Advocates Can Use Residential Premises for Legal Practice Without Paying Tax on Annual Letting Value: ITAT Delhi [Read Order]

New Delhi: The Delhi Bench of the Income Tax Appellate Tribunal has quashed a revision order under Section 263 of the Income Tax Act, 1961 passed against Senior Advocate Maninder Singh, holding that the Assessing Officer’s order was neither erroneous nor prejudicial to the interest of the Revenue on either of the two issues, namely taxing the annual letting value of properties used for his legal practice and disallowing depreciation on two properties on the land component of their cost. 

A Bench of Vice President Shri Mahavir Singh and Accountant Member Shri Krinwant Sahay pronounced the order on 12 October 2026 in ITA No. 5816/DEL/2026 for Assessment Year 2022-23.

The appeal was against the order dated 31.3.2026 of the Principal Commissioner of Income Tax, Delhi-12, who revised the assessment framed by the Assessing Officer under Section 143(3) read with Section 144B on 28.3.2024. The assessee is a Senior Advocate practising in the Supreme Court and High Courts and a former Additional Solicitor General of India, whose professional receipts for the year were declared at about ₹24.39 crore.

The first issue concerned the Annual Letting Value (ALV) of properties at F-11 Jangpura Extension, 7 Block 171 Sunder Nagar and E-6 Defence Colony, New Delhi. The PCIT held that no ALV had been declared and that the AO had not verified the extent of their professional use. The assessee said that the properties are used as offices for his juniors, staff and clients, and that clause 15.8 of the Master Plan for Delhi 2021 expressly permits advocates and other specified professionals to carry on professional activities from residential premises. He also argued that the PCIT had given no basis for computing ALV.

The Revenue argued that Section 22 requires a reasonable estimate of ALV for house property income and that the AO was duty-bound to assess it. The Tribunal, however, noted that the PCIT had not rejected the assessee’s contention that the properties were used for his legal profession, and had not examined it, and that the AO had gone into the details and filed complete information and had not computed ALV for that reason. It held that, since the properties may be used for professional purposes under clause 15.8 of the Master Plan, no ALV can be computed, and that the PCIT had exceeded his jurisdiction.

The second issue concerned depreciation of about ₹8.5 crore claimed on the two properties acquired during the year, at E-6 Defence Colony and 7 Block 171 Sunder Nagar. The PCIT said that the AO had wrongly allowed depreciation on land, relying on CIT v. Alps Theatre, which held that depreciation is allowable on a building and not on the land on which it stands, and that the claim was not routed through the tax audit report. He proposed to disallow the part attributable to land, as the circle-rate valuation in the sale deeds separated land and construction values.

The assessee pointed out that the case had been selected for scrutiny to examine investment in tangible assets and depreciation, that the AO had specifically asked for details of additions to fixed assets and depreciation in the notice under Section 142(1) dated 29.2.2024, and that the properties were stated in his reply to be used exclusively for the office purposes of his law practice. He argued that the purchase consideration was composite and not separated between land and building, relying on Tribunal decisions including CIT v. Rajesh Exports and ITO v. Millennium Spire India Management, and on the assessee’s own earlier case.

The Tribunal agreed. It noted that, in the sale deeds of both properties, the entire sale consideration was composite, that the Revenue had cited no contrary decision, and that the AO’s order, passed after enquiry, was not erroneous or prejudicial to the Revenue. It added that the issue is in any event debatable, and that a revision order under Section 263 is not possible on a debatable issue, relying on CIT v. Gabriel India Ltd. (Bombay High Court) and CIT v. Max India Ltd. (Supreme Court).

Concluding that the assumption of jurisdiction under Section 263 was not sustainable, the Tribunal held that the assessment order was “neither erroneous nor prejudicial to the interest of revenue”. The case was not one of lack of enquiry, as detailed enquiry had admittedly been conducted in scrutiny and the AO had consciously adopted a legally permissible view, whereas the PCIT merely substituted his opinion for the AO’s on the same material. It reversed the PCIT’s order and allowed the assessee’s appeal.

Appearances: For the Appellant: Sh. Vartik Chuksi, CA, with Mr. Prabhas Bajaj and Mr. Rishabh Yadav, Advocates. For the Respondent: Dr. Rajinder Kaur, CIT DR.

Case Title: Maninder Singh v. Circle 61(1), Delhi, ITA No. 5816/DEL/2026 (Assessment Year 2022-23)

[Read Order]