Fair rental value estimated by Income Tax Inspector disapproved by ITAT. FMRV ordered to be ascertained u/s 23(4) by applying percentage of cost
ABCAUS Case Law Citation:
ABCAUS 1196 (2017) (04) ITAT
The only issue raised by the assessee was against the confirmation of addition for deemed rent made by the Assessing Officer (‘AO’) under section 23(4) of the Income Tax Act, 1961 (‘the Act’) qua an office.
Assessment Year : 2006-07 to 2012-13
Date/Month of Pronouncement: March, 2017
Important Case Laws Cited/relied upon:
Yasin Sattar V/s ITO
ACIT V/s Dr. Rajendra N Umbarkar
Smt. Radha Devi Dalmiya V/s CIT
Saipansaheb Wd. Dawoodsaheb V/s Laxman Venkatesh Naik
Brief Facts of the Case:
The present judgment was delivered by way of a consolidated order disposing off seven appeals filed by the assessee against the common order passed by the CIT(A) for the assessment years 2006-07 to 2012-13.
The appellant assessee had not filed her return of income. A Search and Seizure operation was carried out in on a Trust Group. Later, a notice under section 153A was issued to the assessee which was compiled with by the assessee by filing return of income. The AO issued notice u/s 143(2) and thereafter u/s 142(1) of the Act along with detailed questionnaire calling for information from the assessee. During the course of assessment proceedings, the AO on perusal of the balance sheet observed that a property was appearing in the balance sheet and accordingly, the AO asked the assessee whether the rent was received from the said property. The assessee neither filed reply nor complied with the said notice.
The AO deputed Income Tax Inspector to identify and to ascertain the prevailing market rent of this property by having field survey at and around the place where the property was located. The Income Tax Inspector submitted his report estimating the deemed market rental value of the said property u/s 23(4) of the Act. Accordingly, the AO completed the assessment u/s 143(3) r.w.s 153A of the Act by making an addition in respect of commercial property and a residential property u/s 23(4) of the Act.
Aggrieved by the adoption of deemed rent, the assessee filed an appeal before the CIT(A) who not convinced with the assessee’s submissions, dismissed the appeal.
Further aggrieved by the order of CIT(A), the assessee was in appeal before the Tribunal (ITAT).
Contentions of the Appellant Assessee:
It was submitted that the manner in which the income from the property was ascertained and assessed by the AO and thereafter confirmed by the CIT(A) was totally wrong and unacceptable as the fair rental value was estimated by the Income Tax Inspector deputed by the AO who assessed the market rental value of the property in the vicinity and went backward to ascertain the fair rental value for the year under consideration.
It was submitted that the market rental value of the property was to be ascertained only on the basis of certain percentages of the cost of the property or on the basis of rental value as prescribed by the Municipal Corporation and not by the officer of the Income tax department deputed by the AO.
It was further submitted that since there was a litigation going on between the Municipal Corporation, assessee and the other owner of the building and therefore ascertaining the fair market rental value (FMRV) of the property would not be possible by taking the fair rental value as Municipal Corporation and only course left was to estimate the FMRV by applying certain percentages of cost of property.
Observations made by the Tribunal:
The Tribunal, after considering the rival contentions, on perusal of record and after going through the various decisions of High Courts and other authorities opined that the Fair Market Rental Value of the property could be ascertained by applying the certain percentage of cost of investment in the said property.
However, the ITAT observed that since the information on the investment in the property was not available with it, it was a fit case to be restored back to the file of AO. Accordingly.
The matter was restored back to the file of AO with a direction to assess the fair market rental value of the property by application of 8% of the cost of investment made in the property in dispute.