2025 (5) TMI 1474 - AT - Income Tax

Addition under the head income from house property - AO computed Annual Letting Value (ALV) @7% of investment barring one shop which was treated as self occupied property - After granting statutory deduction of 30% the income of Rs.13.02 Lacs was added to the income of the assessee - HELD THAT - AO has adopted 7% of investment as ALV of these properties. However the said methodology is erroneous and contrary to the provisions of Sec. 23(1)(a) which provide that value of the property shall be deemed to be the sum for which the property might reasonably be expected to be let out from year to year. Thus the stress is on expected rental value rather than on investment value. No such exercise has been carried out by AO. AO has also not granted vacancy allowance to the assessee. We restrict impugned addition to lump sum addition of Rs.2 Lacs (net) and delete the remaining addition as sustained in the impugned order. No other deduction would be allowed against estimated addition of Rs.2 Lacs.

Summary

The Appellate Tribunal (ITAT Agra) in the appeal for AY 2019-20 addressed the confirmation of an addition of Rs.9.90 Lacs to the assessee's income under the head 'income from house property'. The Assessing Officer (AO) had added notional income based on 7% of the investment value of properties, contrary to the statutory mandate under Section 23(1)(a) of the Income Tax Act, which requires the income to be computed on the "expected rental value" rather than investment value. The AO also failed to grant vacancy allowance.The CIT(A) partially reduced the addition to Rs.9.90 Lacs but did not fully address the legal error in the AO's approach. The Tribunal noted that the AO's methodology was "erroneous and contrary to the provisions of Sec. 23(1)(a)" and emphasized that "the value of the property shall be deemed to be the sum for which the property might reasonably be expected to be let out from year to year."Considering the facts and to settle the dispute, the Tribunal restricted the addition to a lump sum of Rs.2 Lacs (net), deleting the remaining addition, and disallowed any further deductions against this estimated addition. The appeal was thus partly allowed.