No Addition Towards Notional Rent if Property Remained Vacant due to Obstruction Caused by Ongoing Metro Project

Facts

1. The assessee was engaged in the business of trading in shares and commodities. Assessee owns a property situated at Anna Salai, Chennai. In the return of income for AY 2014-15 the assessee did not disclose any notional rental income from the aforesaid property.
2. The Assessing Officer (AO) estimated rental income of the property at 6% of the capital value and made addition of Rs. 11,37,878/- as notional rent.

Clarifications:

1. The Authorized Representative (AR) of the assessee submitted documents stating that the aforesaid property was let out in the year 2001 to HDFC Bank Ltd. Thereafter, Metro Rail Project came up in Chennai and the construction work on Metro Project started just opposite to the property of the assessee. Due to ongoing Metro Project work, HDFC Bank Ltd. vacated the premises in the year 2010. Subsequently, in the FY 2015-16 the assessee could find a tenant and hence, the property was again let out. The assessee in its return of income disclosed the rental income of Rs. 2,10,000/- from the premises which was accepted by the AO for which the AR of the assessee furnished copy of the assessment order.
2. The AR of the assessee referring to the provisions of section 23(1)(c) of the Income Tax Act, 1961 along with decisions made in the case of Sachin R. Tendulkar v. Dy. CIT [2018] contended that since the property was lying vacant and no rental income was received for even part of the year, no addition on account of rental income was to be made.
3. The Departmental Representative submitted that the contentions raised by the assessee before the Tribunal were same as made before the first appellate authority. However, the assessee did not place on record any document to show that assessee took reasonable steps for letting out the property.
4. ITAT on applying the provisions of section 23(1)(c) of the Act along with decisions made in similar circumstances of the case Sachin R. Tendulkar v. Dy. CIT [2018] clarified that the assessee had taken all reasonable steps for letting out the property during the period of vacancy due to the obstruction caused by ongoing metro project.

Therefore, no addition on account of notional rent was warranted, hence accepted the rental income from the vacant property as ‘nil’ as contended by the assessee.

Conclusion:

Based on the above facts and clarifications all the requirements of provisions of section 23(1)(c) of the Act are fulfilled  and therefore assessee claim of reporting rental income from the vacant property as ‘nil ’during the relevant year due to obstruction caused by ongoing Metro Project was accepted being a purely legal ground hence appeal of the assessee was allowed. Hence, no addition on account of notional rent is justifiable in case of unavoidable circumstances.

Source: [2020] 114 taxmann.com 180 (Mumbai – Trib.)