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Facts
The assessee's income tax return, showing nil Annual Letting Value (ALV) for multiple house properties, was selected for scrutiny. The Assessing Officer added notional ALV for three properties—one exclusively owned, one co-owned with the wife, and one solely owned by the wife (deemed owned by assessee)—and disallowed a deduction for interest on borrowed funds, leading to an ex parte assessment which was confirmed by the CIT(A).
Held
The Tribunal remitted the case back to the Assessing Officer to re-examine the assessee's entitlement to one self-occupied property and finalize the ALV for the co-owned property after granting an opportunity of hearing. It was further held that the addition for the property solely owned by the wife, an independent taxpayer, cannot be made in the assessee's hands, and the claim for interest deduction of Rs. 2 lakhs must be allowed.
Key Issues
Whether the assessment of notional annual letting value (ALV) for multiple house properties and disallowance of interest on borrowed funds was justified, and if principles of natural justice were violated.
Sections Cited
143(3), 250, 23, 23(1)(c), 27(1), 142, 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI S. RIFAUR RAHMAN
The instant appeal, filed by the assessee, is directed against the order dated 25.04.2025 (DIN & Order No. ITBA/NFAC/S/250/2025-26/1075822806(1) passed by the National Faceless Appeal Centre (NFAC), Delhi, arising out of the order dated 04.03.2021 passed by the NEAC, Income Tax Department under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), for assessment year 2018-19.
The assessee has raised following grounds of appeal for adjudication:
10.1 That impugned order passed u/s 250 by NFAC/CIT-A, dismissing appeal of assessee and sustaining impugned assessment order of Ld AO are totally unlawful as no exemption for self-occupied property of one residential house no. C-64 Sec- 50Noida which is jointly owned with her wife and notional value of rent has been taken of full share of Rs.4,20,000/- as per section 23 as claimed by the appellant; 10.2 That impugned order passed u/s 250 by NFAC/CIT-A, dismissing appeal of assessee and sustaining impugned assessment order of Ld AO are totally unlawful as entire addition of notional rent has been made in flouting the words used in statute of reasonable expected year to year in making wild guess without making any iota of enquiry and verification without which entire addition based upon vague guess work is invalid in law; 10.3 That impugned order passed u/s 250 by NFAC/CIT-A, dismissing appeal of assessee and sustaining addition of Rs.4,20,000/- in impugned assessment order of Ld AO are totally unlawful as vacancy allowance as per section 23(1)(c) has been allowed by AO as well as CIT (A) where property no. A-92 Sec-51 is let out in subsequent years and thus eligible for vacancy allowance; 10.4 That impugned order passed u/s 250 by NFAC/CIT-A, dismissing appeal of assessee and sustaining addition of Rs.5,04,000/-for SRT 1002 property at jaypee greens in wrongly assuming husband as deemed owner without ownership of the property and ignoring the separate income tax assessee status of wife filing heavy return of income on basis of which impugned assessment order of Ld AO and CIT (A) are totally unlawful; 10.5 That impugned order passed u/s 250 by NFAC/CIT-A, dismissing appeal of assessee and sustaining disallowance of deduction claimed on interest paid of Rs.2,00,000/- in impugned assessment order of Ld AO ignoring the crucial evidence filed on record and simply making disallowance on hearsay and conjectures; 10.6 That impugned order passed u/s 250 by NFAC/CITA, dismissing the appeal of the assesse and sustaining impugned assessment order of Ld AO (NFAC) is unlawful as in violation of principles of natural justice :- i) That there is no supply of any material for deriving notional ALV in terms of section 23 as per section 142 before passing assessment order and taking adverse view against the assesse ii) That there is no opportunity for oral hearing as per section 144B given before passing final assessment order. That the appellant craves leave to add add/alter any/all grounds of appeal before or at the time of hearing of the appeal
3. The assessee, an individual, filed his Income Tax Return on 26.03.2019 declaring income of Rs. 78,08,620/- case whereof was selected for limited scrutiny through CASS for the reasons “The assessee has shown nil ALV despite having shown more than one house property in Schedule-HP of ITR”. Notices were issued to the assessee directing to furnish documentary evidences in respect of the same. The Learned Assessing Officer on the basis of the details lying with the authority added total income from house property of Rs. 13,44,000/- which was further confirmed by the Learned First Appellate Authority.
