Entire property’s ALV cannot be taxed where only a part is let out; ALV must be proportionate to the let-out portions.
An interesting issue of treatment of Annual lettable Value of the properly arose before ITAT in the case of Asha Burman vs. ACIT, Circle 46(1), New Delhi-ITAT Delhi, ITA Nos. 539 to 544/Del/2024, Dated November 4, 2025.
The issue was whether the AO was justified in treating the entire building as let out and assessing the corresponding notional ALV, or whether assessment should be limited only to the part of the property actually let out, excluding self-occupied portions?
Let us have a Short Overview of the Case: –
The assessee, an individual, owns a residential property at 23, Kautilya Marg, Chanakyapuri, New Delhi.
The building comprises four floors: ground plus three floors.
Since acquisition, the assessee has self-occupied the ground floor and first two floors. Only the third floor (approx. 2,758 sq. ft.), including a terrace, was leased to M/s Gyan Enterprises Pvt. Ltd. from 1 April 2011 for Rs. 30,000 per month, with a large refundable security deposit of Rs. 10 crore.
The Assessing Officer (AO) initially assessed the entire property as let out and determined the Annual Letting Value (ALV) at Rs. 1.78 crore based on a comparable property’s rent.
On appeal, CIT(A) upheld the AO’s view, but the Tribunal remitted the matter to the AO for physical verification of the letting status.
Physical visit and caretaker’s statement confirmed that only part of the building was let out, and the balance was self-occupied.
Despite this, the AO maintained the whole property’s ALV as taxable on the basis of having a single water and electricity meter.
The assessee argued that the ALV assessed should be limited to the portion actually let out, allowing deduction under section 24 and excluding self-occupied areas.
Relevant Statutory Provisions
Section 22, Income Tax Act, 1961: Income chargeable under the head “Income from house property” includes the Annual Letting Value of property.
Section 23(1) and 23(2), Income Tax Act, 1961:
1) Annual value is deemed to be:
• (a) sum for which property might be reasonably expected to let (ALV), or
• (b) actual rent received if higher, or
• (c) actual rent received if less due to vacancy.
2) Where property or part thereof is occupied by the owner for his residence, the annual value of such portion shall be taken as zero.
Tribunal’s Observations
• The caretaker’s statement (under section 131) confirmed partial letting of third and fourth floors and self-occupation of upper floors by the assessee.
• AO’s method of determining ALV on comparables without physical verification or considering caretaker statement was arbitrary.
• Reliance on a single meter to prove whole building letting was speculative and not supported by law.
• Notional ALV of Rs. 1.78 crore was unscientific and contradicted local house tax records showing ALV around Rs. 27.58 lakh.
• The entire property’s ALV cannot be taxed where only a part is let out; ALV must be proportionate to the let-out portions.
• Deduction under section 24 and house tax payments must be allowed while computing income from house property.
Decision:
The ITAT set aside all assessments from AY 2012-13 to 2017-18 insofar as ALV
The copy of the order is as under:
