PRAMOD BANSAL ENTERPRISES PVT. LTD.,KOTA vs. ACIT, KOTA

ORDER

PER VIJAY PAL RAO, JM

2 M/s. Pramod Bansal Enterprises (P)Ltd vs ACIT , Circle – 1, Kota 2. That the AO grossly erred on law and facts in disallowing the repair and maintenance expenses Rs. 32,717/- and the ld. CIT(A) upheld the said addition by wrongly stating that no further allowance shall be allowed.’’ 2.1 The Ground No. 1 of the assessee is regarding addition made by the AO on account of determination of fair retable value u/s 23 (1)(a) of the Act of House No.

125, Mahaveer Nagar-1, Kota. 2.2 Brief facts of the case are that the assessee is a Private Limited Company which is engaged in the business of publication etc. During the course of assessment proceeding, the AO noted that the assessee has shown in its fixed assets a Plot No. 125, Mahaveer Nagar-1, Kota at Rs. 16,56,756/- as well as construction on this plot at Rs. 10,38,009/-. Further an amount of Rs. 21,954/- was also added to the fixed assets on account of penalty paid for unauthorized construction. The assessee has not shown any income from this particular house property. The AO also conducted on spot enquiry though his inspector who found that there is two storey building on this plot and the assessee has given it to two persons namely Shri Mahaveer Jangam (ground floor) and Shri Ram Charan (first floor) on rent for the last 3-4 years. The AO asked the assessee to explain the fact alongwith copy of electricity bills for the year under consideration. In reply, the assessee stated that there is no tenant in this building bearing No. 125, Mahaveer Nagar-1, Kota as it is not given on rent but in order to prevent deterioration and destruction of property there as a make shift arrangement to protect the property. The assessee further submitted that it was rather making payments for their salary instead of receiving any rent. The AO proceeded to determine the fair/ rateable value of the property by considering another property let out by the assessee and then arrived the expected rent @ 16.38% of the value of the property. Accordingly, the AO determined the reasonable expected annual rent of the property of the total cost which comes to Rs. 4,04,215/-. After giving the deduction of 30% u/s 24 of the Act, the AO assessed the income from house property at Rs. 2,82,950/- and added to the income of the assessee.

2.3 The assessee challenged the action of the AO before the ld. CIT(A) but could not succeed.

2.4 Before the Tribunal, the ld.AR of the assessee submitted that construction of house in question was not completed during the assessment year under consideration. The AO as well as ld. CIT(A) ignored the fact that during the year the company was having house under construction and only for the purpose of security and watch of under-construction house, guard and driver was allowed to stay there. Therefore, estimation of the fair rent at Rs. 4,04,215/- is not legally justified. He further contended that construction was nothing except a skeleton. It purpose, the assessee allowed guard and driver to stay there to whom the assessee is paying salary. The house was not given on rent and it was to be used for business purpose of the assessee. Thus the assessment of income from house property by the AO is unlawful. The ld.AR of the assessee relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs Delhi Cloth & General Mills Co. Ltd. 59 ITR 152. The ld.AR of the assessee further submitted that when house was used for carrying on its business or profession then annual value of such property is not chargeable to tax u/s 22 of the Act.

2.5 On the other hand, the ld. DR relied on the orders of the authorities below and submitted that the AO conducted the enquiry on spot and found that house was given on rent to two persons namely Shri Mahaveer Jangam (ground floor) and Shri Ram Charan (first floor). Therefore, in the absence of any rental income offered by the assessee to tax, the AO has rightly assessed income by determining fair rental value on the basis of similarly situated property of the assessee which was let out.

2.6 I have considered the rival submissions and relevant materials available on record. The AO has noted from the fixed assets of the assessee that assessee has purchased a plot of land and construction was made on the same. Therefore, of land as well as construction. As per books of account, this property was shown as a part of the fixed assets which means that the property was shown in the books of account as business assets of the assessee. Since the property was under construction, therefore, the same cannot be considered house property for the purpose of section 22 of the Act until and unless the construction of the house is completed in all respects. The AO has given its finding based on the fact that house in question was given on rent to two persons whereas the assessee came out with explanation that this is not a case of letting out of house property but these are the guards and driver of the assessee who were allowed to stay there for the purpose of security of under construction house. The AO accepted this fact that house was not given on rent by the assessee and proceeded to determine the fair rental value/ fair rateable value as per provisions of section 23(1)(a) of the Act.

The AO has not considered the state of the building in question whether it is a bare structure without having all the basic amenities/ facilities and compared the same with another property which was let out on rent. Therefore, once the property in question is shown by the assessee as part of its fixed assets and it was used only for the stay of the security guard and driver of the assessee without charging any rent then said property cannot be assessed to income tax u/s 22 of the Act. The purposes of the assessee. Accordingly, in these facts and circumstances of the case, the addition made by the AO on account of income from house is not justified and the same is deleted. Thus Ground No. 1 of the assessee is allowed.

3.1 The Ground No. 2 of the assessee is regarding disallowance of repairs and maintenance expenses of Rs. 32,717/-.

3.2 I have heard the rival submissions and the relevant materials available on record. The AO noted the assessee has claimed repairs and maintenance expenses of Rs. 32,717/- in respect of two properties bearing No. MPB-6, Mahaveer Nagar- 1, Kota and 125, Mahaveer Nagar-1, Kota. So far as the repairs and maintenance in respect of the Ist property is concerned, it is noted that said property is assessed under the head income from house property and 30% deduction was allowed on account of repairs and maintenance u/s 24 of the Act then the expenditure incurred in respect of such properties cannot be allowed separately. As regards the repairs and maintenance expenses incurred in respect of property bearing No. 125, Mahaveer Nagar-1, Kota, the AO determined the annual rental value and allowed deduction u/s 24 of the Act, however the said addition made by the AO to the income from house property is deleted and consequently the repairs and maintenance expenses to the extent of said property shall be capitalized as assessee