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Income Tax Appellate Tribunal, DELHI
Before: SH. ANIL CHATURVEDI & SH. ANUBHAV SHARMA
The appeal is preferred by the assessee against order dated 18/01/2017 in appeal no. 85/16-17/85/16-17 for the assessment year 2013-14 passed by Ld. Commissioner of Income Tax (Appeals)-31, u/s 250(6) of the Income Tax Act, 1961.
The facts in brief are that consequential to the search operation on assessee u/s 132, assessment was framed u/s 153A/143(3) vide order dated 23.03.2016. In the assessment a sum of Rs.1,26,00,000/- was added to the income of assessee on the basis of the notional rent estimated by the Ld.AO on vacant commercial house property taking a view that tax is imposable on vacant property even though no rent is realized by interpreting section 23(1)(c) that benefit of the vacancy allowance cannot be granted if property is not let out during previous year. There is no dispute between Ld.AO and assessee that the property was vacant and no rent was realized or earned by any means/methods nor any kind of evidence is there. However, the claim of the assessee was that when this property was built at Sultanpur, MG Road, Government of Delhi was having a cealing drive on unauthorized property. This fact was brought to the notice of Ld.AO by filing minutes of meeting between owners of property who represented delegation before Hon’ble Lieutenant Governor of Delhi to intervene in the working of MCD to support the stakeholder, since there was no need for sanction of map in Lai Dora land . Due to this sealing drive tenant were not easily available in the area and there was a genera resistance/fear of taking this kind of property on rent that is why despite of repeated effort in financial year 2012-13, the property in question could not be rented our which was ultimately rented out in next financial year on which taxes were duly paid. However Ld.AO rejected the submission of assessee and added Rs. 1,26,00,000/- after allowing standard deduction and on notional basis. In appeal by the assessee, Ld.CIT(A) also rejected submission of the assessee.
Now before the Tribunal the assessee has raised following grounds of appeal:-
“1. On the facts and in the circumstances of the case and in law, the authorities below have erred in confirming addition of Rs.1,26,00,000/- on account of rent which was never earned and realized by the assesse. The action of the authorities below is wrong, illegal, misconceived, unjustified and bad at law therefore it should be quashed.
2. On the facts and in the circumstances of the case and in law, the authorities below has erred in confirming the addition of Rs. 1,26,00,000/- objected in ground no.l above on the basis of assumption that the property in question was rented out whereas the same property was self occupied during the year under appeal , therefore the action of the authorities below is wrong, illegal, misconceived, unjustified and bad at law therefore it should be quashed.
3. On the facts and in the circumstances of the case and in law, the authorities below have erred in charging interest u/s 234A Rs.3,34,647/-, interest u/s 234B Rs.13,38,588/- and interest u/s 234C Rs.1,37,576/-. The action of the authorities below is wrong, illegal, misconceived, unjustified and bad at law therefore it should be quashed.
The appellant craves the right to add, submit, alter or withdraw any or all grounds of appeal before or on the date of hearing.”
4. Arguments were heard of Ld. AR and the DR and the record was perused. It was submitted on behalf of the assessee that the premises owned by the assessee was although vacant but was not available to be let out due to demolition drive of the Government of Delhi and the sealing of properties in the area. It was submitted that before the Ld. First Appellate Authority an affidavit was submitted about this fact however, the same was not considered. The ld. Counsel for assessee relied the proceedings dated 28.11.2011 of a meeting between a delegation of MG Road Building Owners Association with Hon’ble Lieutenant Governor, NCT Delhi on 08.12.2011 which is placed on page no. 2 to 4 of the paper book. It was contended that these minutes of the meeting indicate that there was an active disputes with regard to certain aspects of existing buildings which were not considered to be in accordance with the municipal laws. He relied the judgment of Hon’ble Mumbai ITAT in Premsudha Exports (P.) Ltd. vs. Assistant Commissioner of Income Tax, Central Circle 10, [2008] 110 ITD 158 (Mum.) to contend that the phrases “property is let” as appearing in Section 23(1)(c) of the Act has been appropriately interpreted by the Mumbai Bench while holding that the phrases “property is let” does not mean actual letting of a property and if the property is left out unlet during any part or whole of the previous year due to circumstances beyond the control of owner then the vacancy allowance shall be given for whole of the year and the annual letting value should be considered NIL.
4.1 In this context, he also relied the judgment in Ms. Priyananki Singh Sood Vs. Assistant Commissioner of Income Tax, Circle 52(1), New Delhi 101 taxmann.com 45 (Delhi-Tribunal). He relied the judgment of Mumbai High Court in Empire Capital (P.) Ltd. Vs. Assistant Commissioner of Income Tax, Circle 2(1)(2), Mumbai reported at 114 taxmann.com to submit that in that case a property had remained vacant due to obstruction caused by construction of metro and accordingly the Mumbai Bench of Tribunal held that no addition on account of notional rent could be made.
