ACIT, Central Circle1(1), Pune V. Mr Prakash R. Dhariwal, Pune

ITA 1189/PUN/2013

• Counselvise Citation: 118924514 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 28-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Salary income; Competent authority
• Section: 143(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1189/PN/2013 (A.Y: 2007-08) ACIT, CENTRAL CIRCLE 1(1), PUNE APPELLANT VS. MR. PRAKASH R. DHARIWAL MANIKCHAND HOUSE, PLOT NO.100/101, D.KENNEDY ROAD, BEHIND HOTEL LE-MERIDIAN, PUNE 411001 PAN: AAPPD2287H RESPONDENT APPELLANT BY : SHRI RAJESH DAMOR RESPONDENT BY : SHRI SAMI R SHAH DATE OF HEARING: 19.08.2014 DATE OF ORDER : 22.08.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE, D ATED 31.01.2013 FOR A.Y. 2007-08 ON THE FOLLOWING GROUND S. 1. THE LD. CIT(A) ERRED IN DECIDING THAT DEDUCTION U/S .24(B) IS AVAILABLE EVEN IN PARTIALLY COMPLETED HOUSE PROP ERTY IN CONTRAVENTION OF SECTION 24(B) OF THE ACT. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY OR ALL THE GROUNDS OF APPEAL 2. THE ASSESSEE IS AN INDIVIDUAL AND DURING THE YEA R UNDER CONSIDERATION, HAS DERIVED INCOME FROM SALARY, HOUS E PROPERTY, BUSINESS AND OTHER SOURCES. THERE WAS A SEARCH OPE RATION AT THE VARIOUS PREMISES BELONGING TO THE RMD GUTKHA GROUP ON 20.01.2010. THE ASSESSING OFFICER ISSUED THE NOTICE DATED 2 ITA NO.1189/PN/13 PRAKASH R. DHARIWAL 14.09.2010 U/S 153A OF THE IT. ACT AND THE SAME WAS SERVED ON THE ASSESSEE BEING ONE OF THE MEMBERS OF THE ABOVE GROUP. THE ASSESSEE IN RESPONSE FILED THE RETURN OF INCOME ON 15.10.2010 DISCLOSING INCOME OF RS.71,60,146/-, WHICH WAS THE SAME INCOME AS DISCLOSED IN THE ORIGINAL RETURN. THE ASSESSING OFFICER FOUND THAT THE ASSESSMENT COMPLETED U/S 143(3) OF THE I.T . ACT WAS PASSED ON 16.12.2009 ASSESSING THE TOTAL INCOME AT RS. 11,54,382/-, WHEREIN THE ADDITION ON ACCOUNT OF DIS ALLOWANCE OF PRE-CONSTRUCTION PERIOD INTEREST ON HOUSE PROPERTY AT SAI HIRA, BUND GARDEN ROAD, PUNE WAS MADE. THE ASSESSING OFF ICER ISSUED A SHOW-CAUSE SEEKING THE EXPLANATION OF THE ASSESSEE BEING A FRESH ASSESSMENT PROCEEDING U/S 153A AND TH E ASSESSEE RAISED CERTAIN OBJECTIONS. THE ASSESSING OFFICER A FTER CONSIDERING THE CONTENTIONS RAISED BY THE ASSESSEE RESORTED TO THE SAME ADDITION U/S 24(B) OF THE ACT, MADE IN THE EARLIER ASSESSMENT ORDER DATED 16.12.2009. 2.1 THE MATTER WAS CARRIED BEFORE FIRST APPELLATE A UTHORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF THE ASSESSEE AS UNDER: 'THE SUBJECT APPEAL IS AGAINST THE ORDER U/S. 153A R.W.S. 143(3) OF THE ACT DTD. 30-12-2011 AS PASSED BY THE LEARNED ACIT, CENTRAL CIRCLE-1(1), PUNE. THE YEAR UNDER CONSIDERATION IS A.Y. 2007-2008. DISALLOWANCE OF PRE CONSTRUCTION PERIOD INTEREST OF RS.11,54,382/- THE FACT OF THE SUBJECT DISALLOWANCE IS THAT THE AP PELLANT HAD INCURRED PRE-CONSTRUCTION INTEREST EXPENSE FOR THE CONSTRUCTION OF THE PROPERTY AND AS CONSTRUCTION OF 1/3 RD OF THE PROPERTY