Assessee wins on unexplained cash deposits under Section 68 but loses on annual letting value determination

The ITAT Hyderabad ruled on two issues for the assessee. Regarding annual letting value (ALV) determination for vacant commercial property, the Tribunal dismissed the assessee's appeal. For 3,000 sft on 1st and 2nd floors, ALV was set at Rs. 38/sft. For 12,000 sft on 3rd and 4th floors, despite acknowledging these floors would fetch lower rent due to lack of lift access and remote location, the Tribunal upheld the AO's determination citing the assessee's failure to respond to rejoinder and dismissal of similar appeal for AY 2012-13. On unexplained cash deposits under section 68, the Tribunal ruled in favor of the assessee, finding no addition warranted since the assessee demonstrated cash availability and source through partnership firm withdrawal and same-day bank deposit.

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Issues Involved:
1. Opportunity to file a rejoinder to the remand report.
2. Addition towards annual value of vacant portions of house property.
3. Deduction towards vacancy allowance.
4. Reasonable expected rent for vacant portions.
5. Municipal Rentable Value as ALV of vacant portions.
6. Treatment of hire charges from leasing Plant & Machinery.
7. Disallowance of depreciation on Plant & Machinery.
8. Addition of unexplained cash credits.

Summary:

1. Opportunity to File a Rejoinder:
The assessee contended that the Commissioner of Income Tax (Appeals) ("Ld.CIT(A)") did not provide an opportunity to file a rejoinder to the remand report submitted by the Assessing Officer. The Tribunal did not make a specific ruling on this procedural issue.

2. Addition Towards Annual Value of Vacant Portions:
The Ld.CIT(A) confirmed an addition of Rs. 68,70,717/- made by the Assessing Officer towards the annual value of the vacant portions of the house property, which was consequently confirmed under the head 'Income from house property' at Rs. 48,09,502/-. The Tribunal upheld the Ld.CIT(A)'s decision, noting that the assessee failed to provide sufficient evidence to counter the Assessing Officer's valuation.

3. Deduction Towards Vacancy Allowance:
The assessee argued that the addition was made without considering the deduction towards vacancy allowance as per Section 23(1)(c) of the Income Tax Act. The Tribunal found that the assessee did not qualify for this deduction as the property was not let out during the relevant period.

4. Reasonable Expected Rent for Vacant Portions:
The Tribunal observed that the ALV should be based on Municipal Rentable Value (MRV) or comparable lettable value. The Tribunal noted that the properties on the 3rd and 4th floors would fetch less rent compared to lower floors and estimated the ALV accordingly.

5. Municipal Rentable Value as ALV:
The Tribunal agreed with the assessee's contention that MRV should be considered for determining the ALV of the vacant portions. However, due to the lack of comparable properties, the Tribunal estimated the ALV based on the rent fetched by the lower floors and the MRV provided.

6. Treatment of Hire Charges from Leasing Plant & Machinery:
The assessee withdrew grounds related to the treatment of hire charges from leasing Plant & Machinery as income from house property instead of business income, and the Tribunal dismissed these grounds as not pressed.

7. Disallowance of Depreciation on Plant & Machinery:
Similarly, the assessee withdrew the ground related to the disallowance of depreciation on Plant & Machinery, and the Tribunal dismissed this ground as not pressed.

8. Addition of Unexplained Cash Credits:
The Tribunal found that the assessee had adequately demonstrated the source of cash deposits amounting to Rs. 32,00,000/- in her bank account, which were withdrawn from M/s. Nithin Sai Constructions, where she was a partner. The Tribunal ruled that the addition made by the Assessing Officer as unexplained cash credits under Section 68 was not justified and allowed this ground in favor of the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the additions related to the annual value of vacant portions but allowing the ground related to unexplained cash credits. The Tribunal's decision was pronounced on 18th January, 2024.

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