Whether ALV of property, which could not be let out during relevant year, should be nil as per sec 23(1)(c) of Act?

 

Assessee’s appeal partly allowed: MUMBAI ITAT

Short Overview of the case:

The AO during the course of assessment proceedings noted that assessee had offered rental income in respect of one property situated at Madanmohan Malviya Road, Amritsar, Punjab, however, not offered any income in respect of other three properties namely property at Moonlight Building, at Katra Ahluwalia and Ramkin Joint property at MM Malviya Road, Amritsar.

According to the AO the income from the vacant property should have been offered on the basis of deemed rental value which the property might reasonably be expected to be let out from year to year for the purpose of assessment of income under section 22 of the Act.

 The assessee submitted before the AO that since these properties were not let out during the year at all and therefore the assessee has claimed vacancy allowance under section 23(1)(c) in respect of these three properties.

 However, reply of the assessee did not find favour with the AO and he estimated the annual value (ALV) of the three properties and after allowing deduction of municipal taxes and other deduction under section 24 computed the deemed rent at Rs. 1,09,924 and added the same to the income of the assessee. On appeal, CIT (A) affirmed the order of AO.

On appeal, the issue before Tribunal was whether ALV of property, which could not be let out during relevant year, should be nil as per sec 23(1)(c) of Act.

ITAT answered it in affirmative with following observation:

 Assessee has let out these properties in the subsequent year and accordingly offered the rental income to tax.

 Now the issue was whether the deemed rent of the assessee has to be taken as annual value (ALV) under section 23(1)(a) for the purpose of assessment of income under section 22 of the Act or whether the assessee is entitled to vacancy allowance as provided under section 23(1)(c) of the Act.

After carefully perusing the provisions of section 22, section 23(1)(a) and section 23(1)(c) of the Act, it was found that the ALV of the property, which could not be let out during the year, would be nil in accordance with the provisions of section 23(1)(c) of the Act.

The assessee is entitled for the vacancy of allowance in respect of the said properties and armed length price has to be assessed as rent received or receivable and not the amount for which the property is expected to be let out from year to year is to be considered for the purpose of assessing the ALV.

 In the present case since the properties have not been let out at all during the year, therefore the ALV has to be taken as nil. The case of the assessee is squarely covered by the decision of the co-ordinate Bench of the Tribunal in the case of M/s. Metaoxide Pvt. Ltd. vs ITO in ITA No. 5773/M/2016 A.Y. 2010-11.

Therefore, respectfully following the decision of the co- ordinate Bench of the Tribunal set aside the order of CIT(A) and direct the AO to delete the addition made of Rs. 1,09,924/- in respect of three vacant properties at Amritsar.

In the result, the appeal of the assessee is partly allowed.