V3S INFRATECH LTD.,NEW DELHI vs. ACIT, NEW DELHI

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ITA 3644/DEL/2016Status: DisposedITAT Delhi08 July 2021AY 2011-1213 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee was eligible for the deduction of unrealized rent as per the provisions of Section 23(1) read with Rule 4 of the Income Tax Rules, 1962. The assessee had shown the annual let-out value on an accrual basis in earlier years.

What were the facts?

The assessee claimed a deduction for unrealized rent of Rs. 1,71,51,481/- in AY 2011-12. The Assessing Officer disallowed this claim, stating it pertained to earlier years. The CIT(A) upheld the AO's decision.

What were the issues?

Whether unrealized rent, which was previously offered to tax on an accrual basis, can be claimed as a deduction in the year the tenant vacated without paying rent.

Which sections of the Income-tax Act were involved?

Section 23

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI

Before: SH. N. K. BILLAIYA & SH. AMIT SHUKLA

Hearing: 08/07/2021Pronounced: 08/07/2021

This appeal by the assesee is preferred against the order of the CIT(A)-30, New Delhi dated 28.03.2016 pertaining to A.Y. 2011-12.

2.

The grievance of the assesee read as under :-

“1. That the “CIT(A)” has erred in law and on facts in holding that there is no provision under the Act, where claim of unrealized rent can be allowed as deduction in the A.Y.2011-12.”

3.

Briefly stated that the facts of the case are that during the course of scrutiny assessment proceedings the AO noticed that as per computation of income against income from house property the assessee claimed Rs.1,71,51,481/- as deduction against unrealized rent. The assessee was asked to explain as to why disallowance should not be made against income from House property as it pertains to earlier years.

4.

Vide letter dated 07.01.2014 assessee explained the provisions relating to the claim of unrealized rent as deduction. The contention of the assessee did not find favour with the AO who disallowed the claim of deduction of unrealized rent and made addition of Rs.17151481/-.

5.

Assessee carried the matter before the CIT(A) but without any success.

6.

Before us the counsel for the assessee referring to the provisions of section 23 stated that since the rents were included in the taxable income in earlier assessment years and since during the year under consideration the tenants vacated the property without paying the rent, therefore, the assessee has rightly claimed the deduction of unreliazed rent. The counsel drew our attention to the relevant documentary evidences in the paper book.

7.

Per contra the DR strongly supported the findings of the AO.

8.

We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee has included the annual let out value of the let out property in earlier assessment years i.e. year ending 31.03.2007, 31.03.2008, 31.03.2009 and 31.03.2010. The details can be understood from the following chart :-

9.

A perusal of the aforementioned charts clearly show that the assessee has shown the annual let out value on accrued basis in the earlier assessment years.

10.

The provisions of section 23 (1) r.w. the first explanation which is :- “For the purposes of clause –b or clause c of this sub section, the amount of actual rent received or receivable by the owner was not included, subject to such rules as may be made in this behalf the amount of rent which the owner cannot realized” and the relevant rule prescribed is rule 4 of the income tax rules 1962 which reads as under :-

“4. For the purposes of the Explanation below sub- section (1) of section 23, the amount of rent which the owner cannot realise shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where – (a) the tenancy is bona fide; (b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property; (c) the defaulting tenant is not in occupation of any other property of the assessee; (d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfied the Assessing Officer that legal proceedings would be useless].”

11.

A perusal of the relevant provisions read with aforestated rules clearly show that the assessee is eligible for the deduction of unrealized rent. We, therefore, direct the AO to allow deduction unrealized rent as claimed by the assessee.

12.

In the result, the appeal filed by the assessee is allowed.

13.

Decision announced in the open court in the presence of both the representatives on 08.07.2021.

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