Tribunal eases tax burden on assessee by adjusting rental income & expenses

The Tribunal partially allowed the appeals of the assessee in a case involving the addition of rental income and disallowance of expenses attributable to earning house property income for multiple assessment years. The Tribunal directed the Assessing Officer to consider the actual rent received by the assessee as the annual value of the property, leading to the deletion of the additions made by the AO. Additionally, the Tribunal modified the disallowance of expenses by estimating them at 20% of the total expenses. The decision was pronounced on 28th January 2011.

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Issues Involved:
1. Addition on account of rental income.
2. Disallowance of expenses u/s 37(1) attributable to earning house property income.

Summary:

Issue 1: Addition on account of rental income

The first common issue relates to the addition made by the A.O. and confirmed by the ld. CIT(A) on account of rental income for A.Y. 2001-02 and 2003-04 to 2006-07. The assessee, a company deriving income from business and rental income, was subjected to a search and seizure action u/s 132. Proceedings u/s 153-A were initiated for the relevant years. The A.O. adjusted the gross rental income based on lease agreements and market conditions, estimating higher rental values. The ld. CIT(A) upheld the A.O.'s action, factoring in higher security deposits while calculating the annual letting value. The Tribunal, however, directed the A.O. to adopt the rent actually received by the assessee, being more than the Municipal Ratable Value, as the annual value of the property for A.Y. 2003-04 to 2006-07, following the decision in Reclamation Realty India P. Ltd. and other judicial pronouncements. Consequently, the additions made by the A.O. were deleted.

Issue 2: Disallowance of expenses u/s 37(1) attributable to earning house property income

The second common issue pertains to the disallowance of various expenses claimed by the assessee u/s 37(1) by treating them as attributable to earning house property income for A.Y. 2001-02 to 2006-07. The A.O. apportioned these expenses between business income and house property income based on turnover and gross rental income. The ld. CIT(A) confirmed the disallowance, observing that most expenses were related to the overall entity and operations of the assessee. The Tribunal, after reviewing the nature of expenses and submissions, directed the A.O. to estimate the expenses attributable to house property income at 20% of the total expenses, thereby modifying the disallowance.

Conclusion:

In the result, all the appeals of the assessee were partly allowed. Order pronounced on 28th January, 2011.

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