A vacant flat that is neither self-occupied nor rented out can still attract income tax under the Income-tax Act. The Income Tax Appellate Tribunal (ITAT), Mumbai Bench “J (SMC)” has made this clear while dealing with the case of Shakir Hussain Qureshi for Assessment Year 2022-23.
The Tribunal, comprising Judicial Member Narender Kumar Choudhry and Accountant Member Makarand Vasant Mahadeokar, did not decide the issue finally. Instead, it remanded the matter back to the Assessing Officer for a fresh examination after giving the assessee another opportunity to prove his claim.
How the Case Began
The matter originated from a search conducted on 4 January 2023 by the DDIT, Investigation Unit-2(3), Mumbai, in the case of M/s A.L. Qureshi Export and its group entities. During the search, the Assessing Officer noticed that Shakir Hussain Qureshi had not disclosed any income from his house property located at Shams Palace, Hill Road, Bandra West, Mumbai.
The AO observed that open-source information from websites such as housing.com showed that monthly rents of flats in Shams Palace were upwards of ₹2 lakh. He issued a show-cause notice dated 19 August 2024 asking the assessee to explain why the annual lettable value of the property should not be determined under Section 23(1)(a) of the Income-tax Act.
Assessee’s Reply and AO’s Decision
In his reply, the assessee stated that the entire property remained vacant during Financial Year 2021-22 and no rental income was received. He submitted maintenance bills showing non-occupancy charges. He further argued that the building is old, has a lift only up to the third floor, is not well maintained, and is under redevelopment discussions with various builders. Therefore, expecting rent of ₹2.25 lakh per month was unrealistic.
He also produced a Leave and Licence Agreement executed on 27 April 2022 under which the flat was let out from 1 May 2022 onwards at ₹65,000 per month in the first year, rising to ₹68,250 and ₹71,660 in the subsequent years.
The Assessing Officer was not convinced. Relying on Section 23(1)(a) and certain judicial pronouncements, he determined the annual lettable value at ₹65,000 per month, amounting to ₹7,80,000 for the year. After allowing the statutory deduction of 30 per cent (₹2,34,000), he made an addition of ₹5,46,000 under the head “Income from house property.”
CIT(A) Upholds the Addition
The Commissioner of Income-tax (Appeals)-48, Mumbai, upheld the addition. The CIT(A) held that the property was neither self-occupied (as the assessee had another self-occupied property) nor rented out during the year under consideration. Therefore, it squarely fell within the ambit of Section 23(1)(a). The CIT(A) also held that the Assessing Officer was justified in determining the annual lettable value on the basis of the rent receivable in the immediately succeeding period.
What Happened Before the ITAT
Before the Tribunal, the assessee produced additional documents that had not been placed before the lower authorities. These included:
- Rent agreements of earlier years and the 2022 agreement.
- A letter dated 21 April 2022 from property broker Mr. Moosa Munir Qureshi, stating that continuous efforts had been made to find tenants by sharing property details, arranging site visits, and holding negotiations. However, due to market conditions and non-availability of suitable tenants, the property remained vacant.
- An affidavit claiming that the property was held with the intention of letting it out during Financial Years 2019-20, 2020-21 and 2021-22, that bona fide efforts were made (engaging brokers, listing on platforms, negotiating with prospective tenants), and that the property was never used for personal residence or any other personal purpose.
The assessee also relied on earlier Mumbai Tribunal decisions, including Classic Mall Development Company Ltd. and Sachin R. Tendulkar, in which similar additions were deleted when the assessee demonstrated genuine efforts to let out the property.
ITAT’s Key Observations
The Tribunal noted that the broker’s letter and related documents were never produced before the Assessing Officer or the CIT(A). Therefore, the lower authorities had no opportunity to examine their genuineness. It further observed that complete details of the brokers engaged, the websites or rental platforms on which the property was listed, and the prospective tenants with whom negotiations were held, were not furnished earlier.
Considering the peculiar facts, the Tribunal held that one more opportunity should be given to the assessee in the interest of substantial justice. It remanded the case to the Jurisdictional Assessing Officer for a fresh decision. The onus is on the assessee to substantiate his claim by furnishing relevant evidence and, if required, producing the concerned persons. The appeal was allowed for statistical purposes.
Understanding Section 23 of the Income-tax Act
Section 23 deals with the determination of Annual Value of a house property for the purpose of computing income under the head “Income from house property.”
Under Section 23(1)(a), where the property is not let out, the annual value is the sum for which the property might reasonably be expected to let from year to year. This is commonly known as the “notional rent” or Annual Lettable Value (ALV).
In simple terms, if a property is capable of being rented out but remains vacant, and it is not treated as self-occupied under the law, the Income Tax Department can tax the owner on the reasonable expected rent even if no actual rent is received.
However, courts and tribunals have repeatedly held that if the owner can prove that the property was held with a genuine intention to let it out and that bona fide efforts were made to find tenants, the notional income addition can be deleted. The quality of evidence of these efforts becomes crucial.
What This Means for Property Owners
This order is a reminder that merely keeping a flat vacant does not automatically protect an owner from income tax liability under Section 23(1)(a). At the same time, it also shows that if genuine efforts to let out the property can be established with proper documentary evidence, the addition can be successfully challenged.
Property owners who own more than one house and keep flats vacant should maintain clear records of attempts to rent them out — including broker engagements, online listings, site visit records, and correspondence with prospective tenants.
The final outcome in this particular case will now depend on the fresh examination by the Assessing Officer after verifying the additional evidence produced by the assessee.
Order details: ITA No. 4187/M/2026 | Assessment Year: 2022-23
Pronounced on: 23 July 2026
Assessee: Shakir Hussain Qureshi vs ACIT, Central Circle 8(2), Mumbai
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