TMI Blog2018 (4) TMI 1710X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly to restrict the disallowance to 10% of the expenditure. - Decided partly in favour of assessee. Taxability of notional rental income in respect of unsold space held as stock-in-trade -Notional income assessed by the AO u/s 23(1)(a) in respect of unsold stock-in-trade - AO proposed to determine the ALV of the unsold space which is not let out by taking into consideration the rent in respect of the portion let out at ground floor of the complex - HELD THAT:- It is mandate that the AO has to determine the annual letting value by considering the reasonable rent expected to be fetched by the property on the basis of the method provided for fixation of standard rent or computation of rateable value. Since in the case in hand the 4th floor of the property is not eligible for fixation of standard rent being unauthorized construction and subjected to demolition action of the Municipal authorities, therefore, in the normal circumstances the reasonable rent expected to be fetched by such property would be nil. Since the property in question is newly constructed and held as stock-in-trade, therefore the vacancy of the property being not let out is not intentional or deliberate ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case the ld. CIT (A) is wrong, unjust and has erred in law in confirming finding recorded by the assessing officer that notional income from unsold stock of Commercial Complex Silver Square at Jaipur held by the appellant company in respect of which completion certificate is also not received from local municipal authorities is assessable under the head Income from House Property . 3. That without prejudice to the ground No. (2) above the ld. CIT (A) is wrong and has erred in law in not accepting plea of the appellant company that 2355.50 sq. ft. area of fourth floor was unauthorized constructed area and therefor cannot be let out. 4. That the ld. CIT (A), is further wrong and has erred in law in arbitrarily working out average monthly rent of ₹ 77.22 sq. ft. in respect of unsold area and thereby confirming determination of ALV of said area at ₹ 1,16,79,435/-. 5. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them. Ground No. 1 is regarding disallowance of expenses. 2. The assessee company is engaged in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. A/R has submitted that even otherwise disallowance of 20% has no basis and the same is excessive. 4. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that the AO issued show cause notice to the assessee to produce the books of accounts along with vouchers for verification of genuineness of the expenditure claimed. The assessee failed to produce the requisite supporting evidence. Even before the ld. CIT (A), the assessee did not produce the vouchers in support of the claim of expenditure. However, we find that it is not the case of the AO that the expenditure is excessive. Keeping in view the nature of business activity of the assessee and further the nature of expenditure as claimed by the assessee is also not disputed to be incurred wholly and exclusively for the purpose of business of the assessee, therefore, in the facts and circumstances of the case, we are of the considered view that the disallowance on account of not filing the proper vouchers in support of the claim shall be restricted to 10% instead of 20%. We direct the AO accordingly to restrict the disallowance to 10% of the expenditure. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Hon ble Supreme Court has reversed the order of the High Court and restored the order of the Tribunal by holding that the rental income would be assessed as Income from business and cannot be treated as Income from House property. Alternatively, the ld. A/R has submitted that the AO has assessed the notional income in respect of the area at 4th Floor measuring 2355.5 sq. ft. which is temporary structure having roof of tin shed/fibre sheet. Further, it is an unauthorized structure as it is beyond the sanctioned plan and Nagar Nigam has not regularized the said construction at 4th Floor of the complex. Therefore, the annual letting value cannot be determined in respect of such unauthorized construction as the same cannot be let out in the absence of the Completion Certificate of the authority. Rather, a litigation is going on in respect of the said construction as the Municipal Authorities have proposed to demolish the said construction at 4th Floor. He has further contended that after this development of unauthorized construction and subsequent demolition action by the local authorities, the tenant M/s. Country Club (India) Ltd. at the 4th Floor had vacated the premises a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue has not disputed this fact that the 4th floor of the property is unauthorized construction as beyond the sanctioned plan and, therefore, the Municipal Authorities have already proposed action for demolition of the said property against which the assessee has approached the Hon ble High Court for protection of the property in question. Further, it is also not disputed that the solitary tenant at the 4th floor had already vacated the premises after the local authorities have proposed to demolish the said construction. Thus in view of the fact that the 4th floor of the property is facing the demolition action by the local authorities for being unauthorized, the ALV of such property cannot be determined by considering the rent for which the ground floor of the property or the other portion of the said complex was let out. The income from house property is measured as annual value of the property and section 23(1) contemplates the manner in which annual value of the property has to be determined. Since the property in question is newly constructed property and has never been let out, therefore, the provisions of section 23(1)(a) envisages the method for determining the ALV of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is another aspect in the matter that since the property in question is newly constructed and held as stock-in-trade, therefore the vacancy of the property being not let out is not intentional or deliberate act on the part of the assessee but it is beyond the control of the assessee to find a tenant for such unauthorized construction. Once the non-letting of the property is not due to the reason of intentionally keeping vacant by the assessee but it is because of the fact and circumstances that the said space could not be let out despite the best efforts of the assessee, the benefit of vacancy under section 23(1)(c) would be available to the assessee. For ready reference, we quote the provisions of section 23(1) as under :- 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the 57sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let57 and the actual rent57 received or receivable57 by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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