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Facts
The assessee, engaged in managing a commercial complex, did not offer income from 8 vacant units under the head 'income from house property'. The AO treated these units as if let out at expected reasonable rates and made an addition, which was confirmed by the CIT(A).
Held
The Tribunal held that the assessee's claim for vacancy allowance under Section 23(1)(c) of the Act for the vacant units should be accepted, as the assessee was actively trying to let them out. Therefore, the annual value of these units should be considered 'Nil'.
Key Issues
Whether income from vacant units in a commercial complex can be taxed based on expected rent under Section 23(1)(a) when the owner is actively trying to let them out, or if vacancy allowance under Section 23(1)(c) should apply.
Sections Cited
250, 253(3), 23(1)(a), 23(1)(c), 270A
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आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’)dated 07.01.2025by the Commissioner of Income Tax (Appeals),National Faceless Appeal Centre, Delhi [in short, ‘CIT(A)’]for the assessment years (AY) 2017-18.
The grounds of appeal
raised by the assessee are as under: “1. The ld. CIT(A) erred in confirming addition of Rs.37,67,400 made under the head Income from House Property in respect of vacant units during the year.
2. The ld. CIT(A) erred in passing an ex-parte order u/s 250 of the Income Tax Act, 1961 without providing the appellate sufficient opportunity of being heard.
/AY.2017-18 Classic Mall Development Company Ltd. 3. The appellant craves leave to add, alter, amend or withdraw any of the Grounds of Appeal herein above and to submit such further arguments, statements, documents and papers as may be considered necessary either at or before the hearing of the appeal.”
3. The appeal filed by assessee is barred by 1 day in terms of provisions of section 253(3) of the Act. The learned Authorized Representative (ld. AR) submitted that the CIT(A) has passed order u/s 250 of the Act on 07.01.2025. The appeal before this Tribunal was required to be filed on 31.03.2025. However, the assessee filed the appeal on 01.04.2025. The delay of 1 day is due to Eid-ul-Fitar. The ld. AR requested to condone the delay in the interest of justice. We find that assessee was neither negligent nor deliberate. Considering the reason given by the applicant, we condone the delay and admit the appeal for hearing.
4. Facts of the case in brief are that assessee filed its return of income on 30.10.2017, declaring total income of Rs.34,98,33,290/-. The case was selected for scrutiny and various notices were issued to the assessee to furnish required details. The assessee is engaged in the business of construction, operation and management of commercial complex in Chennai. The Assessing Officer (in short, ‘ÁO’) noticed that out of 261 units of the mall, the assessee had let out 253 units and offered the rental income from such units under head “income from house property”. The assessee did not offer any income in respect of 8 vacant units u/s 23(1)(a) of the Act. Hence, AO issued show cause notice, requiring the assessee to explain as to why income /AY.2017-18 Classic Mall Development Company Ltd. from 8 vacant units should not be taxed u/s 23(1)(a) of the Act at the expected reasonable rate. The assessee filed reply explaining that assessee itself had used 2878 square feet for own purpose and the remaining portion were not let out during the year. The assessee was on the look-out for prospective tenants for its premises, but some units could not be let out due to lack of competitive customers. Such vacant properties were leased out in the subsequent year. The assessee contended that as per the provisions of section 23(1)(c) of the Act, the rent received or receivable during the year may be Nil due to vacancy for the whole year under consideration. The AO did not accept the reply of the assessee and held that the case of the assessee is covered by the section 23(1)(a) of the Act and gross annual value has to be on the basis of expected reasonable rate. He held that the facts of the assessee are not covered by the provisions of section 23(1)(c) of the Act and falls within the ambit of section 23(1)(a) of the Act. He computed the gross annual value at Rs.53,83,000/- and allowed deduction @ 30%, amounting to Rs.16,14,600/-. Thereafter, he added net annual value of 8 units at Rs.37,67,400/- (53,82,000 – 16,14,600). He also initiated penalty proceedings u/s 270A of the Act.
Aggrieved by the order of AO, the assessee filed appeal before the CIT(A).The CIT(A) has extracted statement of facts as provided in Form 35 and observed that the appellant did not submit any additional written submission /AY.2017-18 Classic Mall Development Company Ltd. or arguments beyond what was provided in Form 35 to support the grounds of appeal
raised by it. He held that the AO has correctly applied provisions of section 23(1)(a) of the Act. The reliance of the appellant on provisions of section 23(1)(c) of the Act, which are applicable under specific circumstances, are not satisfied in case of the appellant. The appellant failed to provide any substantial evidence to support its claim of actively seeking tenants for the vacant units. Due to non-compliance by the assessee and for the reasons stated above, appeal of the assessee was dismissed.
6. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. The ld. AR of the assessee submitted that similar issue was involved in appellant own case for the immediate proceeding for AY.2016-17. The AO has made similar addition of Rs.56,26,656/-. The first appellate authority confirmed the addition made by AO in the order u/s 250 of the Act dated 13.08.2024. On further appeal, the ITAT, Mumbai in case of Classic Mall Development Company Limited vs. ACIT, in dated 21.03.2025 allowed the appeal of the assessee. He has further relied on the decisions of the various Tribunals, i.e., Premsudha Exports Pvt. Ltd. vs. ACIT, 110 TTJ 89, ITO vs. Metaoxide P. Ltd., ACIT vs. Dr. Prabha Sanghi, ITA No.2217/Del/2010, Informed Technologies India Ltd. vs. DCIT, ITA No.6466/Mum/2014, Sonu Realtors P. Ltd. vs. DCIT, ITA No.2892/Mum/2016, Priyananki Singh vs. ACIT, ITA No.6698/Del/2015 and /AY.2017-18 Classic Mall Development Company Ltd. The Phoenix Mills Ltd. vs. DCIT, ITA No.46/Mum/2015. He, therefore, requested that the addition made by the AO and confirmed by the CIT(A) may be deleted and the appeal may be allowed.
On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the orders of lower authorities.
We have heard both the parties and perused the materials available on record. It is seen that the vacant units, namely, S-29 and S-30 had been let out in AY.2016-17 and in AY.2018-19 onwards. Unit No.UG-28 was let out in AY.2019-20 onwards. Thus, claim of appellant that it was looking for prospective customers at competitive rate cannot be discarded. We find that similar addition was made by AO, which was confirmed by the CIT(A) in AY.2016-17. The AO had added Rs.56,26,656/- under the head “Income from house property” in respect of the vacant units of the commercial mall during the AY.2016-17. The addition was confirmed by the CIT(A). On further appeal, the ITAT, Mumbai has discussed the facts, relevant provisions of the Act, CBDT Circular No.14 of 2001 and decisions of various Tribunals and Hon’ble Courts and thereafter, it deleted the addition made by the AO and allowed the appeal of the assessee. The relevant part of the decision in assessee’s own case, in dated 21.03.2025, is reproduced for ready reference and clarity: “9. Similar issue had come up before the Coordinate Bench of ITAT, Mumbai, in and 242/Mum/2015, in the case of holding company of the assessee, i.e., Phoenix Mills Ltd. who is also engaged in the activity of /AY.2017-18 Classic Mall Development Company Ltd. operating and managing the commercial complex. In this case also, ld. Assessing Officer had made addition in respect of deemed rent on vacant units for Assessment Year 2009-10 and 2010-11. Onthis issue, the Coordinate Bench held that assessee is into the business of running commercial premises, i.e., a mall, units of which are provided on lease to various tenants. It is obvious that the assessee would have taken sufficient efforts to let out the property. No reasonable business person would not want to let out its premise at the loss of revenue, if any opportunity exists. Accordingly, Assessing Officer’s assumption that the properties were not intended to be let out was held to be erroneous one. It was also noted that the vacant premises were let out in the subsequent year thus, concluded that the premises were intended to be let out. It was also concluded that since the property were vacant for the whole year, in view of the provisions contained in section 23(1)(c), assessee is entitled to vacancy allowance and thus, the addition made by the ld. Assessing Officer was deleted.
10. After giving thoughtful considerations as discussed above elaborately, both on applicable provisions of the Act and judicial precedents, we find force in the submissions made by the ld. Counsel for the assessee and are in agreement with the same, not repeated here for the sake of brevity. Accordingly, in the present case, the actual rent received or receivable by the assessee is Nil on account of vacancy, there being no tenant for the property. Thus, based on elaborate discussion made in the above paragraphs and in accordance with the conditions prescribed in clause (c) to section 23(1), this ‘Nil’ when compared with sum referred to in clause (a), leads to the annual value of eight units at ‘Nil’ for the year. Accordingly, under the deeming provision of section 23(1)(c), in the case of a property which is vacant for whole of the year, its annual value is taken at ‘Nil’.
Under the given factual matrix and circumstances and elaborate discussions made, both on facts and applicable law, coupled with judicial precedents, claim of the assessee to determine annual value of eight units which remained vacant for whole of the year is held to be computed by taking recourse to section 23(1)(c) as ‘Nil’. Accordingly, addition made by the ld. Assessing Officer is deleted. Ground raised
by the assessee is allowed.”
9. The issue in dispute is squarely covered in favour of the assessee by the decision of this Tribunal in its own case (supra) for AY.2016-17. The revenue is unable to produce any material to controvert the aforesaid findings of this Tribunal. We find no reason to differ from the said order and following the reason given by this Tribunal, we direct AO to delete the /AY.2017-18 Classic Mall Development Company Ltd. addition of Rs.37,67,400/-. Accordingly, order of CIT(A) is set aside and grounds of assessee are allowed.
In the result, the appeal of assessee is allowed. Order pronounced on 19/05/2025.