House rent addition on notional basis u/s 23 for unrealised rent upheld when property was not vacant

In a recent judgment Chennai ITAT has upheld the addition made for notional house rent under the provisions of section 23 of the Income Tax Act, 1961, . It was held that:
(a) When the assessee is the legal owner of the property; and
(b) The property was let out and was in the occupation of the tenant, who is liable to pay rent; and
(c) The assessee has the right to receive the rent
If the assessee fails to take any steps for recovery, he cannot take a plea that the rent is not realized
Case Details:
INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI
ITA No. 1848/Mds/2015  Assessment Year : 2008-09
Deputy Commissioner of Income-tax vs. A. Ramamurthy
Date of Order/Judgment: 18/03/2016
Brief Facts of the Case:
The assessee purchased a hotel property in December, 2006, which has an existing tenant. But the assessee has offered rental income @ Rs. 49,000/- per month from March 2008 only. The assessee did not offer any rental income from the property for the period 1.4.2007 to 29.2.2008 on the ground that he did not receive any rent owing to certain disputes with tenant.
The Assessing Officer, in his order, did not accept the assessee’s contentions. Since the assessee is the legal owner of the property throughout the year, the Assessing Officer computed the rental income @ Rs. 49,000/- per month for the period from 1.4.2007 to 29.2.2008 also, on notional basis and taxed it accordingly.
Before the Commissioner of Income-tax(Appeals), the assessee submitted that though the property was purchased in December 2006, there was a dispute with the existing tenant of the property and the disputes were settled only by March 2008 when the tenant agreed to pay the rent @ Rs. 49,000/- per month from March 2008. Therefore, the assessee claimed that the actual rents received are from March 2008 only and not for the entire financial year 2007-08 on notional basis. CIT(A)  observed that the Assessing Officer cannot tax rent on notional basis. and the annual letting value of the property from December 2006 to February 2008 could not be ascertained and the AO was not justified in estimating the rent for the period from April, 2007 to March, 2008 on notional basis. Accordingly, he deleted the by the AO.
Excerpts from Judgment:
Now, the contention of the ld. AR is that the assessee has not ralised the rent from April 2007 to February 2008, as it was subject to litigation. . However, there is no evidence brought on record to suggest that the property was vacant during that period. Even before us, the only plea of the ld. AR is that there is litigation between the tenant and the assessee. For this also, there is no evidence. The Commissioner of Income-tax(Appeals) has given a relief to the assessee on the reason that there was dispute between the assessee and the tenant though there is no evidence. In such circumstances, when the assessee is the legal owner of the property and it was let out to the person and the tenant was in occupation of that premises, he is liable to pay rent and the assessee has the right to receive the rent in accordance with law. If the assessee fails to take any steps for recovery, he cannot take a plea that the rent is not realized. As such, the Assessing Officer is entitled to determine the expected rent receivable and the ALV of the property for the purpose of assessing the income. Accordingly, the Assessing Officer is justified in assessing the rental income in accordance with the provisions of sec.23 of the Act .