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Facts
A search was conducted in the assessee's case, leading to additions made by the AO on account of rental income from a property given to his son. The AO considered the municipal value and comparable rents, making an addition of Rs. 26,09,899/-.
Held
The Tribunal held that the AO made additions without confronting the investigation report and without a proper basis for estimating the rent. The rent received was found to be more than the BBMP rate, and the property was given to the son out of love and affection.
Key Issues
Whether the addition made by the AO on account of lower rental income from a property given to his son is justified, especially when the assessment is unabated and the AO's basis is questionable.
Sections Cited
132, 153A, 143(2), 139(1), 23(1)(a), 23(1)(b)
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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. SOUNDARARAJAN K
Per Laxmi Prasad Sahu, Accountant Member :
This appeal filed by the assesseeagainst the Order passed by the CIT(A) on 13.07.2023, vide DIN No.ITBA/APL/M/250/2023-24/1054348040(1).
Briefly stated the facts of the case are thata search and seizure under section 132 of the Act was carried out in the case of the assessee on 04.01.2018. The case was centralized to ACIT, Central Circle – 1(2), Bangalore, by the CIT(A), Bangalore – 1 vide Order No.7/Pr.CIT/BLR-1/90/Centralization/2018- 19 dated 2.04.2015. Notice under section 153A of the Act was issued to the assessee on 04.02.2019 calling for the return of income. In response to the notice, Page 2 of 5 assessee furnished copy of the return filed by him on 25.03.2019 declaring total income of Rs.4,02,80,840/-. Noitce under section 143(2) of the Act was issued to the assessee. Assessee filed return of income under section 139(1) of the Act on 27.07.2017.
On perusal of the return of income filed in pursuance to notice under section 153A of the Act, it was notice that assessee has declared rental income of Rs.6,15,000/- from residential property at 3, Mantri Altius, Rajbhavan Road, Bangalore. The property was gien on rent to Shri. Chaitanya Vinod Cotha, son of the assessee, at a monthly rent of Rs.50,000/- per month. As per enquiry conducted by the Invetigation Unit, it was found that other flats in Mantri Altius fetching monthly income of Rs.4 – 5 lakhs per month. On confronting the same, Shri. Vinod Hayagriv stated that the said flat was givn on rental basis to his son out of love and affection and he is paying annual rent of Rs.6 lakhs. The said property was purchased by Shri. Vinod Hayagriv on 24.08.2005 and since June 2007 it was given on rent. The details of rent since 2007 to 3rd May 2014 were submitted before the AO. During the period of appeal from 2016 to September 2016, the property was occupied bythe appellant along with his son. Since October, 2016 to March, 2017, the property was fully let out by the appellatnt o his son Shri. Chaitanya Vinod Cotha at a rent of Rs.55,000/- per month. As per the enquiry conducted by the Investigation Unit of the Income Tax Department, it was found that other flats in the said property was getting monthly rent of Rs.4 – 5 lakhs per month. However, it was seen from the return of income filed by the assessee for earlier years that the assesseefrom the said property was getting monthly rental income of Rs.3,15,000/- per month. Assessee also submitted submissions on the findings of the AO stating that the rent received by the assessee is more than the BBMP property rate. The average expected return for calculation of unit area value is Rs.6 per sq.ft. As per the notification No.COMMR/BBMP-DC(REV)/2675/15-16/Bangalore dated 09.03.2016. The total size of the property is 4930 sq.ft. which comes to Rs.2,95,980/- for 10 Page 3 of 5 months. Therefore, as per municipal value, the taxable annual value per month is R.29,598/- as per interpretation of section 23(1)(a) of the Act. The assessee has shown higher rental income. However, the contention of the assessee was rejected by the AO and AO taking the annual monthly rent of Rs.3,15,000/- wiyjout confronting the comparable rate of other houdes in the same vicinity and added Rs.26.09,899/- under the head income from house property without referring to any material found during the course of search. The addition was made by the AO only on the basis of enquiry made by the Investigation Wing.
Aggrieved from the above Order, assessee filed appeal before the CIT(A). The CIT(A), after considering the submissions of the assessee dismissed the appeal of the assessee.
Aggrievd from the above Order, assessee filed appeal before the Tribunal.
The learned Counsel for the assessee reiterated the submissions made before the lower authorities and submitted that the AO has made addition without referring to any incriminating material found during the course of search and seizure. Since the assessee filed return of income under section 139(1) of the Act, therefore, when search was conducted on 04.01.2018 there was no assessment pending for the said Assessment Year. Therefore, this issue falls under the unabated assessment and the learned Counsel. HE further submitted that the AO has made addition only on the basis of conjecture and surmises without confronting the report of the investigation team, what are the rate prevelling in the that area and which property has been condidered as comparable with the assessee’s property. The assessee has given on rent to his son with love and affaection for carrying out business activity. The Annual value is more than the BBMP annual value , therefore the asseseee has satisfied the conditions laid out in section 23(1)(a) and (b) of the Act. In the Hindu culture it is the duty of the parent to see that their children are settled down in their lives.
Page 4 of 5 6. On the other hand, the learned DR relied on the Order of the lower authorities. And submitted that the the impunged AY is not comes under the unabated assessment since on the date of issue of notice u/s 143(2) was not expired , therefore the arguments on this point of the ld. AR is not tenable. Earlier the assessee was getting rent of Rs.3,15,000/- from the same property when it was let out. The AO has correctly taken the rent on the basis of report of Investigation Wing of the Income Tax Department. The AO has also relied on the rent received from the same property from 2007 to 31.03.2014.
Considering the rival submissions, we noted that a search was conducted on 04.01.2018. Accordingly, a notice under section 153A of the Act was issued on 04.02.2019. We also find force on the arguments advanced by the learned AR regarding unabated Assessment Year since in this case, on the date of search on 04.01.2018, the period of notice issued under section 143(2) of the Act was not expired and the assessee has filed return of income un der section 139(1) of the Act for the Assessment Year and no assessment was completed. Therefore, the arguments raised by the learned Counsel on this point is dismissed.
We noted that the assessee had filed return of income under section 139(1) of the Act declaring income of Rs.4,01,26,790/-. We also noted from the Order of the AO that while completing the assessment has made addition only on the basis of enquiry conducted by the Investigation Wing of the Income Tax Department without any basis and the report of the Investigation Wing of the Income Tax Department has not been confronted to the assessee and what are the basis for estimating the rent is also not brought out by the AO. As per section 23(1)(a) and (b) of the Act and the rent recewived by the assessee is more than the rent fixed by the BBMP which is at Rs.6 per sq.ft.The assessee has given the residential property to his son with love and affection for their betterment of life. Considering the totality of facts and circumsetances of the case, we delete the addition made by the AO.
In the result, appeal of the assessee is partly allowed.
Pronounced in the court on the date mentioned on the caption page.