By TIOL News Service

CHANDIGARH, DEC 10, 2015: THE issue is - Whether unutilized rental income relating to previous year can be taxed in the current year, where the assessee was never confronted to establish the requirements of Rule 4 of the I-T Rules to claim benefit of unrealized rent. NO is the answer.

Facts of the case

The assessee filed its return for the A.Y 2004-05 declaring loss of Rs. 120,53,19,245/-. The said return was processed and thereafter, revised return was filed at the same income in which refund claim of TDS at Rs. 31,66,027/- was made as against claim of Rs. 28,80,291/- in the original return. The return was processed and notice u/s 143(2) was issued. Thereafter, notice u/s 142(1) along with questionnaire was issued. The assessee had not declared the income of rent of the building at Mohali amounting to Rs. 10 lacs. The assessment was framed by the AO by making addition of Rs. 7,00,000/- after allowing deduction at the rate of 30% u/s 24(a). On appeal, the ITAT set aside the order of CIT(A) and directed the AO to delete the impugned addition of Rs. 7,00,000/- made on account of income from house property.

Having heard the parties, the High Court held that,

++ the solitary question that arises in this appeal is whether the rent of building at Mohali amounting to Rs. 10 lacs was receivable by the assessee in this year or not. The Tribunal relying upon Section 25AA had held that the unrealized rent could not be taxed in the year in question but would fall for taxation in the year it is so realized even if the assessee may not be owner of the property in that previous year. We do not find any infirmity in the approach of the Tribunal as according to Section 25AA as well, the unrealized rent cannot be taken to be taxable in the hands of the assessee under the head "income from house property" when it is not realizable. The counsel for the revenue had referred to Rule 4 of the Rules. From a perusal of the orders passed by the AO, the CIT(A) and the Tribunal, we notice that no aid was taken by the AO either in his order or before the CIT(A) or the Tribunal from the said rule. However, no argument was raised based on Rule 4 of the Rules and, therefore, no reference was made by the Tribunal to Rule 4 of the Rules. Moreover, the revenue could not refer to any material on record to show that the assessee was ever confronted to establish the requirements of Rule 4 of the Rules to claim benefit of unrealized rent. Accordingly, the substantial question of law claimed on that basis does not arise.

(See 2015-TIOL-2750-HC-P&H-IT)