2024 (11) TMI 234 - AT - Income Tax

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

A.S. Raja Sons Enterprises (P.) Ltd. Versus Asst. CIT – Circle – 1 (1), Income Tax Office, Andhra Pradesh

ITAT Visakhapatnam allowed the assessee's appeal regarding addition of income from house property based on estimated rent. The AO contended assessee ... Addition as income from house property - estimation of rent for the purpose of let-out - case of the AO that the assessee is receiving lower rent from one party when compared to rental income received from other two parties - as per assessee property is leased out for a continuous long period for the occupation of tenants and therefore no deemed rent can be invoked as per section 23(1)(a) - HELD THAT:- On similar facts, in assessee’s own case [2020 (11) TMI 1124 - ITAT VISAKHAPATNAM] for the A.Y. 2015-16 this bench has dismissed the appeal of the revenue by relying on the decision of Oberoi Hotels Pvt., Ltd [2016 (1) TMI 169 - ITAT KOLKATA] The case relied on the Ld. DR could not be applied to the instant case as the co-owners themselves are the Directors of the lessee company and hence related. In the instant case, the lease has been done to the third non-related parties based on commercial consideration. The portion let out to M/s. A.S. Raja Trust which is a non-profit organisation is meagre and incidental to the hospital activities of M/s. Visakha Hospitals & Diagnostics Limited. It was explained that M/s. A.S. Raja Trust operates a blood bank as a non-profit organisation which is incidental to the hospital run by M/s. Visakha Hospitals & Diagnostics Limited which occupies major portion of the let-out area. As submitted by the Ld.DR the decision of the Tribunal for the earlier assessment year is pending before Hon’ble High Court of Andhra Pradesh for adjudication. The order of the Tribunal, Visakhapatnam is neither stayed nor reversed by the Hon’ble High Court, therefore, we place reliance on the decision of the Tribunal, Visakhapatnam Bench while allowing the ground raised by the assessee in the appeal. Appeal of the assessee is allowed. 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.