2018 (2) TMI 1584 - AT - Income Tax

Tribunal favors Assessee in annual letting value case, emphasizes correct valuation methods

The Tribunal overturned the decisions of the AO and CIT(A) in a case involving the determination of annual letting value and disallowance of expenditures. ... Determining the annual letting value of the property which was let out and disallowance of certain expenditure - Held that:- As seen from the order of the AO, he has not considered the issue in the correct perspective. The building is subject to let out only to a hotel business as it contains rooms and also restaurant. The ground floor and first floor building, having road frontage and using for show room purposes, may fetch a higher rent but that does not indicate that all the floors in the building will fetch the same rent. Therefore, adoption of ₹ 100/- per sq. ft., is not only arbitrary but also without any basis as well. Since the ratio of commercial rent received in ground floor with that of hotel property in earlier years is not available and since no other comparable rent details were placed on record, we are of the opinion that the matter requires re-examination by the AO, particularly keeping in mind the principles laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Tip Top Typography (2014 (8) TMI 356 - BOMBAY HIGH COURT) relied on by assessee Assessee also offered other incomes, particularly rent on furniture and fixtures. Assessee also claimed service tax and other expenditure. Whether those incomes can be considered as part of house property income or has to be assessed separately either under the head ‘business’ or under the head ‘other sources’ also require re-examination by the AO. The allowance of various expenditure depends on the head under which incomes are assessed. - Decided in favour of assessee for statistical purposes. Issues:Determining annual letting value of property let out and disallowance of certain expenditure.Analysis:The appeal was filed against the Commissioner of Income Tax (Appeals)-4, Hyderabad's order regarding the determination of the annual letting value of a property let out and the disallowance of specific expenditures. The Assessee, the owner of a building leased to various entities, offered rental receipts and other receipts like rents on furniture and fixtures. The Assessing Officer (AO) observed discrepancies in the rental amounts offered by the Assessee and revalued the property's annual letting value. The AO disallowed claimed expenditures in the income tax computation. The Assessee contended that the property was suitable for hotel business only, leading to rental adjustments due to losses incurred by existing tenants. The Assessee cited legal precedents to challenge the AO's valuation methodology.The CIT(A) upheld the AO's decision, disallowing the claimed business expenses and confirming the revaluation of the property's annual letting value. The Assessee's argument that the property was leased to a related entity at a reduced rent was countered by the Department, emphasizing the AO's authority to determine annual rent based on fair market value. The Assessee's representative highlighted the building's specific purpose for hotel business, questioning the AO's valuation methodology based on ground floor rents.Upon review, the Tribunal acknowledged the AO's power to reassess annual property value if deemed unreasonably low. It noted discrepancies in the Assessee's reported income and directed a re-examination by the AO, considering relevant legal principles and prior court decisions. The Tribunal also instructed a reassessment of other incomes and expenditures, emphasizing correct categorization under relevant heads. The Tribunal set aside the AO and CIT(A)'s orders, returning the issues for fresh assessment, granting the Assessee a favorable ruling for statistical purposes.In conclusion, the Tribunal's decision favored the Assessee, emphasizing the need for a thorough reassessment by the AO, considering legal precedents and accurate valuation principles. The judgment highlighted the importance of proper valuation methodologies and categorization of incomes and expenditures under the appropriate heads for accurate tax assessment.