ITAT allowed additions as father couldn’t justify letting out property to daughter at low rent

Case Details: Atul Chandrakant Kirloskar v. DCIT - [2023] 146 taxmann.com 439 (Pune-Trib.)

Judiciary and Counsel Details

• • R. S. Syal, Vice President & Partha Sarathi Chaudhury, Judicial Member
  • C.H. Naniwadekar, AR for the Appellant.
  • S.P. Walimbe, DR for the Respondent.

Facts of the Case

Assessee-individual, filed its return of income for the relevant assessment year declaring rental income from a house property. Such house property was rented by the assessee to his daughter on an annual rental of Rs. 5,500.

During the assessment proceedings, the Assessing Officer (AO) noticed that the same property was rented by the assessee to a third party (a corporate entity) in the prior years at a relatively higher amount i.e., Rs. 24 lakhs. Concluding that the lower rent was charged because of the relationship between assessee and his daughter, AO made additions to the income of assessee and computed the tax liability accordingly.

Aggrieved by the order, assessee filed an appeal to the CIT(A). The CIT(A) confirmed the additions made by AO and the matter reached the Pune Tribunal.

ITAT Held

The Tribunal held that the contention of assessee that Fair Market Rent (FMV) of the property as per the Municipal Authorities is around Rs. 6,000 which is approximately equal to the actual rent received in this year, is not acceptable. AO wasn’t considering Annual Let out Value (ALV) of any other property but the same property in the previous year. Assessee himself disclosed ALV of around Rs. 24 lakhs in the previous year.

Once a disparity is demonstrated and examined by the department, the onus to prove it otherwise, lies on the assessee. It is the responsibility of assessee to demonstrate possible reasons and explanations pertaining to such disparity.

Since the assessee failed to demonstrate appropriate reasons for such discrepancy, it is considered that the rent is determined at such a lower rent only out of natural love and affection as the same property was rented at much higher amount to a third party.

Therefore, it is nothing but the relationship aspect that reduced the rental income, the said additions are upheld and the income of assessee is enhanced by the same amount.

List of Cases Reviewed

• • CIT v. Tip Top Typography [2015] 228 Taxman 244 (Mag.)/[2014] 48 taxmann.com 191/368 ITR 330 (Bom.) (para 5) distinguished.

List of Cases Referred to

• • CIT v. Tip Top Typography [2015] 228 Taxman 244 (Mag.)/[2014] 48 taxmann.com 191/368 ITR 330 (Bom.) (para 3).