4.2 It was submitted that Ld. Tax Authorities have fallen in error in relying the judgment of Hon’ble Andhra Pradesh High Court in the case of Vivek Jain vs. Assistant Commissioner of Income Tax, 14 taxmann.com 146 (AP) and it was submitted that this judgment of Hon’ble Andhra Pradesh High Court has been considered by the Tribunal at Kolkata ‘SMC’ Bench in Dilip Kumar Chowdhary, Howrah vs. Assistant Commissioner of Income Tax, Circle – 46, Kolkata in and it has been distinguished with following observations :-
Where it was held that we are not inclined to agree with the interpretation suggested by the Revenue that property should be actually let out in relevant to previous year. This interpretation does not appear consistent with the phraseology mandated in S. 23(1 )(c) which includes a situation where the property can remain vacant during the whole of the relevant previous year. Hence, both situations namely ‘property is let’ and remained vacant for the whole year cannot co-exist during the financial year. We also note from a reading of another provision i.e. sub-section (3) of section 23 of the Act, where the legislatures in their wisdom have used the word 'house is actually let'. This also shows that the expression 'property is let' cannot mean actual letting out of the property because had it been so, there was be no need to use the word 'actually' in sub-section (3) of section 23 of the Act. Applying the purposive interpretation, the expression 'property is let' has to be read in contrast to 'property is self occupied' to arrive at its true purport. We simultaneously note on facts that the property has been actually let out in the financial year 2006- 07 as noted above. It cannot be reckoned to be in the control of the assessee to let out the property throughout necessarily. The decision of Hon'ble Andhra Pradesh High Court in the case of Vivek Jain (supra) relied upon by the revenue cannot be read in a manner that if the property remains vacant throughout the year, section 23(1 )(c) do not apply at all more so when the property was let out in proceeding or subsequent year. Therefore, in the totality of the circumstances and having regard to the provisions of the Act, we are of the view that the ALV of the property at Danda Towers which remained vacant for the whole year has to be assigned Nil value in terms of section 23(1)(c) of the Act.
4.3 He also relied judgment (i) Sachin R. Tendulkar Vs. Deputy Commissioner of Income-tax, 23 (3), Mumbai [2018] 96 taxmann.com 253. (ii) DLF Ltd. vs. Assistant Commissioner of Income-tax, Range 10, New Delhi [2019] 106 taxmann.com 294 (Delhi Tribunal) and (iii) Sonu Realtors (P) Ltd. vs. Deputy Commissioner of Income-tax, 14(3)(2), Mumbai [2018] 97 taxmann.com 534 to contend that when there are genuine efforts to let out the property but same cannot be let out then no notional rent can be estimated.
4.4 On the other hand, the Ld. DR submitted that the ld. First Appellate Authority in para no. 4.3, 4.4 and 5.1 has taken into consideration the affidavit of the assessee tendered in additional evidence. It was submitted that the ld. First Appellate Authority had called for remand report from the Ld. AO and based on that the findings are given. It was also submitted that assessee could not controvert the fact that when other relatives in the locality could let out properties how he failed to let out the property. Ld. DR submitted that citations of law relied are factually different. He, thus defended the orders of Ld. Tax Authorites.
Appreciating the matter on record and the contentions of the Ld. AR and ld. DR it can be observed that there is no dispute with regard to two material facts. The first being that the property was commercial in nature and second that the property remained vacant during the relevant financial year 2012-13. The foundation of the case of assessee is an affidavit dated 26.11.2016 which was submitted in the form of additional evidence before the Ld. First Appellate Authority and which after being admitted under Rule 46A of the Income Tax Rules, 1962 was considered by the Ld. First Appellate Authority and a remand report was called. The remand report is on page no. 16 of the paper book and also referred by the ld. First Appellate Authority in para no. 4.3 of its order. It is very apparent from the affidavit tendered in additional evidence that the only ground seeking exemption from Section 23(1)(c) of the Act was that the property was situated at MG Road and same was not regularized so the efforts made to put the property on rent had failed. There was no mention in the affidavit of any ongoing metro work being the cause of this failure to rent the property. However, in the remand report the assessing officer has mentioned of the fact that assessee failed to substantiate his claim with any document to prove that the premises was one of the premises which was impacted with metro work. Thus, there is an apparent factual error in considering the affidavit of assessee in right prospective.
