In Ms. Ramairen Properties Pvt Ltd v. ITO, the division bench of the Delhi ITAT ruled that non-recording of Construction expenses in books of account is not a ground for assessing rental income under the head “income from other sources”
The assessee filed return of income declaring rental income under the head “income from house property.” The AO completedassessment against the assesseeby finding that the said income is assessable under the head “income from other sources” since the construction expenses were not recorded in the books of accounts of the assessee.
The bench noted that the income of the assessee would be taxable under the head “income from house property” if two conditions are satisfied. Firstly, there must a property consisting of any building or land appurtenant thereto and secondly, the assessee must be the owner of that property.
Allowing the appeal filed by the assessee, the bench said, “in view of the evidences brought on record, the learned Commissioner of Income Tax (Appeals) has accepted the fact that property must have been constructed in the year 2007-08, thus, in a way, he confirmed that the property consisting of building came into existence, and in these circumstances, the assessee fulfill both the conditions for assessing the rental income from the property under the head “income from house property”. The reasoning for assessing the income under the head “income from other sources” given by the learned Commissioner of Income Tax (Appeals) is not justified because if the cost of construction is not shown in books of account, the Assessing Officer is free to take necessary action for evasion of tax, if any, in that regard. However, construction expenses not recorded in books of account, cannot be a ground for assessing the rental income under the head “income from other sources” when the conditions of Section 22 of the Act for assessing the annual value of the property have been fulfilled by the assessee. By not recording construction expenses in books of account, the rights of ownership of the assessee over the property cannot be taken away and it remains the owner of the property.”
Read the full text of the order below.
