ITAT Delhi Remands ALV Addition on Vacant Property; Vacancy Allowance Under Section 23(1)(c) to Be Re-Examined

Key Facts and Tribunal Findings

The Income Tax Appellate Tribunal (ITAT), Delhi Bench “B”, has set aside the addition of notional income from house property in the case of Pramod Agarwal for Assessment Year 2018–19, directing fresh examination of the claim for vacancy allowance under Section 23(1)(c) of the Income-tax Act, 1961.

The assessee had declared income from multiple properties, treating one as self-occupied and another commercial property at Omaxe Plaza, Gurgaon as vacant during the relevant year. The Assessing Officer, however, computed annual letting value (ALV) by applying a notional escalation based on rental income shown in earlier years, resulting in an addition of ₹88,935 under the head “Income from House Property.” The addition was upheld by the Commissioner (Appeals).

Before the Tribunal, the assessee contended that the property had been let out in earlier years but remained vacant during the relevant year due to lack of demand, thereby qualifying for nil annual value under Section 23(1)(c). It was argued that vacancy allowance applies even where the property remains vacant for the entire year, provided it was previously let out and no tenant could be found despite reasonable efforts.

The Tribunal accepted the legal proposition that where a property, having been let out in earlier years, remains vacant due to circumstances beyond the assessee’s control, the benefit of vacancy allowance may be available. However, it noted a factual gap in the record, specifically the absence of clarity on whether rental income from the property was offered in the immediately preceding assessment year.

In view of this deficiency, the Tribunal held that the assessee’s claim requires factual verification. Accordingly, it set aside the issue to the Assessing Officer to examine whether the property was indeed let out in the preceding year and to recompute the annual value in accordance with Section 23(1)(c).

The appeal was allowed for statistical purposes.