Addition of Deemed Rent cannot be made in respect of a Non-Habitable Residential Flat: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Kolkata Bench, has recently, in an appeal filed before it, held that addition of deemed rent cannot be made in respect of non- habitable residential flat.

The aforesaid observation was made by the Kolkata ITAT when an appeal was filed before it by Kolkata ITAT, when an appeal was preferred before it by the assessee , pertaining to the Assessment Year (AY) 2013-14 ,directed against the order passed under Section 250 of the Income Tax Act, 1961 , by the Commissioner of Income-tax (Appeals)-NFAC, Delhi (CIT(A)),dated 15.09.2022, arising out of the assessment order framed u/s 143(3)/147 of the Act, dated 27.12.2018.

The grounds of the assessee’s appeal being that the Commissioner (APPEALS), NFAC, has erred in passing and dismissing the appeal without having any regard to Assessment order U/S 143/147, since the A.O has added “Deemed Rental income” from “GHAZIABAD FLAT” of Rs. 72,000.00, but the C.I.T(A) has treated it from BHUVNESHWAR, ODISHA which is being the business office of the appellant as per G.S.T Registration Certificate being furnished to the. A.O. who accordingly accepted the same and “Deemed Rental Income” was not added, and alsothat the A.O. has erred in assessing “Deemed Rental Income” from “GHAZIABAD FLAT” without verification of the facts that the said flat is not livable due to lock of power and water connection, which is ought to be deleted,

, hearing the respondent side as presented by Smt. Ranu Biswas, the Addl. CIT D/R, on behalf of the Revenue, the ITAT noted:

“When the case was called for, none appeared on behalf of the assessee. A perusal of the records shows that a number of opportunities have been given to the assessee but there is no compliance. It seems that the assessee is not interested to pursue the appeal and, therefore, we decide to adjudicate the appeal with the assistance of ld. D/R and the available records.”

“We have heard ld. D/R and perused the records placed before us. We notice that the assessee is an individual engaged in the business of contractor. Regular return of income for AY 2013-14 filed on 03.05.2018 declaring NIL income. The case re-opened by issuance of notice u/s 148 of the Act and assessment proceedings u/s 143(3) were carried out. The records suggest that re-opening proceedings were carried out for the reason of escapement of interest income on fixed deposits. However, perusal of the assessment records shows that no addition has been made towards undisclosed interest income and only addition towards notional rent income has been made. Therefore, even on this ground itself that no addition has been made for the reasons recorded for re-opening, the re-assessment proceedings deserve to be quashed.”, the ITAT Bench further added.

“Even on merits of the case, we notice that the assessee owns two immovable properties of which one is a commercial property situated at Bhuvneshwar, Odisha and the other is a residential property situated at Ghaziabad. Ld. AO did not make any addition for the rental income for Bhuvneshwar property but for Ghaziabad property Deemed Rental Income at Rs. 72,000/- has been made.”

“We also notice that ld. CIT(A) while dealing with the assessee’s appeal casually dealt with the issue and in the finding only mentioned about the two properties owned by the assessee and confirmed the addition made by ld. AO. However, ld. AO did not make any addition for Deemed Rental Income for theBhuvneshwar property since it is used for commercial purposes. As regards the property at Ghaziabad it is stated by the assessee that the same is not habitable due to lack of electricity and water connection but this argument has neither been considered by ld. CIT(A) and nor rebutted by ld. Representative before us., the Panel consisting of Sanjay Garg,the Judicial Member, along with Manish Borad, the Accountant member commented.

Thus, allowing the assessee’s appeal, the Kolkata ITAT held:

“Under these given facts and circumstances of the case since the residential flat at Ghaziabad is not habitable, therefore, ld. AO was not justified in making addition for Deemed Rental Income in the hands of the assessee. We accordingly reverse the finding of ld. CIT(A) and delete the addition made by ld. AO at Rs. 72,000/-. Hence, all the grounds raised by the assessee are allowed.”

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