2021 (11) TMI 770 - AT - Income Tax

Tribunal partially overturns Revenue's rental income determination, deems reliance on valuer's report unjustified.

M/s Fateh Homes Private Limited Versus The I.T.O., Ward-1 (4), Chandigarh.

The Tribunal partly allowed the appeal, setting aside the Revenue's determination of rental income and restoring the income returned by the assessee. The ... Income from house property - ALV determination - determination of income from house property as governed by the provisions of chapter IV-C of the Act - whether Income to be assessed basis actual rent received? - Revenue contends the same to be assessable at fair market rent determined on the basis of report of a Govt. approved valuer - HELD THAT:- As per the facts of the case the assessee had returned actual rent received of ₹ 6,50,000/- and deducted expenses therefrom disclosing income of ₹ 4,09,830/-,while the Revenue has determined the fair market rent relating to assesses share of property at ₹ 14,87,604/- based on valuation report of a govt. approved valuer. Revenue while doing so has simply accepted the Valuation Report as sacrosanct for the purpose of determining the fair rental value of the property without undertaking any exercise for determining its municipal value or standard rent, when as per the Ld.CIT(A) himself and as per law interpreted by courts in this regard, these are the guiding factors for determining the annual rental value of the property and any deviation from the same is to be based on evidence showing that it is wrong. We find the entire exercise of the Revenue Authorities in the present case for determining the annual ALV of the property as being arbitrary. No reason has been given for adopting the fair rent determined by the valuer as against the municipal valuation or of the standard rent of the property, which has not even been determined in the present case. Adoption of the fair rent as determined by a govt. approved valuer as the annual rental value of the property owned by the assessee is not justified and the same is, therefore, rejected. The income so determined by the Revenue Authorities of ₹ 14,87,600/- is set aside and that returned by the assessee is restored . Issues Involved:1. Determination of income assessable under 'income from house property.'2. Validity of the reference made to a valuer for determining fair market rent.3. Rejection of comparable rent instances provided by the assessee.4. Denial of statutory deduction under Section 24 of the Income Tax Act.5. Alleged unfair assessment proceedings by the JCIT.Issue-wise Detailed Analysis:1. Determination of Income Assessable Under 'Income from House Property':The primary issue in the appeal was the determination of income assessable under the head 'income from house property.' The assessee declared rental income based on actual rent received, while the Revenue assessed it based on the fair market rent determined by a government-approved valuer. The property in question was rented out for Rs. 6,50,000, with a declared income of Rs. 4,09,830 after expenses. The AO, however, assessed the fair market rent at Rs. 3,00,000 per month, resulting in an income of Rs. 14,87,604.2. Validity of Reference to a Valuer for Determining Fair Market Rent:The assessee contended that there was no legal provision allowing the AO to refer the valuation of the Annual Letting Value (ALV) of the property to a valuer. The CIT(A) upheld the AO's action, stating that the AO is vested with the power to determine the ALV under Section 23(1)(a) of the Act, which involves determining the fair/reasonable rent expected to be fetched by the property. The CIT(A) further noted that municipal value or standard rent is a guiding factor but not binding on the AO. The AO can determine the fair rent by inflating or deflating the municipal value or standard rent if it is not based on relevant material.3. Rejection of Comparable Rent Instances Provided by the Assessee:The assessee provided instances of comparable rents for similar properties, which were rejected by the AO. The CIT(A) supported the AO's reliance on the valuer's report, stating that the assessee failed to point out specific defects in the report with supporting evidence. The Tribunal found that the Revenue's determination of the ALV based solely on the valuer's report, without considering municipal valuation or standard rent, was arbitrary and unjustified. The Tribunal set aside the Revenue's determination of Rs. 14,87,604 and restored the income returned by the assessee.4. Denial of Statutory Deduction Under Section 24:The assessee's ground regarding the denial of statutory deduction of 30% under Section 24 was found irrelevant by the Tribunal since the rental income assessed by the Revenue was set aside.5. Alleged Unfair Assessment Proceedings by the JCIT:The assessee alleged that the JCIT did not conduct the assessment proceedings fairly and disposed of the application under Section 144A without granting an opportunity of being heard. No arguments were made before the Tribunal on this ground, and it was dismissed.Conclusion:The Tribunal allowed the appeal partly, setting aside the Revenue's determination of the rental income and restoring the income returned by the assessee. The Tribunal found the Revenue's reliance on the valuer's report without considering municipal valuation or standard rent as unjustified. The ground relating to the denial of statutory deduction was found irrelevant, and the ground regarding unfair assessment proceedings was dismissed. The appeal was partly allowed, and the order was pronounced on 12th October 2021.