2025 (11) TMI 925 - AT - Income Tax

Assessment treats one house as self-occupied under s.23(4); others deemed let-out, fair rental valuation sustained, loan interest remanded for verification

Laljibhai Godadbhai Chaudhari Versus Income Tax Officer, Ward 2 (1) (1), Ahmedabad

ITAT, Ahmedabad upheld the assessment treating only one house as self-occupied under s.23(4), holding other properties as deemed let-out and sustaining ... Deemed house rent income/Rental Income - assessee owned more than one house property - HELD THAT:- As per Section 23(4) of the Act, only one property can be treated as self-occupied, while the others are to be treated as deemed let-out. The assessee failed to furnish credible evidence that the other two properties were self-occupied or uninhabitable. Estimation of fair rental value based on comparable market data cannot be faulted. AO’s reliance on data from property portals was a reasonable approach in the absence of authentic municipal or comparable rental data from the assessee. Accordingly, we find no infirmity in the orders of the lower authorities. The addition towards deemed rental income is hereby upheld. Disallowance of Housing Loan Interest - Amount disallowed for want of supporting evidence such as loan sanction letters and interest certificates - HELD THAT:- In the interest of justice, however, we deem it appropriate to grant the assessee one more opportunity to substantiate the claim. Accordingly, this issue is restored to the file of the Assessing Officer for limited verification of necessary documents. The assessee shall produce relevant bank certificates and loan statements, and the AO shall allow deduction as per law after due verification. ISSUES PRESENTED AND CONSIDERED 1. Whether, where an assessee owns more than one house property, properties other than the one treated as self-occupied can be assessed as deemed let-out and whether estimation of fair rental value based on online market/comparable data is permissible in the absence of municipal valuation or credible evidence from the assessee (Section 23(4)). 2. Whether deduction of interest on housing loan under Section 24(b) can be disallowed for want of supporting documentation and, if so, whether the matter should be remanded for limited verification on production of bank/loan certificates and interest statements. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Deemed Rental Income for Multiple Properties; Reliance on Online Market Data Legal framework: Section 23(4) provides that when an assessee owns more than one house property only one may be treated as self-occupied and the others are to be treated as deemed let-out, taxable on the basis of reasonable expected rent (fair rental value) less permissible deductions. Precedent treatment: The judgment does not apply, follow, distinguish, or overrule any specific precedent; resolution rests on statutory provision and factual matrix. Interpretation and reasoning: The Court accepted as undisputed that more than one house property was owned and that the assessee designated only one as self-occupied. The assessee failed to furnish credible evidence (e.g., proofs of occupation, municipal/other authoritative valuations, or documentary proof of uninhabitability) to rebut the statutory deeming under Section 23(4). In that evidentiary vacuum, the Assessing Officer resorted to estimation of fair rental value using comparable market data obtained from property portals. The Tribunal found this methodology reasonable and not impermissible when authentic municipal valuations or comparable rental evidence are not produced by the assessee. The Tribunal treated the AO's reliance on online property-portal data as a permissible and pragmatic approach to determine expected rent in the absence of better data from the assessee. Ratio vs. Obiter: Ratio - It is a correct exercise of the taxing power under Section 23(4) to treat surplus properties as deemed let-out where the assessee fails to prove self-occupation or uninhabitability; in such circumstances estimation of fair rent using available market/comparable data (including online portals) is permissible. Obiter - No extended dicta on limits of types or sources of market data beyond the factual acceptance of property-portal data in the present record. Conclusion: The addition of deemed rental income of Rs. 2,82,090 (computed from two properties) is upheld. The Tribunal found no infirmity in the AO's and first appellate authority's approach and confirmed the deemed rental inclusion under Section 23(4). Issue 2 - Disallowance of Housing Loan Interest for Want of Evidence; Remand for Limited Verification (Section 24(b)) Legal framework: Section 24(b) allows deduction of interest on borrowed capital used for acquisition, construction, repair, renewal or reconstruction of a house property, subject to statutory limits and proof of the loan and interest payment as required by the assessing authority. Precedent treatment: No precedents are cited; the Tribunal's approach is grounded in principles of documentary proof and opportunity to substantiate deductions. Interpretation and reasoning: The AO disallowed housing loan interest of Rs. 10,13,201 for want of supporting documentary evidence such as loan sanction letters and interest certificates. The first appellate authority confirmed the disallowance. The Tribunal recognized the technical correctness of requiring proper documentary proof to substantiate a deduction under Section 24(b) but, weighing equitable considerations, directed a limited remand to permit the assessee to produce bank certificates and loan statements. The Tribunal did not substitute its own factual finding on the existence or correctness of the claim; instead it restored the issue to the file of the AO for verification of the documents and assessment of entitlement in accordance with law after such verification. Ratio vs. Obiter: Ratio - Requirement of credible documentary proof (loan sanction letter, bank interest certificates, loan statements) is material to allow interest deduction under Section 24(b); however, where such proof is not on record at the time of assessment, the matter may be remitted for limited verification rather than being finally negatived if the assessee is given an opportunity to produce the documents. Obiter - The Tribunal's grant of another opportunity is guided by 'interest of justice' language specific to the case facts rather than a blanket rule that all such disallowances must be remanded. Conclusion: The disallowance is not finally sustained; the Tribunal restored the issue to the Assessing Officer for limited verification. On production of relevant bank certificates and loan statements, the AO is directed to allow deduction as per law after due verification. Cross-References and Interaction Between Issues The Tribunal treated the two issues distinctly: the deemed rental determination for surplus properties was affirmed on the record and on the assessee's failure to rebut the statutory deeming under Section 23(4), whereas the interest disallowance under Section 24(b) was reopened for document-based verification. The confirmation of deemed rent does not preclude allowance of interest on housing loan if the necessary evidence is subsequently produced and verified by the AO in accordance with law. Disposition The appeal was partly allowed for statistical purposes: deemed rental addition upheld; housing loan interest claim remitted to the Assessing Officer for limited verification and adjudication upon production of supporting bank/loan documents.