ITAT deletes addition on Notional Rent which was not let out during the year

The brief facts of the case is that the assessee is an individual and engaged in business activities of Trading of building materials i.e. sand, metal, carting and also in trading of shares. The assessee has declared his net taxable income to the tune of Rs.10,48,930/- after deductions under Chapter – VIA of the Act. On perusal of Income Tax Returns (ITR), the assessing officer observed that assessee has shown Rs. NIL/- income from house property that was rented to Shri Manoj Shahu.

The assessee was asked to give clarification regarding rent income from property at Subh Laxmi Tower, Vapi that was rented to Shri Manoj Shahu. In response, the assessee had submitted the reply to the assessing officer as follows:

“Assessee has not earned any rent income from shop at Subh Laxmi, since this shop is situated at the interior area and thereby it is vacant for the entire year. However, prevailing market rate of that area for letting out is Rs.5,000/- per month. Please note that other than this property, assessee had two more property, one was flat and one more shop which were used for own purpose and business only.”

However, assessing officer rejected the contention of the assessee and held that income from prevailing market rate of the house for letting out to Shri Manoj Shahu is at Rs.5,000/- per month that comes to Rs.60,000/-. Therefore, assessing officer disallowed Rs.60,000/- and added back to the income of the assessee for year under consideration. On appeal, the ld. CIT(A) deleted the addition. Aggrieved, the Revenue is in appeal before us.

ITAT observed that assessee has not given his shop on rent therefore notional rent based on prevailing market rate cannot be taxed in the hands of the assessee. We note that rent income has not accrued in the hands of the assessee, hence question does not arise to tax notional rent. The tax should be imposed on real income. In the assessee`s case neither rent income has accrued nor received actually by the assessee.

Therefore, it stated that conclusions arrived at by the CIT(A) are correct and admit no interference and accordingly confirm the order of the CIT(A).

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