Tribunal allows appeal against deemed rent addition under section 23(1)(a) for property leased to unrelated third parties

ITAT Visakhapatnam allowed the assessee's appeal regarding addition of income from house property based on estimated rent. The AO contended assessee received lower rent from one party compared to others. The assessee argued property was leased for continuous long periods to third parties, negating deemed rent under section 23(1)(a). The Tribunal relied on its earlier decision in assessee's own case for AY 2015-16 and distinguished revenue's cited case as it involved related parties. Here, leases were to unrelated third parties on commercial terms, with one tenant being a non-profit blood bank incidental to hospital operations.

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Issues:
1. Discrepancy in rental income received from different parties.
2. Addition of deemed rent receivable under section 23(1)(a) and disallowance under section 24(b) of the Income Tax Act.
3. Appeal against the order of the Learned Commissioner of Income Tax (Appeals).

Detailed Analysis:
1. The case involved a dispute regarding the rental income received from three different parties by the assessee, who was engaged in letting out buildings both residential and non-residential. The Assessing Officer observed a significant difference in the rental income and issued a notice to the assessee to explain the variance. The Assessing Officer ultimately made an addition to the income based on the differential rental income received from the parties.

2. The main issue revolved around the addition of deemed rent receivable under section 23(1)(a) and disallowance under section 24(b) of the Income Tax Act. The assessee contended that the rental income was as per the terms of the lease agreements with the respective parties. The dispute escalated to the appeal stage before the Learned Commissioner of Income Tax (Appeals), where the assessee relied on previous ITAT decisions but the appeal was dismissed based on a High Court decision.

3. The appeal before the Appellate Tribunal focused on the grounds raised by the assessee against the order of the Learned Commissioner of Income Tax (Appeals). The Tribunal considered the arguments presented by both sides, emphasizing the continuous long-term lease of the property to tenants and the commercial considerations involved in the rental agreements. The Tribunal referred to previous decisions and distinguished the case at hand from the cited precedents, ultimately allowing the appeal of the assessee based on the specific circumstances and commercial nature of the lease agreements.

In conclusion, the Appellate Tribunal allowed the appeal of the assessee, highlighting the specific details of the lease agreements, the nature of the tenants, and the commercial considerations involved in determining the rental income. The Tribunal's decision was based on a thorough analysis of the facts and legal precedents cited during the proceedings.

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