Annual letting value cannot be raised notionally without standard rent evidence under rent control law.

Section 23 of the Income-tax Act requires annual letting value to be based on reasonable expected rent, actual rent received or receivable, and vacancy, as applicable. Where the property is governed by rent control law, the standard rent framework is relevant to test whether the actual rent is below the lawful rent. A notional enhancement based only on a higher rent from one tenant, without determining standard rent or producing competent valuation material under the applicable rent control regime, lacked legal foundation. The notional increase in annual letting value was therefore unsustainable.

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Issues: Whether the annual letting value of the let-out property could be enhanced on a notional basis by adopting a uniform higher rent from one tenant, without first determining the standard rent or other competent valuation under the applicable rent control law.

Analysis: Section 23 of the Income-tax Act, 1961 requires annual value to be determined on the basis of the reasonable expected rent, actual rent received or receivable, and vacancy, as applicable. Where the property is governed by a rent control regime, the standard rent mechanism becomes relevant in testing whether the actual rent is below the legally permissible value. The revenue authorities proceeded on a flat-rate comparison with rent charged to one tenant and increased the rent of the other tenants notionally, but did not obtain any determination from the competent authority under Section 9 of the Uttar Pradesh Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972 or otherwise establish the standard rent. In the absence of such material, the enhancement of annual letting value lacked proper legal foundation.

Conclusion: The notional enhancement of annual letting value was unsustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Annual letting value cannot be determined on a purely notional basis where the applicable rent control law requires consideration of standard rent and the revenue has not produced competent evidence to show that the actual rent is below the lawful rent.

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