Reassessment on tangible material and vacancy allowance for let property: note explains reopening validity and deletion of deemed rental income.

The note discusses two income-tax points: reopening under sections 147 and 148 was supported by tangible material indicating escaped income, so the challenge based on change of opinion failed, and the reassessment notice was treated as valid. On house property income, it states that section 23(1)(c) allows vacancy allowance where property was earlier let, is held for letting, and remains vacant during the year; denial merely because the units stayed vacant throughout was incorrect. The resulting treatment in the note is that the deemed rental addition for the vacant units was deleted, giving the assessee partial relief.

---

---

Issues: (i) Whether the reassessment initiated under section 147 and the notice issued under section 148 of the Income-tax Act, 1961 were valid. (ii) Whether the addition on account of deemed rental income from 12 vacant units was sustainable, or whether the assessee was entitled to vacancy allowance under section 23(1)(c) of the Income-tax Act, 1961.

Issue (i): Whether the reassessment initiated under section 147 and the notice issued under section 148 of the Income-tax Act, 1961 were valid.

Analysis: The reopening was found to rest on material showing that income from 12 units had not been brought to tax in the original assessment. The Court accepted that at the stage of reopening, the sufficiency of the material is not to be examined in depth and that the existence of reason to believe based on tangible material is sufficient. The challenge based on change of opinion was rejected.

Conclusion: The reassessment proceedings and the notice under section 148 were held to be valid, against the assessee.

Issue (ii): Whether the addition on account of deemed rental income from 12 vacant units was sustainable, or whether the assessee was entitled to vacancy allowance under section 23(1)(c) of the Income-tax Act, 1961.

Analysis: The Court applied the settled interpretation of section 23(1)(c) to hold that the expression "property is let" is not confined to property actually let during the relevant year. Where property had been let earlier, was held for letting, and remained vacant during the year, vacancy allowance is available. The authorities below were held to have wrongly denied the benefit merely because the units were vacant throughout the year.

Conclusion: The assessee was held entitled to vacancy allowance under section 23(1)(c), and the addition on deemed rental income was directed to be deleted.

Final Conclusion: The appeal succeeded on the reassessment issue in favour of the Revenue's stand, but the assessee succeeded on the merits of the house property addition, resulting in partial relief to the assessee.

Ratio Decidendi: Reassessment can be sustained where there is tangible material giving rise to reason to believe that income escaped assessment, and vacancy allowance under section 23(1)(c) is available for property held for letting even if it remained vacant throughout the year after having been let earlier.

---