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Judgment
This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 09.01.2026 for the Assessment Year 2023-24.
Brief facts of the case are, assessee filed her return of income on 31.08.2023 declaring total income of Rs.5,21,748/-. The Assessing Officer noticed that assessee had received rental income of Rs.13,20,000/- against which assessee has claimed expenses of Rs.9,90,000/- under section 57 of the Income-tax Act, 1961 (for short ‘the Act’). The case was selected for scrutiny under CASS to verify the genuineness of the expenses claimed. Accordingly, notice u/s 143(2) and 142(1) were issued and served on the assessee. In response, assessee filed relevant information.
During assessment proceedings, the Assessing Officer observed that assessee has claimed the expenditure towards payment of rent, however, has not provided any rental agreement between the owner and assessee and also not filed copy of bank statement through which the payment was made to the owner. He further observed that assessee has claimed rental and other expenses for which no evidences were submitted. Accordingly, he proceeded to disallow all the expenditure claimed by the assessee.
Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. For the sake of brevity, the same is reproduced below :-
“Ground of appeal 1: The learned Assessing Officer has erred in facts and in law by disallowing the expenses incurred in maintaining the property being managed by the Appellant.
Ground of appeal 2: The learned Assessing Officer has erred in facts in disregarding the receipts submitted by the Appellant before the Assessing Officer
11.Appellant is allowed to claim maintenance expenses
It is humbly submitted before your honor that the Appellant had sub-let the property to a third party. Since the Appellant was charging monthly charges from the tenant, the Appellant was both responsible and liable to maintain the property. It is a well settled position that the income from sub-letting property is classified under "Income from Other Sources". The section 57 of the Act provides that all expenses laid out or expended wholly and exclusively for the purpose of making or earning such income are allowable as deductible expenses against such income. On the basis of this clear understanding and position, the Appellant submitted a detail of expenses incurred by her in order to maintain the property and claimed such expenses while calculating her tax liability. For the ready reference of your honor, we have provided below the said details:
S. No. Party Amount paid during the year 1 Mr. Raj Rani – Owner of the property 5,40,000 2 Salary of Caretaker/ Gardener 1,80,000 3 Salary of Maid 1,20,000 4 Painting Expenses 1,20,000 5 Water pipe Repair Charges 11,000 6 Electrician Charges 19,000 Total 9,90,000 The above details were submitted before the learned AO vide submission dated 7 October 2024 and 28 January 2025 enclosed herewith as Annexure 3 and Annexure 4 respectively. Further, the Appellant submitted the evidences of the expenses before the learned AO incurred vide submission dated 17 February 2025. All the above expenses were incurred for the maintenance of the property and hence, claimed by the Appellant.
The allegation of the learned A 0 that the Appellant is not the owner and hence, cannot claim the maintenance expenses does not have a valid base. If the assessee had been the owner of the property, she would have offered the rent received as Income from House Property. The only fact that the Appellant is not the owner of the property is the reason that the Appellant had offered the income as "Income from Other Sources". It has not been the allegation of the learned AO that the income should have been offered to tax as income from house property. Where the learned AO has agreed that the income is 'income from other sources', the expenses incurred to earn such income cannot be disallowed. This is as per the mandate as per section 57(iii) of the Act which clearly states that any expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income should be allowed as deduction against the taxable income. Further, the learned AO has also given a reason that since the Appellant has not furnished PAN or Aadhar card along with rent deed in respect of the owner of the property, expense cannot be allowed. In this regard, the Appellant had explained to the learned AO that the appellant is an old lady and does not have much support! strength to keep following up with the owner to share his details. Further, appellant has lost her husband in April, 2021 due to COV/D- 19, which has adversely affected her health and hence she didn't able to keep the documentation properly. The Appellant tried but could not obtain. The only fact that the PAN of the owner is not available should not be the reason to disallow the rent paid by the Appellant to the owner.
