2015 (6) TMI 1073 - AT - Income Tax

Tribunal permits loss carry forward & assesses property income based on municipal value

The Tribunal allowed the carry forward of losses under section 71B of the Income Tax Act for the assessment year 2007-08, valuing the property at NIL ... Carry forward losses u/s.71B - income computed under the head 'Income from House Property” - Held that:- CIT(A) has directed the AO to allow carry forward losses under the head income from house property u/s.71B of the Income Tax Act to be set off against the income under the same head. As the facts during the year under consideration are pari materia with the case law relied on by the ld. AR in case of Aryabhata Properties Limited (2013 (7) TMI 1036 - ITAT MUMBAI ), we do not find any infirmity in the order of CIT(A) for computing losses under the head income from house property and allowing the said loss to be carried forward u/s.71B of the I.T.Act, so far as it pertains to the interest expenditure. Issues involved:1. Allowance of carry forward losses under section 71B of the Income Tax Act.2. Determination of Annual Letting Value (ALV) for property.3. Interpretation of the words 'property is let' in section 23(1)(c) for computing annual letting value.4. Assessment of income as income from house property or business and profession.Analysis:1. The appeal by the revenue challenged the CIT(A)'s decision to allow carry forward losses under section 71B of the Income Tax Act for the assessment year 2007-08. The AO disallowed the claim of the assessee for carry forward of loss under the head Income from House Property, treating the expenses as pre-operative expenditure. However, the Tribunal referred to a similar case where it was held that the property could be valued at NIL under section 23(1)(c) and the ALV should be determined based on the Annual Ratable Value by Municipal authorities, not the cost of the property. The Tribunal concluded that the assessee was entitled to value the property at NIL, allowing the carry forward of losses under the head Income from House Property. The Tribunal directed the AO to accept the ALV at NIL and compute the loss accordingly.2. The issue of determining the ALV for the property was crucial in the case. The Tribunal emphasized that the ALV should be based on the Annual Ratable Value determined by Municipal authorities, not the cost of the property. The CIT(A) had dismissed the assessee's contentions, stating that the Municipal ratable value was not furnished, which was factually incorrect as the assessee had provided the value in a letter to the AO. The Tribunal held that the property could be valued at NIL under section 23(1)(c) if efforts were made to let it out, even if it remained vacant during the year.3. The interpretation of the words 'property is let' in section 23(1)(c) was a key point of contention. The Tribunal clarified that the property could be considered a let-out property if held with the intention to let out and efforts were made to do so, regardless of whether it was actually let out in the relevant year. The Tribunal emphasized that the intention to let out the property and efforts made for letting it out were crucial for determining the annual letting value.4. The appeal by the assessee regarding the assessment of income as income from business and profession instead of income from house property was dismissed since the Tribunal upheld the view of the CIT(A) that the income was assessable as income from house property. Therefore, both appeals by the revenue and the assessee were dismissed, and the order was pronounced on June 10, 2015.