2018 (8) TMI 847 - AT - Income Tax

Tribunal allows deduction for vacant property under Income Tax Act

The Tribunal ruled in favor of the assessee in a case concerning the deduction under section 23(1)(c) of the Income Tax Act for a vacant property. It ... Income from house property - Deemed rental income - vacant flat - The Appellant submits that since the property has not been let out and the Appellant has not derived any benefit therefrom during the year the AO ought to have granted vacancy allowance under section 23(2) and compute the Annual Value at NIL Held that:- the assessee has claimed that the said flat had remained vacant throughout the year despite assessee’s reasonable effort to let out the same. That the assessee had requested the builder to identify the tenants. In this regard, the assessee has submitted three letters written to the builder. It may be noted that as emanating from the records and the letter, the same builder had identified the tenant for another flat of the assessee which was let out and whose rent has been offered and accepted for taxation. In this factual scenario, the authorities below have doubted the veracity of these letters and doubted the credentials of the assessee’s claim. In our considered opinion, this does not display application of mind to the facts of the case. The assessee is a well renowned cricketer. He is furnishing the return of income of ₹ 61,23,14,400/-. The let out value of the property in dispute is assessed as only ₹ 1,26,000/- by the ld. Commissioner of Income Tax (Appeals) as rent for the whole year. When the same builder has helped the assessee to find tenant for another flat, why his letters to the same builder to help him identify one more tenant, can be considered as fake, defies logic. That the assessee should maintain a dispatch register for his letters as expected by the authorities below, is also abnormal expectation. Hence, we have no hesitation in setting aside the orders of the authorities below and deleting the addition - Decided in favor of assessee. Issues:Interpretation of section 23(1)(c) for deduction in case of vacant property, Reasonableness of efforts made by the assessee to let out the property, Evaluation of evidence provided by the assessee to support the claim of vacancy allowance, Application of case laws in similar situations, Assessment of deemed rental income by the Assessing Officer, Review of the decision made by the Commissioner of Income Tax (Appeals).Interpretation of Section 23(1)(c) for Deduction in Case of Vacant Property:The case involved a dispute regarding the deduction under section 23(1)(c) of the Income Tax Act, 1961 for a property that remained vacant throughout the year. The provision allows for a proportionate deduction if a property is vacant and efforts were made to let it out. The Tribunal analyzed the legislative intent behind the provision and emphasized that the intention to let out the property, coupled with efforts to find a tenant, qualifies the property for the deduction.Reasonableness of Efforts Made by the Assessee to Let Out the Property:The Tribunal scrutinized the efforts made by the assessee, a well-known cricketer, to let out a vacant property by submitting letters to the builder requesting assistance in finding a tenant. The Tribunal noted that the same builder had helped the assessee find a tenant for another property, raising doubts about the rejection of the letters as insufficient evidence. The Tribunal deemed the rejection of the assessee's efforts as unreasonable, considering the circumstances and the credibility of the assessee.Evaluation of Evidence Provided by the Assessee to Support the Claim of Vacancy Allowance:The Tribunal assessed the evidence presented by the assessee, which included letters to the builder requesting tenant identification. The Tribunal found the rejection of these letters by the authorities below as lacking in application of mind to the facts of the case. The Tribunal criticized the authorities' doubts about the veracity of the letters and emphasized that the rejection was not sustainable in law, especially given the credibility of the assessee and the circumstances surrounding the case.Application of Case Laws in Similar Situations:The Tribunal referred to case laws such as Premsudha Exports (P) Ltd. vs. Asst.CIT to support the assessee's claim for vacancy allowance under section 23(1)(c). The Tribunal highlighted the importance of the intention to let out the property and the efforts made in this regard, as established in the case laws, to determine the eligibility for the deduction.Assessment of Deemed Rental Income by the Assessing Officer:The Assessing Officer estimated the rental income for the vacant property based on the value of both properties owned by the assessee, resulting in a higher deemed rental income. The Tribunal reviewed this assessment and found it unreasonable, especially considering the specific circumstances of the case and the efforts made by the assessee to let out the property. The Tribunal disagreed with the Assessing Officer's approach and concluded that the addition was not justified.Review of the Decision Made by the Commissioner of Income Tax (Appeals):The Commissioner of Income Tax (Appeals) had granted partial relief to the assessee by reducing the deemed rental income for the vacant property based on information from a website. However, the Tribunal found the rejection of the assessee's evidence and the subsequent decision to charge rental income as unreasonable. The Tribunal overturned the decision of the Commissioner of Income Tax (Appeals) and allowed the appeal in favor of the assessee.This detailed analysis of the judgment highlights the key issues addressed, the arguments presented by the parties, the legal provisions applied, and the Tribunal's reasoning leading to the final decision in favor of the assessee.