The assessee in fact is having three house properties – (1) A-92, Sector-51, Noida, of which the assessee is the sole owner. Another property lying and situated at C-64, Sector 50, Noida, where the assessee is the co-owner of the property along with his wife.
The third property is lying and situated at House SRT-1002 J.P. Greens, Greater Noida, in which the assessee has been held to be the deemed owner of the property as the property belongs to his wife under Section 27(1) of the Act in the absence of any corroborative evidence as observed by the authorities below.
During the assessment proceedings the assessee was issued notices on number of times but no compliance was made neither requisite details or documents in respect of the house properties being House No. C-64, Sector-50, Noida; A-92, Sector-51, Noida and House SRT 01-1002 at 10th Floor Jaypee Greens Greter Noida was furnished. Therefore, on the basis of the documents gathered by the Learned Assessing Officer, he finalized the assessment ex parte. The Assessing Officer found the assessee as the deemed owner of the property which is owned jointly along with wife and in the absence of source disclosed on behalf of the assessee, the assessee finally been treated owner of the said property as per provisions of Section 27(1) of the Act and total income from the house property was added in the hands of the assessee disallowing the claim of interest of Rs. 2 lakhs on borrowed funds.
The Learned Assessing Officer considered the ALV from 99 Acre Website and worked out at Rs. 13,44,000/- which was added in the total income of the assessee. The assessee claimed deduction of Rs. 2,00,000/- under the head Income from House Property which was further disallowed and added to the total income of the assessee.
It is the case of the assessee that the addition of ALV of notional rent of the property lying at C-64, Sector-50, Noida is bad in law as the property belongs jointly with assessee’s wife and assessee being the owner of ½ share of the said property no exemption of one self-occupied property has been given in terms of the provisions of law though documents in respect of the ownership of the property were duly placed before the authorities below including the First Appellate Authority which are appearing in the paper book filed before us clarifying the position as above, the same was not considered in its proper perspective. In fact from perusal of the same the contention made by the assessee needs to be accepted. The assessee being the co-owner of the property and entitled to exemption of one self-occupied property not given by the authorities below is found to be bad in law. exclusively and co-owner of the property along with his wife and the third one belonging to his wife who is an independent income-tax assessee and is filing her income tax return regularly having independent source for which ITR has already been field before the authorities below copy whereof annexed to the paper book before us, perusal of which the addition made by the Learned CIT(A) to the tune of Rs. 50,400/- without considering the documentary evidences placed on record is found to be bad. Further that notional rent on the property lying and situated at A-92, Sector 51, Noida of Rs. 4,20,000/- without verifying the documents as stipulated in statutory provision under Section 23 of the Act is found to be not sustainable in the eye of law.
Under these facts and circumstances of the matter, the issue is, therefore, remitted to the file of the Learned Assessing Officer to this extent – (i) examine the assessee’s entitlement of one self-occupied property and give consequential relief; (ii) Finalize the ALV of the property lying and situated at C-64, Sector 50, Noida where the assessee is the co-owner upon granting an opportunity to the assessee of being heard and to adduce documentary evidence, if any, in support of his case and further after examining the issue as to whether the said property is on rent by the owners. We make it clear that once the third property lying and situated at House SRT 01-1002 at 10th Floor Jaypee Greens Greater Noida, seems to be belonging to the wife who is an independent tax payer the addition in respect of the said property cannot be made in the hands of the assessee. Apart from that the Learned Assessing Officer is directed to allow the claim of interest of Rs. 2 lakhs on borrowed funds by the assessee. Ordered accordingly.
In the result, assessee’s appeal is allowed for statistical purposes only.
Order pronounced in open court on 23.12.2025.