2018 (3) TMI 1091 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Property Rental Income Assessment

M/s Gurera Industries Limited Versus ITO, Ward 10 (4), New Delhi

M/s Gurera Industries Limited Versus ITO, Ward 10 (4), New Delhi - TMI Issues Involved:Assessment of Annual Value of House Property, Computation of Rental Income, Justification for Rental Reduction, Application of Section 23 of Income Tax Act, 1961, Appeal Against CIT(A) Order.Analysis:1. Assessment of Annual Value of House Property:The appeal concerns the computation of the annual value of a property rented out by the assessee to a company. The Assessing Officer (AO) noted a substantial reduction in the rental income declared by the assessee compared to previous years. The AO questioned this reduction and computed the monthly rental income at a higher rate, resulting in an addition to the taxable income. The AO's decision was based on the premise that the assessee had reduced the rental value to avoid tax liability. The Commissioner of Income Tax (Appeals) partly allowed the appeal, considering the factual matrix of the case. The Tribunal upheld the CIT(A)'s decision, stating that there was no merit in the assessee's justification for the reduction in the Annual Letting Value (ALV) of the property. The Tribunal agreed with the CIT(A) that the property was let out again at a higher rate, and if evidence of such rental receipts was produced, necessary relief in re-computation of rental income could be given.2. Computation of Rental Income:The dispute also revolves around the computation of rental income from the property in question. The AO assessed the monthly rental income at a higher rate than declared by the assessee, leading to an addition to the taxable income. The CIT(A) partly allowed the appeal, and the Tribunal upheld this decision, emphasizing the need for verification of rental receipts in later years to determine the accurate rental income. The Tribunal rejected the grounds raised by the assessee, resulting in the dismissal of the appeal.3. Justification for Rental Reduction:The assessee contended that the reduced rent was in accordance with Section 23 of the Income Tax Act, 1961, as the premise was not in use. However, the AO did not accept this explanation and proceeded with the computation based on the higher rental rate. The Tribunal agreed with the CIT(A) that the assessee failed to justify the reduction in ALV, especially considering the rental history and the subsequent letting out of the property at a higher rate. The Tribunal upheld the CIT(A)'s decision and rejected the grounds raised by the assessee.4. Application of Section 23 of Income Tax Act, 1961:The case involved the application of Section 23 of the Income Tax Act, 1961, concerning the determination of annual value for properties let out. The assessee argued that the rent offered was as per Section 23, but the AO disagreed and computed the rental income at a higher rate. The Tribunal upheld the CIT(A)'s decision, emphasizing the need to consider the factual matrix of the case and the subsequent letting out of the property at a higher rate.5. Appeal Against CIT(A) Order:The assessee appealed against the order of the CIT(A), which partly allowed the appeal. The Tribunal considered the contentions of both parties, reviewed the orders of the revenue authorities, and upheld the decision of the CIT(A) in re-computing the rental income based on the subsequent letting out of the property at a higher rate. The Tribunal dismissed the appeal filed by the assessee, affirming the CIT(A)'s decision.In conclusion, the Tribunal's judgment focused on the assessment of the annual value of the property, the computation of rental income, the justification for rental reduction, the application of relevant provisions of the Income Tax Act, and the appeal against the CIT(A) order. The decision highlighted the importance of verifying rental receipts and considering the factual circumstances of the case in determining the rental income for taxation purposes.