prpri ITAT deletes addition for Notional Rent on Property lying vacant ITAT deletes addition for Notional Rent on Property lying vacant

Case Law Details

Case Name : Empire Infraspace India Pvt. Ltd. Vs ACIT  (ITAT Mumbai)
Appeal Number : I.T.A. No. 5698/Mum/2019
Date of Judgement/Order : 17/12/2020
Related Assessment Year : 2015-16

Empire Infraspace India Pvt. Ltd. Vs ACIT  (ITAT Mumbai)

Actually, the premises in question was on rent earlier with the HDFC Bank. Under the compelled circumstances, the tenant HDFC Bank vacated the premises because the Metro Rail Project came before the premises, therefore, the said premise was vacated by Bank. On similar circumstances, the Hon’ble ITAT has already explained the reason in which the rental value of the premises was not liable to be assessed on the percentage basis of the value of the property. Accordingly, it  is quite clear that the case of the assessee has duly been covered by the Hon’ble ITAT in the assesse’s own case (supra), therefore, we set aside the finding of the CIT(A) on these issues and allowed the claim of the assessee. All the issues are decided in favour of the assessee against the revenue.

FULL TEXT OF THE ITAT JUDGEMENT

The assessee has filed the present appeal against the order dated 31.07.2019 passed by the Commissioner of Income Tax (Appeals) -4, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2016-16.

2. The assessee has raised the following grounds: –

“1. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) erred in confirming the action of the Ld. Assessing officer in computing the Annual Letting Value of the property situated at Anna Salai, Chennai at 11,37,878 although the same ought to be taken as Nil under section 23(1)(c) of the Act.

2. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) erred in confirming the action of the Ld. Assessing officer without appreciating the fact that the appellant could not let out the said property as it was beyond the control of the appellant.

3. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) erred stating that the appellant was not able to demonstrate that it made efforts to let out the property but was unable to do so.

4. The appellant craves leave to add, alter, rescind or amend any of the grounds.”

3. The brief facts of the case are that the assessee filed e-return of income on 29.09.2014 declaring total income to the tune of Rs.53,12,450/-. The case was selected for scrutiny. Notices u/a 143(2) & 142(1) of the I. T. Act, 1961 were issued and served upon the assessee. The assessee company was engaged in the business of Trading in Shares & Securities and Futures & Options. The assessee company under the year under consideration has received of Rs.3,74,08,800/- as share premium on account of issue of 1100 shares having face value of Rs.100/- The shares were issued to Kalpita Agencies Pvt. Ltd. The AO assessed the share value in sum of Rs.30,598.20/-, hence, differential amounting in sum of Rs.39,04,780/- was added to the income of the assessee. The assessee company was having the vacant property at Anna Salai. The Annual Letting Value (ALV) of the property was assessed @ 6% of capital value of the house property and 6% of Rs.1,89,64,626/- i.e. 11,37,878/- was held to be the ALV (Annual Letting Value). This was also added to the income of the assessee and the total income of the assessee was assessed to the tune of Rs. 1,00,13,740/-. The income u/s 115JB was assessed to the tune of Rs.37,41,872/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who decided the matter of controversy by virtue of order dated 30.10.2019 but the assessee was not satisfied on the ground of assessment of Annual Letting Value of vacant property of Anna Salai, therefore, the assessee has filed the present appeal before us.

