2022 (6) TMI 894 - AT - Income Tax

Tribunal ruling favors assessee on house property but upholds addition on other sources

Sri. Yash Vardhan Arya Versus The Income Tax Officer (International Taxation) Ward 1 (1) Bangalore

The Tribunal ruled in favor of the assessee in the case involving addition under the head 'house property,' holding that the property was deemed let out ... Addition under the head “house property” - lease rentals are to be paid from the date of handing over the building to lessee - AO held that the rental income of the property commenced on 01.02.2016 itself and has brought the corresponding amount of lease rental receivables from M/s.IBIBO Group Private Limited for the period 01.02.2016 to 31.03.2016 - HELD THAT:- The property was let out on 01.02.2016 the rent commenced from 01.06.2016. It is clearly mentioned in the lease deed that the rent commencement date shall be the date of handing over the physical possession of the fully fitted out and operational possession of the property. Section 23 was substituted with effect from 01.04.2002 by Finance Act, 2001 for and from assessment year 2002- 2003. In the case of S.M.Chandrashekar [2017 (1) TMI 52 - ITAT BANGALORE] Tribunal, had held that meaning and interpretation of the words 'property is let’ cannot be 'property actually let out’. As further held by the Tribunal that if a property is held with an intention to let out in the relevant year coupled with efforts made for letting it out, it could be said that such a property is a let out property and the same would fall within the purview of clause (c) of section 23(1). Physical possession was handed over only on 01.06.2016, since works for the period between 01.02.2016 and 01.06.2016 was being undertaken to make the demised property as operational - when the lease was executed on 01.02.2016, the lessee has paid the security deposit equivalent to 10 (Ten) months rent towards an interest free security deposit in respect of leased premise - Therefore, the lease commenced as on date of executing the lease deed and hence, the `property was let’ as per the provisions of section 23(1)(c) within the relevant financial year. Only an intention to let out a property and coupled with efforts to let out the property is sufficient to come within section 23(1)(c) of the I.T.Act. The case of the assessee in this appeal stands on better footing, inasmuch as, the property was actually been let out during the relevant financial year. Hence, applicable section is 23(1)(c) of the I.T.Act instead of section 23(1)(a) of the I.T.Act invoked by the CIT(A). Since the lease rental received for the relevant assessment year being `Nil’, the same has to be adopted instead of ALV as ordered by the CIT(A). Further, the lease rental received by the assessee from 01.06.2016 was disclosed under the head “income from house property” for the subsequent assessment year, namely, A.Y. 2017-2018 onwards. Addition under the head “other sources” - HELD THAT:- The assessee has not brought on record any documentary evidence to show that it had incurred interest expenditure as against the income assessed under the head `income from other sources’. Therefore, the addition sustained by the CIT(A) to the extent is confirmed. Issues Involved:1. Addition under the head 'house property.'2. Addition under the head 'other sources.'Detailed Analysis:Addition under the head 'house property':The assessee, along with two others, purchased properties at Golden Enclave, Bangalore, and leased them to M/s. IBIBO Group Private Limited on 01.02.2016. The lease agreement stipulated that lease rentals would commence from 01.06.2016. However, the Assessing Officer (A.O.) held that rental income should be recognized from 01.02.2016 and added Rs. 7,47,600 to the assessee's income for the period from 01.02.2016 to 31.03.2016.Upon appeal, the CIT(A) accepted the assessee's contention that possession was given only on 01.06.2016, thus no rental income should be taxed for February and March 2016. However, the CIT(A) recalculated the income based on the Annual Letting Value (ALV) as per section 23(1)(a) of the I.T. Act, enhancing the addition to Rs. 28,78,260.The Tribunal reviewed the case and noted that the property was let out on 01.02.2016, but rent commenced from 01.06.2016, as per the lease deed. The Tribunal referenced section 23 of the I.T. Act, which was substituted with effect from 01.04.2002, and relevant case laws, concluding that the property was deemed let out as of 01.02.2016. The Tribunal held that the applicable section was 23(1)(c) of the I.T. Act, not 23(1)(a) as invoked by the CIT(A). Since the lease rental received for the relevant assessment year was 'Nil,' the Tribunal deleted the addition made by the CIT(A).Addition under the head 'other sources':The A.O. made an addition of Rs. 2,89,211, observing that the assessee earned dividend income of Rs. 62,905 and interest on PPF of Rs. 11,059, claiming them as exempt. The assessee also reported a negative income of Rs. 96,208 under 'income from other sources' after claiming a deduction of Rs. 2,89,211 as interest paid to M/s Divya Prakash Suppliers Pvt. Ltd. The A.O. disallowed the deduction due to lack of satisfactory evidence.The CIT(A) reduced the addition to Rs. 1,83,003, noting that the gross income from other sources was Rs. 96,208, and the interest expenditure claimed was Rs. 2,89,211, resulting in a loss of Rs. 1,93,003. The CIT(A) upheld the disallowance of the interest expenditure and computed the net income from other sources at Rs. 1,83,003 after allowing a deduction under section 80TTA.The Tribunal confirmed the addition sustained by the CIT(A), as the assessee failed to provide documentary evidence for the interest expenditure of Rs. 2,89,211.Conclusion:The appeal was partly allowed. The Tribunal deleted the addition under the head 'house property' but upheld the addition under the head 'other sources' to the extent sustained by the CIT(A).