Assessee's appeal granted, fair market rent crucial. Legal provisions, due process emphasized in related party transactions.

The Tribunal allowed the assessee's appeal, emphasizing the importance of determining fair market rent based on legal provisions and factors affecting rental value. The case underscored the need for due process in assessing fair rental income, particularly in transactions involving related parties. The Tribunal directed a reexamination of the issue by the AO to ensure compliance with the law.

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Issues:
1. Disallowance of fair rental income by AO and confirmation by CIT(A)
2. Determination of fair market rent for a property rented to related parties

Analysis:
1. The appeal was filed against the CIT(A)'s order confirming the disallowance of fair rental income made by the AO. The AO observed that the rent charged from related parties was below fair market rate, leading to an addition of Rs. 34,05,000. The assessee contended that the rent was reasonable due to various factors. The CIT(A) partly confirmed the AO's order based on rent charged from Bank of Baroda in 2011-12, increasing it by 5% annually.

2. The issue revolved around determining the fair market rent for the property. The AO and CIT(A) used the rent charged from Bank of Baroda as a basis, but the assessee disputed this, claiming the fair rent was similar to that charged from associated enterprises. The Tribunal noted that the authorities did not follow the prescribed procedures to determine fair rent. Factors like escalation clauses and time gaps were not considered. The Tribunal held that the issue needed reexamination as per the law and restored it to the AO's file.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes, emphasizing the need for a proper determination of fair market rent based on legal provisions and factors affecting the rental value. The case highlighted the importance of following due process in assessing fair rental income, especially when dealing with related parties.

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