Online data valid for deemed rent estimation; interest deduction remanded for evidence verification

Issue

Deemed Rent Valuation: Whether the Assessing Officer (AO) is justified in estimating the Annual Letable Value (ALV) of deemed let-out properties based on data from online property portals in the absence of municipal valuation details provided by the assessee.
Interest Evidence: Whether the assessee should be granted another opportunity to produce evidence for claiming interest deduction under Section 24(b) which was disallowed for want of documents.

Facts

Property Holding: The assessee filed a return for Assessment Year 2018-19. During scrutiny, the AO noted that the assessee owned four immovable properties but had disclosed only one as self-occupied.
Deemed Let-Out: Consequently, the AO treated the other two properties as “deemed let-out” under the Income Tax Act.
Valuation Dispute: To determine the taxable deemed rent, the AO relied on comparable market data from online property portals. The assessee contested this, arguing that municipal valuations should be used, but failed to furnish authentic municipal data or proof that the properties were uninhabitable.
Interest Disallowance: The assessee claimed a deduction for interest on borrowed capital under Section 24(b). However, the AO disallowed this claim because the assessee failed to produce supporting evidence like loan sanction letters or interest certificates.
Appellate Order: The Commissioner (Appeals) confirmed both the addition of deemed rent and the disallowance of interest.

Decision

Online Data Accepted: The Tribunal/Court held that since the assessee failed to provide authentic municipal valuations or comparable rental instances, the AO’s reliance on data from property portals was a reasonable approach to estimate Fair Rental Value.
Deemed Rent Upheld: As the assessee could not prove the properties were self-occupied or uninhabitable, the addition towards deemed rental income was upheld in favor of the Revenue.
Interest Remanded: Regarding the Section 24(b) deduction, the authority observed that the disallowance was primarily due to a lack of documentation.
Second Opportunity: To serve the interest of justice, the matter regarding interest deduction was remanded back to the AO. The assessee is to be given one more opportunity to submit loan details and interest certificates to substantiate the claim.

Key Takeaways

Valuation Proxy: If a taxpayer fails to provide Municipal Value or Standard Rent details, tax authorities are legally permitted to use third-party data (like online real estate portals) to estimate the Annual Value of deemed let-out properties.

Burden of Proof: The onus is on the assessee to prove that a property is uninhabitable or self-occupied to avoid “Deemed Rent” taxation.

Documentation for Deduction: A claim for housing loan interest deduction (Section 24(b)) must be supported by a specific Interest Certificate from the lender; mere entries in the bank statement may not suffice.

IN THE ITAT AHMEDABAD BENCH ‘SMC’

Laljibhai Godadbhai Chaudhari

Income-tax Officer

Dr. B.R.R. Kumar, Vice President
and T.R. Senthil Kumar, Judicial Member

IT Appeal No. 1720 (Ahd.) OF 2025
[Assessment year 2018-19]

NOVEMBER 13, 2025

Pritesh Shah, AR for the Appellant. Rohit Aasudani, Sr. DR for the Respondent.

ORDER

Dr. B.R.R. Kumar, Vice president. – This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “CIT(A)” for short) dated 18.08.2025 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act” for short], for Assessment Year (AY) 2018-19.

2. The grounds of appeal raised by the Assessee are as follows:-

“1. The learned CIT(A) erred in law and on facts in confirming the addition made by AO of Rs.2,82,090/- (1,30,970 + 1,51,120) being the deemed house rent income, such addition is requested to be deleted.

2. The learned CIT(A) erred in law and on facts in confirming the Housing Loan Interest disallowance of Rs.10,13,201/-, such deduction is requested to be allowed.”

3. The brief facts of the case are that the assessee filed his return for the year under consideration on 30.03.2019, declaring total income of Rs. 29,54,020/-. The case was selected for limited scrutiny under the e-Assessment Scheme, 2019, to verify income from house property and securities. The Assessing Officer noted that the assessee owned four immovable properties, namely—(i) Devnandan Platina, (ii) Dharnidhar Pride, (iii) Samatwa Bungalow, and (iv) Ambica House, but had disclosed only Devnandan Platina as a self-occupied property in his return of income. The Assessing Officer held that the other two properties, Samatwa Bungalow and Ambica House, were not self-occupied and accordingly determined deemed rent of Rs. 2,82,090/- on these properties based on market data. The Assessing Officer also disallowed the assessee’s claim of Rs. 10,13,201/- towards housing loan interest on the ground that supporting evidence such as interest certificates and loan details were not furnished. The assessment was completed under Section 143(3) r.w.s. 144B of the Act vide order dated 22.05.2021, determining total income at Rs. 32,36,110/-.

4. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Ld. CIT(A) who confirmed both the additions in question made by the Assessing Officer.

5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

6. Before us, the Ld. AR reiterated the submissions made before the lower authorities and contended that the Assessing Officer and Ld. CIT(A) erred in adopting notional rent based on online data instead of municipal valuations. He further submitted that interest deduction under section 24(b) should be allowed since the deemed rent was brought to tax.

7. The Ld. DR supported the findings of the lower authorities and submitted that both additions were correctly made in accordance with law.

8. We have carefully considered the rival submissions and perused the material available on record.

(i) Deemed Rental Income

8.1 It is an undisputed fact that the assessee owned more than one house property. As per Section 23(4) of the Act, only one property can be treated as self-occupied, while the others are to be treated as deemed let-out. The assessee failed to furnish credible evidence that the other two properties were self-occupied or uninhabitable. In such circumstances, estimation of fair rental value based on comparable market data cannot be faulted. The AO’s reliance on data from property portals was a reasonable approach in the absence of authentic municipal or comparable rental data from the assessee. Accordingly, we find no infirmity in the orders of the lower authorities. The addition of Rs. 2,82,090/- towards deemed rental income is hereby upheld.

(ii) Disallowance of Housing Loan Interest

8.2 As regards the interest deduction under section 24(b), the same was disallowed for want of supporting evidence such as loan sanction letters and interest certificates. In the interest of justice, however, we deem it appropriate to grant the assessee one more opportunity to substantiate the claim. Accordingly, this issue is restored to the file of the Assessing Officer for limited verification of necessary documents. The assessee shall produce relevant bank certificates and loan statements, and the Assessing Officer shall allow deduction as per law after due verification.

9. In the result, the appeal of the assessee is partly allowed for statistical purposes.