House Property Annual Value u/s 23(1). Whether flat ihabitable or not, a question of fact to be determined after appreciation of evidences

ITAT, Mumbai in a recent judgment has held that for determination of Annual Value of House property, u/s 23(1), whether the residential property (flat) was habitable or not was a question of fact that can be determined only after appreciation of evidences and remanded the case back to AO.

Case Law Details:
ITA No. 4919/Mum/2014 Assessment Year : 2010-11
Rajankumar Manchanda vs. Deputy Comm. Of Income Tax
Date of Judgment/Order: 21-04-2016

Case Law Referred:
ITO v. Chem Mech Private Limited reported in (2002) 83 ITD 427(Mum.)
Shyam Sunder Behl v. ACIT 99 TTJ (Asr.) 1147
CIT v. Tip Top Typography (2014) 48 taxmann.com 191 (Bom.)

Brief Facts of the Case:
During the course of assessment proceedings u/s 143(3) the Assessing Officer noticed that the assessee has shown fixed assets comprising of two residential properties, one at ‘Juhu’ and second at ‘Kripanidhi’, which were not used for the purpose of business of the assessee. The flat at ‘Juhu’ is self occupied and flat at Kripanidhi was vacant during the year and the assessee has not offered any income in respect of vacant flat in the computation of income . The assessee was asked to show cause why flat at ‘Kripanidhi’ be not treated as deemed let out property and added to the total income as Income from house property. On non submission of reply, the AO treated the said flat as deemed let out property and after allowing standard deduction u/s 24(a), computed 8.5% of the book value of the flat appearing in books as Annual Value for the purposes of Section 23(1). 

The assessee contested order in appeal before CIT(A) and submitted that he did make submissions before the AO that the assessee got the possession of the flat in June 2008 and the said flat was not in habitable condition and the furniture work was going on in the said flat which was incomplete till 31.03.2010 and also continued up-to 31.03.2011. However, CIT(A) held that the assessee had not made any application under Rule 46A of the Income Tax Rules, 1962 for admission of any additional evidence and order of the AO was confirmed.

Excerpts from ITAT Judgment:
The computation of ALV is to be based on the provisions of Section 23 of the Act and Hon’ble Bombay High Court in the case of CIT v. Tip Top Typography (2014) 48 taxmann.com 191 (Bom.) has laid down the guidelines with respect there-to. In our considered view interest of justice will be best served if the orders of the authorities below are set-aside and issue is restored to the file of the AO for de-novo determination after considering the evidences and explanation submitted by the assessee in his defense on merits. Needless to say proper and adequate opportunity of being heard will be provided by the AO to the assessee in accordance with the principles of natural justice in accordance with law. We order accordingly.