Then next the Assessee had submitted before the Tax Authorities the copy of minutes of a meeting of a delegation of MG Road Building Owners Association with Hon’ble Lieutenant Governor of NCT, Delhi. The same at page no. 3 of the paper book shows that at serial no. 16. there is name of Mr. Ashok Choudhary who is father of present assessee Kamal Kumar. The minutes of meeting dated 28.11.2011 indicate that some of the properties were partly demolished in the area and the issue was that building owners claimed that as per the 1963 Resolution of the Corporation, it was not mandatory to have prior sanction of building plans for constructions done within Lal Dora. It is not disputed that the property of assessee is situated in the Lal Dora and as per affidavit it is part of Khasra no. 356 and 357 Sultanpur, M.G.Road, New Delhi. The father of assessee was also part of the delegation. The minutes dated 28.11.2011 establish that in regard to partly demolished buildings status qua was directed to be maintained. While with regard to the objections raised by building owners, which included the asseessee’s family, Hon’ble Lieutenant Governor observed that Building bye- laws were meant to be followed for all buildings in Delhi, including those within Lal Doras and Village Abadi areas. It was also observed that there can be no compromise on structural and fire safety norms of any building in the Capital. 6.1 However, the ld. Tax Authorities failed to take into consideration, these minutes which substantially indicated that there was a genuine dispute in the locality where the property of assessee was situated with regard to failure of owners of the property to comply with municipal laws concerning structural and fire safety. The Lower Tax Authorities and specially the Ld. AO while submitting the remand report had fallen in error in observing that as the building of assessee was not one of those buildings which were referred in the minutes as partly demolished therefore, he was not to be benefited due to the minutes of the meeting. The bench is of considered opinion that meeting was not just about partially demolished buildings but the issue discussed and relevant in the meeting was the demolition drive and ceiling of the building by the Government for non compliance of structural and safety norms by the building owners in the said locality. The same deserved due consideration at the end of tax authorities as assessee had put a claim in the affidavit that due to demolition drive and sealing of the building by the Government in the locality he failed to get tenants.
6.2 The Ld. First Appellate Authority considered the affidavit of the assessee to be a self-serving documents and thus refused to rely upon it. The Bench is of considered opinion that an affidavit along with verification appended when stands corroborated with any piece of evidence, like in the present case the copies of minutes of meeting, then the same cannot be said to be a self-serving affidavit of a fact. As these facts are verifiable facts and not merely facts stated on belief. The Tax Authorities had their means to have gone further into the inquiry with regard to facts stated in the affidavit. Rather and strangely the Tax authorities observed that this on oath statement is not substantiated by evidence, so disbelieved the affidavit. At the same time, once the affidavit was admitted by way of additional evidence and the remand report on its factual aspects was called it cannot be brushed aside by calling it a self- serving document unless the same was factually controverted by evidence or on oath statement on the part of revenue.
6.3 Thus, the bench is of the considered opinion that there was sufficient material before the ld. Tax Authorities which established that there was a genuine dispute in the locality where the commercial building of assessee was situated and that dispute was of such nature that no prudent person could be expected to have taken the disputed building on rent. The fact that this meeting was called on 28.11.2011 where a consensus was reached between the authorities and owners of building indicate that during the relevant financial year the property was actually not available in the hands of assessee to be let out. Admittedly it was let out in next FY.
On the basis of above discussion the Bench is of considered opinion that the reliance of the ld. Tax Authorities on judgment of Andhra Pradesh High Court in Vivek Jain vs. ACIT (supra) is not justified as that was a case where residential flat free of any sort of dispute was available in the hands of assessee to be let out. However, in the case in hand the property of the assessee cannot be said to be one actually available with him to be let out. The claim of assessee is not merely that in spite of his efforts he could not let out a property which was otherwise rentable. His claim rests on the fact that the property was actually not rentable for the reasons of issues with regard to demolition drive and sealing in the area making it not worthy of being taken on rent for any commercial purpose.
This Bench is of considered opinion that the legal disability created by the action of municipal authorities or under course of law, restricting the rights of the property holder to let out the property is a case where provision of Section 23(1)(c) would not be applicable.
In this context, the view is confirmed by looking back to Section 23(1)(c) of the Act, which provides that; “(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable"
9.1 The word receivable refers to the payment not being realised. The use of word “receivable” in Section 23(1)(c) of the Act, indicates that there should be, not mere possibility of receiving the rent, but rent can become payable in all the probability, as the property is available for being given on rent. Then it can be considered to be “receivable”. Therefore the correct interpretation is that in case the property is vacant then the notional rent can be taxed if it can be considered as “receivable” as mentioned in Section 23(1)(a) of the Act. When there is some legal disability or physical impossibility in creating a tenancy and due to which the property is left vacant, in any part or whole of the year, then there is no possibility of rent being realized and so the rent cannot be said to be “receivable” and accordingly on basis of notional rent no tax liability can be created. The tax authorities below have thus fallen in error in taxing the assessee on basis of notional rent. Thus, the bench is inclined to decide the grounds raised in favour of the assessee.
The appeal is allowed and the impugned orders are set aside.