5 Section 23 – In case of a property construction whereof is not fully in accordance with the sanctioned plan and some alteration is required to bring it under proper plan, benefit of vacancy allowance u/s. 23(1)(c) of the Act needs to be allowed in respect of the period taken for carrying out necessary alterations.

Saif Ali
Khan Pataudi vs. ACIT

ITA No.:
5811/Mum/2016

A. Y:
2012-13  
Dated: 21^st August, 2018

Section 23 – In case of a property
construction whereof is not fully in accordance with the sanctioned plan and
some alteration is required to bring it under proper plan, benefit of vacancy
allowance u/s. 23(1)(c) of the Act needs to be allowed in respect of the period
taken for carrying out necessary alterations.

Facts

The assessee owned a residential flat in a
society. The assessee considered the annual value of this flat to be Rs.
4,00,000. The Assessing Officer (AO) while assessing the total income of the
assessee held that considering the size of the flat and its location, the
amount of rent estimated by the assessee to be its annual value was low. The AO
adopted 7% of the value of the investment in the flat to be its annual value.
Accordingly, he computed Rs. 81,08,802 to be the annual value of the flat under
consideration.

Aggrieved, the assessee preferred an appeal
to the CIT(A) where the assessee argued that the building in which the house
was situated has been constructed unauthorisedly as per letter dated 9.2.2012
of Executive Engineer, Building Proposal (WS), `H’ Ward, Municipal Corporation
of Central Mumbai. It contended that the annual value shown by the assessee be
accepted and addition made by the AO deleted. He noted that as per the
valuation report filed by the assessee, the annual value of the property has
been estimated to be Rs. 11,86,723. The CIT(A) held that the alteration
required to be done to remove the unauthorised construction was minor.
Referring to the rent of another flat in the same building, the CIT(A) computed
the annual value to be Rs. 50,40,000.

Aggrieved, the assessee preferred an appeal
to the Tribunal where on behalf of the assessee it was contended that the
assessee was not able to let out the property and hence vacancy allowance be
granted. It was also submitted that there were some inherent defects in
construction of the property. The deficiency was pointed out by the authorities
and it was necessary to remove the deficiencies in order to bring the property
in accordance with the approved plan. Since defects were subsisting there was
reasonable cause why the flat would not be let out. It was also pointed out
that subsequently substantial expenditure was incurred by the assessee in order
to bifurcate the property into 3 flats in order to rent the same. In order to
avoid litigation the assessee was agreeable to offer Rs. 11,83,723 as annual
value, as computed by the assessee’s valuer.

HELD

The Tribunal noted that the CIT(A) has
partly rejected the assessee’s plea that the assessee was under an obligation
to remove certain unauthorised construction / defects done by the builder in
order to bring the construction under appropriate permission and sanction.  It observed that the CIT(A) has admitted that
certain defects were there but he has found the same to be minor.  No details whatsoever has been brought by the
CIT(A) in considering the defects to be dissected between major and minor.  Once when it is accepted that the construction
was not fully in accordance with the plan and some alteration was required to
bring it under proper plan, it has to be accepted that the flat was not in a
position to be let out dehors the removal of the defects.

The Tribunal held that there were certain
defects in the construction of the flat under the sanctioned plan, the removal
of which was necessary. Letting out a house which is not constructed as per an
approved plan cannot be forced upon an assessee.  Furthermore, subsequently the assessee has incurred
over Rs. 50 lakh for alteration of the flat which resulted in the bifurcation
of the flat into three parts. This oxygenates the assessee’s claim that the
premises required alteration in order to be properly let out.  It held that the plea made on behalf of the
assessee cannot be said to be spurious, vexatious, mere bluster or frivolous.
It held that the assessee deserves vacancy allowance u/s. 23(1)(c). 

Considering the ratio of the decision of the
Mumbai Bench of ITAT in the case of Premsudha Exports (P.) Ltd. vs. ACIT
[2008] 110 ITD 158 (Mum.), the Tribunal held that the assessee should be
granted vacancy allowance.  However,
since the assessee had in its grounds of appeal agreed to offer Rs. 11,83,723
to be the annual value of the property, the proposal of the assessee was
accepted and the order of CIT(A) was held to be modified accordingly.

The Tribunal allowed the appeal filed by the
assessee.