ISSUE Nos. 1 to 4

4. Under the above said issues the assessee has challenged the confirmation of the order of the AO in computing the Annual Letting Value of property situated at Anna Salai, Chennai @ 11,37,878/-. At the outset, the Ld. Representative of the assessee has argued that the issue has duly been covered by the decision of Hon’ble ITAT in the assessee’s own case bearing ITA. No.6204/M/2018 for the A.Y 2014-15 titled as Empire Capital Pvt. Ltd. Vs. ACIT, therefore, the claim of the assessee is liable to be allowed. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. The copy of order of the Hon’ble ITAT bearing ITA. No.6204/M/2018 in the assessee’s own case is on the file in which the relevant finding has been given in para no. 5 to 8 which are hereby reproduced as under.:-

“5. We have heard the submissions made by rival sides and have perused the orders of authorities below. The assessee in appeal has assailed the addition of Rs.11,37,878/- on account of notional rent in respect of vacant property. It is an undisputed fact that the property of the assessee at Anna Salai, Chennai was let out in the past and the rental income from the said property was offered to tax by the assessee under the head, „Income fromHouse Property‟. It was during the period relevant to assessment year under appeal that the property of the assessee was lying vacant and the assessee did not offer any rental income in the return of income. The assessee has given reasons explaining as to why the property in question could not be let out. 6. Before proceeding further, it would be relevant to refer to the provisions of section 23 of the Act dealing with determination of annual value of the property. For the sake of ready reference, the relevant extract of provisions of section 23 of the Act are reproduced herein below:-

“23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be— (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable.”

The provisions of clause (c) of section 23(1) of the Act are attracted if following conditions are satisfied:

(i) The property was let out in the past; (ii) The property was vacant during whole or any part of the previous year; (iii) On account of vacancy the ‘actual rent’ received or receivable by the owner is less than the rent determined under clause(a) of section 23(1) of the Act.

If all above conditions are met the actual rent received/nil rent, as the case may be would be annual rental value of property.

6.1 In the present case it is an undisputed fact that the property in question was let out in the past, during the period relevant to assessment year under appeal the property was lying vacant for the entire year and hence, no actual rent was received by the assessee. Consequently, the assessee did not offer any rental income to tax. In the given facts, the provisions of section 23(1)(c) of the Act get attracted.

7. In so far as the observation of the lower authorities and the arguments of the ld. Departmental Representative that the assessee has  furnished any evidence indicating efforts made for letting out the premises, we do not find force in the same. The assessee during the Financial Year 2015-16 has purportedly rented out the premises and has offered the rental income to tax. A perusal of the statement of profit and loss account for the year ended 31/03/2016 furnished by the ld. Authorized Representative of the assessee reveal that the assessee has received rental income of Rs.2,10,000/-. The ld. Authorized Representative of the assessee has also furnished copy of the assessment order dated 18/12/2018 passed under section 143(3) of the Act for assessment year 2016-17. No addition on account of rental income/ notional rental income has been made by the Assessing Officer in the assessment order. Thus, rental income offered to tax has been accepted by the Assessing Officer. In the past as well the property under question was let out. It was during the period relevant to assessment year under appeal that the property was lying vacant for which reasons were given by the assessee. In the peculiar facts of the case we are of the considered opinion that no addition on account of notional rent is warranted.

8. The Co-ordinate bench in the case of Sachin R. Tandulkar (supra) in somewhat similar circumstances after applying provisions of section 23(1)(c) of the Act accepted rental income from the vacant property as „nil‟. In view of the similarity of facts, we find merit in the submissions of the assessee. Accordingly, the impugned order is set-aside and the appeal of assessee is allowed.”

5. On appraisal of the above mentioned finding, we find that the facts are not distinguishable at this stage. Actually, the premises in question was on rent earlier with the HDFC Bank. Under the compelled circumstances, the tenant HDFC Bank vacated the premises because the Metro Rail Project came before the premises, therefore, the said premise was vacated by Bank. On similar circumstances, the Hon’ble ITAT has already explained the reason in which the rental value of the premises was not liable to be assessed on the percentage basis of the value of the property. Accordingly, it is quite clear that the case of the assessee has duly been covered by the Hon’ble ITAT in the assesse’s own case (supra), therefore, we set aside the finding of the CIT(A) on these issues and allowed the claim of the assessee. All the issues are decided in favour of the assessee against the revenue.

6. In the result, the appeal filed by the assessee is hereby allowed.

Order pronounced in the open court on 17/12/2020

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