The learned AO had also put the allegation that the documents of rent receipt or receipts on account of payments made to maid do not seem genuine. In this regard, it is humbly submitted that the amounts paid to maids/ plumber/painter who work as daily wagers. Neither do they have PAN nor any local identity proof of Delhi region. The workers were looking for the work and the Appellant hired them to do the work. The Appellant did not keep their records safe and hence, could not produce the same before the learned AO. The details of amounts paid to these workers along with the evidences were submitted before the learned AO vide submission dated 17 Feb 2025.
Ground of appeal 3: The learned Assessing Officer has erred in law and facts by initiating penalty u/s 270A of The Income Tax Act, 1961, which is arbitrary, uncalled for, and bad in law.
Ground of appeal 4: The Appellant craves to add, alter, delete, modify or withdraw any of the above grounds of appeal. The above grounds being consequential in nature, can be adjudicated once the main grounds are adjudicated.
After considering the detailed submissions, ld. CIT (A) sustained the additions made by the Assessing Officer and dismissed the appeal filed by the assessee.
Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-
“1.The assessment order dated 17/03/2025 passed by the ld. Assessing Officer, Assessment Unit, Income Tax Department, New Delhi [in short "Ld. AO"] under section 143(3) r.w.s 1448 of the Income-tax Act [in short "the Act"] and upheld by the Commissioner of Income Tax (NFAC) [in short "Ld. CIT(A)"] vide its order dated 09/01/2026 is bad at law & on facts both hence, the same is void ab initio and liable to be quashed.
2.That on the facts and in circumstance of the case and in law, the Ld. CIT(A) has erred in upholding the additions made by the ld. AO to the tune of Rs. 9,90,0001- under the head "other sources".
3.That on the facts and in circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the levying the interest u/s 234B of the Act.
4.All the above grounds are independent and without prejudice to others.”
At the time of hearing, ld. AR of the assessee brought to my notice relevant facts on record and submitted that assessee has taken the property on rent and earned the rental income, declared the same as income from other sources, claimed the relevant expenditure. She prayed that the assessee may be allowed relevant expenditure as against income offered to tax. She brought to my notice rental agreement and submitted that all other expenditure incurred by the assessee are in cash and prayed that the relevant expenditure may be allowed.
On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities and submitted that assessee has not substantiated the claim of expenditure with relevant documents.
Considered the rival submissions and material placed on record. I observed that assessee has taken a property on rent and earned the rental income of Rs.13,20,000/- during the year under consideration which was accepted by the Assessing Officer. The issue is that assessee has paid rent and other expenditure relating to maintenance of the above property to the extent of Rs.9,90,000/-. The Assessing Officer has disallowed the whole expenditure as it is not substantiated. It is fact on record that assessee is not the owner of the property through which the assessee has earned the rental income, therefore, the claim of the assessee on rent paid cannot be denied. The assessee has filed before us unregistered rental agreement to claim the payment of Rs.45,000/- per month and also submitted rental receipt in support of the same. With regard to other expenditure incurred by the assessee towards maintenance of the property, since the assessee has declared rental income, the assessee had to incur certain expenditure towards maintenance of the same. I noticed that apart from rental payment, the assessee has incurred salary of caretaker and gardener, painting expenditure and other sundry repairs towards water and electricity. After careful consideration, in my considered view, assessee should be given benefit of payment of rent and sundry repair charges towards water, pipe repair and electricity charges of Rs.11,000/- and Rs.19,000/-. Apart from the above, the assessee had to maintain and appoint caretaker to run the same. Therefore, we are inclined to allow Rs.10,000/- per month towards above charges. Therefore, we are inclined to sustain the other disallowances made by the Assessing Officer. Accordingly, the assessee is allowed to claim rental payment of Rs.5,40,000/-, Rs.30,000/- towards sundry repair expenditure and Rs.1,20,000/- towards salary to caretaker. Thus, the grounds raised by the assessee are partly allowed.
In the result, the appeal filed by the assessee is partly allowed.