M/S AGM PROMOTERS & DEVELOPER PVT. LTD.,CHANDIGARH vs. ITO, W-5(1), CHANDIGARH

ITA 724/CHANDI/2018Status: DisposedITAT Chandigarh05 November 2018AY 2012-133 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 directed the Assessing Officer to assess the actual rent received by the assessee for the two houses, not the notional rent based on market value. This was due to a lack of evidence that the properties were lying vacant or that the assessee earned more than disclosed.

What were the facts?

The assessee, engaged in property development, rented out houses purchased for resale to its employees at nominal rent. The Assessing Officer estimated the annual letting value at market rate, which was confirmed by the CIT(A).

What were the issues?

Whether the rental income from properties held for resale should be assessed at market rate or actual rent received. Whether properties held for resale can be treated as capital assets for rental income assessment.

Which sections of the Income-tax Act were involved?

Not explicitly mentioned

AI-generated summary — verify with the full judgment below

आदेश/Order

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order dated 27.3.2017 of the Commissioner of Income Tax (Appeals)-2, Gurgaon [hereinafter referred to as CIT(A)].

In this appeal, the assessee has agitated the action of the lower authorities in estimating the annual letting out of the value of the property at Rs. 5,46,000/- for the purpose of taxing the rental income of the assessee.

We have heard the rival submissions. The Ld. Counsel for the assessee has submitted that the assessee is engaged in the business of sale,

ITA No. 724/Chd/2017- M/s AHM Promoters & Developers P Ltd., Chandigarh 2

purchase and construction of properties. That the houses in question were

purchased by the assessee for resale purpose, which was as per the

business activity of the assessee. However, during the period, the said

houses were lying vacant with the assessee. As the customers were not

available, the assessee has rented those out at nominal rent to its

employees. The rental income so earned has also been returned by the

assessee in the return of income. The Ld. Assessing officer estimated the

annual letting out of the properties as per the market rate. The Ld. CIT(A)

confirmed the addition so made by the Assessing officer.

The Ld. counsel for the assessee, before us, has submitted that

there was no intention of the assessee to keep these properties as

investment and thereby to earn rental income. However, the fact on the

file is that the assessee has not treated the said properties as stock in trade

but capital assets. Under the circumstances, it cannot be said that the

aforesaid properties were business assets or stock in trade of the assessee.

However, the fact on the file is also that the assessee is indulged in the

activity of investment in property and earning capital gains thereon.

During the short period, during which the properties remained with the

assessee, since assessee was not interested in keeping properties for a long

time and to earn interest / rental there upon, the assessee taking into

consideration his activity and interest, rented it out to his own employees,

though, at a nominal rent. Whatever rent has been earned by the assessee

that has been returned in the income. A perusal of the assessment order

also reveals that the Assessing officer got carried out certain investigations

though field staff. During the second investigation, it was found that the

ITA No. 724/Chd/2017- M/s AHM Promoters & Developers P Ltd., Chandigarh 3

assessee had already sold the house to one retired Colonel Sh. S.P.S.Toor and other to Sardar Ravinder Singh. 4. In view of this, we direct the Assessing officer to assess the actual rent received by the assessee on the aforesaid two houses and not notional

rent as per the annual market rental value estimated in the absence of any evidence that properties were lying vacant or the assessee actually had earned any rental income more than that has been disclosed. This appeal of the assessee is accordingly treated as allowed. In the result, the appeal of the assessee stands allowed.

Order pronounced in the Open Court on 05.11.2018

Sd/- Sd/- (अ�नपूणा� गु�ता / ANNAPURNA GUPTA) (संजय गग� / SANJAY GARG) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member Dated : 5.11.2018 “आर.के.”

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar

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