaiya, Accountant Member, and Astha Chandra, Judicial Member has held that “the assessee categorically denied receipt of rent over and above what is reflected in its books of accounts. Nothing has been brought on record to contradict the version of the assessee either by the AO or by the CIT(A). We, therefore, hold that rental income which has not been received by the assessee cannot be brought to tax”.

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