The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has that properties lawfully used by an advocate for professional purposes cannot be subjected to deemed rental taxation merely because they are residential in nature, and PCIT cannot invoke Section 263 where the Assessing Officer has conducted detailed enquiries and adopted a plausible view.
The Tribunal held that properties at Jangpura Extension, Defence Colony and Sunder Nagar, though residential in character, were being used for the assessee’s legal practice. Since professional use by advocates from residential premises is permitted under the Delhi Master Plan 2021, non-computation of Annual Letting Value (ALV) was justified.
The Tribunal found that the revisional authority wrongly proceeded on the premise that residential properties could not be used for professional activities. The assessee’s claim regarding professional use was never disproved by the Revenue. The assessment records showed that the Assessing Officer had specifically examined ownership, usage and income aspects of the relevant properties during scrutiny proceedings. Therefore, the case was not one of lack of enquiry.
In respect of the Defence Colony and Sunder Nagar properties, the Tribunal noted that the sale deeds reflected a composite purchase price without any bifurcation between land and building. In such circumstances, depreciation could not be denied by artificially segregating the value attributable to land.
Briefly, the assessee, Maninder Singh, a senior advocate and former Additional Solicitor General of India, filed his return for AY 2022-23 declaring substantial professional income. During scrutiny assessment, the Assessing Officer (AO) examined, among other issues, certain properties situated at Jangpura Extension, Defence Colony and Sunder Nagar, Delhi, as well as the depreciation claimed on two newly acquired properties at Defence Colony and Sunder Nagar. After conducting enquiries and considering the assessee’s explanations, the AO completed the assessment under Section 143(3) of the Income Tax Act.
Subsequently, the Principal Commissioner of Income Tax (PCIT) invoked revisional jurisdiction under Section 263. The PCIT alleged that the AO had failed to properly examine the Annual Letting Value (ALV) of certain properties and had wrongly allowed depreciation on the Defence Colony and Sunder Nagar properties. According to the PCIT, the assessment order was erroneous and prejudicial to the interests of the Revenue.
The Division Bench comprising Mahavir Singh (Vice President) and Krinwant Sahay (Accountant Member) noted that the assessee’s case had been selected for scrutiny specifically to verify investments in tangible assets and depreciation claims. The AO had issued detailed questionnaires seeking particulars of fixed assets, additions and depreciation claimed, and the assessee had furnished the relevant information, documents and sale deeds.
The Tribunal observed that the sale deeds of the Defence Colony and Sunder Nagar properties reflected a composite purchase consideration. While circle-rate calculations separately mentioned land and construction values for stamp-duty purposes, the actual transaction value paid by the assessee was not separately allocated between land and building.
Relying on earlier Tribunal decisions, including M/s National Housing Bank vs. DCIT [ITA No. 477/Del/2017] and ITO vs. Millenium Spire India Management (P) Ltd. [ITA No. 3297/Del/2013], the Bench held that where land and building are purchased for a composite consideration and there is no separate allocation in the sale deed, depreciation cannot be denied merely by notionally segregating the land value.
