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

ITAT Visakhapatnam allowed the assessee's appeal regarding addition of income from house property based on estimated rent. The AO contended assessee ... Deemed rent under section 23(1)(a) - estimation of annual value for let-out property - application of past ITAT decision in assessee's own case - precedential weight of coordinate bench decisions - related party considerations in rent comparisonDeemed rent under section 23(1)(a) - estimation of annual value for let-out property - related party considerations in rent comparison - application of past ITAT decision in assessee's own case - precedential weight of coordinate bench decisions - Recomputation of annual value under section 23(1)(a) and consequential disallowance under section 24(b) were not sustainable on the facts and were deleted. - HELD THAT: - The Assessing Officer estimated a higher annual value on the basis of differential rentals received from different tenants. The assessee, however, produced lease agreements showing long-term occupation by M/s. Visakha Hospitals & Diagnostics Limited occupying the major portion of the building, with only nominal areas let to other parties; one such occupant is a non-profit whose use was incidental to hospital activities. The Tribunal noted that on similar facts it had earlier decided in the assessee's favour for a prior assessment year and that the coordinate-bench decision relied upon by the assessee was not shown to have been reversed or stayed by the High Court. The decision of the High Court of Kerala relied upon by the Department was distinguished on facts and not applied. In these circumstances, the Tribunal held that the Assessing Officer's re estimation of annual value under section 23(1)(a) could not be sustained and the consequential disallowance under section 24(b) also fell to be deleted. The Tribunal therefore placed reliance on its earlier view and allowed the assessee's ground of appeal. [Paras 9, 10, 11]The additions made by the Assessing Officer under the head 'Income from House Property' and the disallowance under section 24(b) were set aside and the appeal was allowed.Final Conclusion: The Tribunal allowed the appeal for A.Y.2018-19, holding that the AO's recomputation of annual value under section 23(1)(a) and the consequent disallowance under section 24(b) were unsustainable on the facts; the additions and disallowance were deleted. 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.