Annual letting value of property u/s 23(1)(a) on the basis of Municipal Valuation accepted by ITAT
ABCAUS Case Law Citation
ABCAUS 3445 (2021) (01) ITAT
Important case law relied referred:
CIT v/s Mani Kumar Subba (2011 333 ITR 838)
CIT v/s Tip Top Typography (2014 368 ITR 330)
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition under the head house property being deemed annual letting value of residential house at 8% of book value of the property.
The assessee was an Actor, film producer and director. He had offered deemed rental income against a residential flat which was in his self occupation.
During the assessment proceedings the Assessing Officer (AO) found that the deemed rental income so offered was on the lower side. The assessee was show-caused as to why the deemed rental value of the property should not be increased.
The assessee submitted that no rental was received from the property and the income was offered on the basis of municipal valuation of the property. However, rejecting the same, the AO estimated rental income @ 8% of value of the property and after providing standard deduction of 30% u/s 24(a) and after deducting the rental income of Rs.8,400/- as already offered to tax, made the net addition.
The stand of the Assessing Officer (AO) was confirmed by CIT(A).
The Tribunal observed that as per the provisions of Section 23(1)(a), the annual value of such property shall be deemed to the sum for which the property might reasonably be expected to be let out from year to year.
Principles for determination of Annual Letting Value of the property
The Tribunal further noted the principles laid down by the Hon’ble High Court for determination of Annual Letting Value of the property as under:
(i) ALV would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances.
(ii) An inflated or deflated rent based on extraneous consideration may take it out of the bounds of reasonableness.
(iii) Actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated / deflated by reason of extraneous consideration.
(iv) Such ALV, however, cannot exceed the standard rent as per the Rent Control Legislation applicable to the property.
(v) if standard rent has not been fixed by the Rent Controller, then it is the duty of the assessing officer to determine the standard rent as per the provisions of rent control enactment.
(vi) The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as ALV and not the standard rent.
The Tribunal found that the methodology adopted by AO to estimate the income @ 8% of value of the property was not in accordance with the above principles. Nothing was brought on record by AO to show that the aforesaid estimation was the approximate sum between willing parties.
The assessee, on the other hand, had offered the rent on the basis of Municipal Valuation which was in accordance with the principle laid down by Hon’ble Court.
Accordingly, the Tribunal opined that the estimation made and confirmed by lower authorities could not be sustained.
The AO was directed to adopt the ALV of the property being deemed rental value based on municipal valuation of the property and the appeal was allowed in the favour of the assessee.
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