Tribunal dismisses revenue appeal, allows standard deduction for rental income under Section 24(a).

The appellate tribunal dismissed the revenue's appeal, leading to the deletion of the addition made on a protective basis in the hands of the assessee. Additionally, the standard deduction claim under Section 24(a) for rental income was allowed, with the AO directed to verify the claim. The decision was rendered on 01/07/2021.

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Issues Involved:
1. Validity of addition made on protective basis in the hands of the appellant.
2. Allowability of standard deduction claims under Section 24(a) of the Income Tax Act for rental income.

Detailed Analysis:

1. Validity of Addition Made on Protective Basis:

A search and seizure operation conducted under Section 132 of the Income Tax Act, 1961, led to the initiation of proceedings under Section 153A against the assessee. During the search, a list of valuable items was found at the residence of the assessee, leading to an addition of Rs. 3.30 crores to the income of the assessee on a substantive basis. This addition was also made to the income of another individual, TCC, on a protective basis.

The assessee challenged this addition, claiming no gifts were given as alleged. The CIT (A) confirmed the addition in the hands of TCC substantively. Consequently, the revenue accepted this confirmation but erroneously filed an appeal to delete the addition made on a protective basis in the hands of the assessee. The appellate tribunal directed the deletion of the addition in the hands of the assessee since it was upheld substantively in the case of TCC, rendering the addition in the hands of the assessee infructuous.

2. Allowability of Standard Deduction Claims:

The assessee claimed a standard deduction of 30% on rental income under Section 24(a) of the Income Tax Act. The Assessing Officer (AO) disallowed this claim, arguing that the income from sub-letting should be considered "income from other sources" and not "income from house property," as the assessee was not the owner of the property but had sub-let it.

The assessee contended that the property was taken on lease for more than 12 years, making him a deemed owner under Section 27(iii)(b) read with Section 269UA of the Act. The CIT (A) accepted this contention, noting that the property was leased since 01.12.1989 and the registered lease agreement extended up to 31.03.2014. The CIT (A) relied on the Supreme Court judgment in the case of Raj Dadarkar vs ACIT, which held that leasehold rights for more than 12 years make the lessee a deemed owner, allowing the income to be assessed under "income from house property."

The appellate tribunal upheld the CIT (A)'s decision, directing the AO to verify the claim of income from house property and to ensure that the original owner has not claimed the benefit. The tribunal concluded that the revenue, having assessed the rent under "income from house property," cannot deny the statutory deduction under Section 24(a) unless proven otherwise.

Conclusion:

The appeal by the revenue was dismissed, and the addition made on a protective basis in the hands of the assessee was deleted. The standard deduction claim under Section 24(a) for rental income was allowed, subject to verification by the AO. The decision was pronounced in the open court on 01/07/2021.

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