ITAT confirms Addition for substantial reduction in monthly rental amount

Ms Gurera Industries Limited Vs ITO (ITAT Delhi)

Assessee has declared the rental income from the property at Plot No. A-4, Kosi Kotwan, Mathura, Uttar Pradesh. The said property was given on rent to M/s JBM Auto Ltd. @ 25,000/- per month. The AO noted that earlier for the period 1.4.2008 to 30.11.2008, the rental income from the same party from the from the same property was shown at Rs. 2,25,000/- p.m. The AO, therefore, asked the assessee to explain (that when the rent was earlier higher and the security deposit was paid on the basis of such higher rent, and no specific reason for substantial reduction of the rental income has been furnished) as to why the rental income would not be computed as per the higher rate of rent earlier shown to be increased by 10% as pr the standard practice for renting of property for increase by 10% every year. The assessee stated that subsequently this premise was not used and the rent offered is as per section 23 of the Income Tax Act, 1961 and the AO cannot compare rent for unused premise (vacant premise) with rent for premise in use. However, the AO did not accept this explanation and went ahead with computation as proposed in the show cause notice and held that assessee has taken the rent in cash and to avoid the tax liability the rental value has been substantially reduced. As per the normal practice in the rental arrangement and as proposed in the show cause notice, AO assessed the monthly rental of the assesee company at Rs. 2,99,475/- and made the addition of Rs. 23,05,950/- to the taxable income of the assessee and in Appeal Ld. CIT(A) has partly allowed the appeal of the assessee. I find there is no merit in the case of assessee in justifying any reduction in the ALV of the property. The assessee has contended that any tenant would like to buy a property at the value taken by the AO than taking it on rent. But the very fact that property was let out ® 30,00,000/- / 2,000/- i.e. 1500 per sqmtrs. and rent was also paid for the period of 01.4.2008 for certain months, the claim is belied. The very receipt of rent justifies ALV to be based on such rent, in absence of anything to the contrary.

Full Text of the ITAT Order is as follows:-

This appeal by the Assessee is directed against the Order of the Ld. Commissioner of Income Tax (Appeals)-18, New Delhi dated 16.9.2016 pertaining to assessment year 2012-13.

2. The grounds raised by the Assessee are as under:-

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