Property vacant for part of year qualifies for section 23(1)(c) benefit despite brief rental period

ITAT Pune ruled in favor of the assessee regarding determination of annual value under section 23(1)(c) for house property income. The property was let out for 15 days but remained vacant for the remaining period of the assessment years. The AO and CIT(A) incorrectly denied that the property was leased out based on suspicion without evidence. ITAT held that section 23(1)(c) applies when property is vacant during whole or any part of the previous year, directing the AO to allow the benefit and amend assessment orders accordingly.

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Issues Involved:

1. Determination of annual value of the property under section 23(1)(a) vs. section 23(1)(c) of the Income Tax Act.
2. Eligibility for vacancy allowance under section 23(1)(c).
3. Consideration of municipal ratable value and deduction of municipal taxes.

Detailed Analysis:

1. Determination of Annual Value of the Property:

The primary issue was whether the annual value of the property at Devs Arcade Mall, Ahmedabad should be determined under section 23(1)(a) or section 23(1)(c) of the Income Tax Act. The assessee contended that the property was let out in earlier years and for a short period during the assessment years 2016-17 and 2017-18, thus section 23(1)(c) should apply. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) (CIT(A)) determined the annual value under section 23(1)(a), adding Rs. 52,83,945 towards deemed rent, arguing the property was not let out during the year.

The Tribunal noted that the property was indeed let out for 15 days in each relevant year and remained vacant for the rest of the period. Therefore, all conditions under section 23(1)(c) were met, making the application of section 23(1)(a) by the AO and CIT(A) incorrect.

2. Eligibility for Vacancy Allowance under Section 23(1)(c):

The AO rejected the assessee's claim for vacancy allowance under section 23(1)(c), stating that the property was not let out during the year. The Tribunal disagreed, emphasizing that the property was let out for a part of the year, and the vacancy allowance under section 23(1)(c) should apply. The Tribunal cited several judicial precedents supporting that properties let out in earlier years but remaining vacant during the current year should have their annual value considered as nil under section 23(1)(c).

3. Consideration of Municipal Ratable Value and Deduction of Municipal Taxes:

The assessee argued that if section 23(1)(a) were to apply, the municipal ratable value should be adopted as the annual value, and deductions for municipal taxes paid should be allowed. However, since the Tribunal ruled in favor of applying section 23(1)(c), these grounds became academic and required no further adjudication.

Conclusion:

The Tribunal concluded that the property was let out during the relevant assessment years for a short period and remained vacant for the rest of the time. Therefore, the provisions of section 23(1)(c) applied, and the annual value should be considered as nil for the vacant period. The appeals for both assessment years 2016-17 and 2017-18 were allowed, and the AO was directed to amend the assessment orders accordingly.

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