WAS COMPLETED, CLAIM OF 1/5 TH OF SAID INTEREST EXPENSE PERTAINING TO THE SAID COMPLETED PORTION OF THE PROPERTY AS PER THE PROVISIONS OF THE INCOME TAX AC T WAS MADE. 3 ITA NO.1189/PN/13 PRAKASH R. DHARIWAL IN THIS RELEVANT EXTRACT FROM THE PROVISIONS OF INC OME TAX ACT IS REPRODUCED HEREIN BELOW FOR YOUR READY REFERENCE : SECTION 24. INCOME CHARGEABLE UNDER THE HEAD 'INCOM E FROM HOUSE PROPERTY' SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY: (A) ***; (B) WHERE THE PROPERTY HAS BEEN ACQ UIRED, CONSTRUCTED, REPAIRED, RENEWED OR RECONSTRUCTED W ITH BORROWED CAPITAL, THE AMOUNT OF ANY INTEREST PAYABL E ON SUCH CAPITAL: *** *** EXPLANATION.WHERE THE PROPERTY HAS BEEN ACQUIRED OR CONSTRUCTED WITH BORROWED CAPITAL, THE INTEREST, IF ANY, PAYABLE ON SUCH CAPITAL BORROWED FOR THE PERIO D PRIOR TO THE PREVIOUS YEAR IN WHICH THE PROPERTY HA S BEEN ACQUIRED OR CONSTRUCTED, AS REDUCED BY ANY PAR T THEREOF ALLOWED AS DEDUCTION UNDER ANY OTHER PROVIS ION OF THIS ACT, SHALL BE DEDUCTED UNDER THIS CLAUSE IN EQUAL INSTALMENTS FOR THE SAID PREVIOUS YEAR AND FO R EACH OF THE FOUR IMMEDIATELY SUCCEEDING PREVIOUS YEARS:] ON GOING THROUGH THE ABOVE PROVISION YOUR HONOUR WO ULD APPRECIATE THE FACT THAT ACQUISITION OR CONSTRUCTIO N OF THE PROPERTY IS IMPORTANT AND ONCE ITS CONSTRUCTION IS COMPLETE, DEDUCTION AS AVAILABLE IN EXPLANATION TO SECTION 24 (B) IS AVAILABLE. IN THE CASE OF THE APPELLANT, HE HAS DEVELOPED THRE E STORIED APARTMENT AND AS THE CONSTRUCTION OF ONE STOREY WAS COMPLETE AND INCOME THEREFROM HAS STARTED, HE HAS C LAIMED DEDUCTION PERTAINING TO THE PORTION OF FLOOR CONSTR UCTED. THIS IS ALSO IN LINE WITH THE 'MATCHING PRINCIPLE', WHICH LAYS THAT IF THE INCOME IS BROUGHT TO TAX, PORTION OF TH AT EXPENSE ALSO NEEDS TO BE ALLOWED. DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDING S, THE APPELLANT HAS SUBMITTED AS UNDER: WE WOULD LIKE TO CLARIFY, THAT THE INTEREST PERTAI NS TO SPECIFIC LOAN FOR THIS PROPERLY AND HAS THEREFOR E BEEN LINKED TO THIS PROPERTY ALONE. MOREOVER, THE LOAN H AS ALREADY BEEN REPAID. SINCE THE LOAN RELATED TO ALL THE 3 FLOORS OF THE PROPERLY, IT HAS BEEN EQUALED TO SAME 3 FLOOR. MOREOVER, AS PROVIDED U/S. 24 OF THE INCOME- TAX 4 ITA NO.1189/PN/13 PRAKASH R. DHARIWAL ACT, THE INTEREST IS RIGHTLY BEING CLAIMED I/5 TH EACH YEAR FOR 5 YEARS. DURING THE YEAR, ONLY ONE FLOOR HAS BEEN PUT TO USE BY GIVING IT ON LEASE. HAVING PUT TO USE, THE INCOME F ROM THE PROPERTY IS BEING OFFERED TO LAX IN THE CURRENT YEAR. THE RELATED INTEREST EXPENDITURE IS ALSO THEREFORE BEING CLAIMED.' HENCE, CONSIDERING THE FACTS AND MERITS OF THE CASE , AND THE PRINCIPLES UNDERLYING THE PROVISIONS OF THE I.T. AC T WE HAVE TO SUBMIT THAT THE APPELLANT HAS IN FACT LAWFULLY C LAIMED INTEREST EXPENSES ONLY IN PROPORTION TO THE PORTION OF PROPERTY WAS COMPLETED AND WAS OFFERED ON RENT, WHI CH SHOULD BE FULLY ALLOWED. 2.2 HAVING CONSIDERED THE ABOVE, THE CIT(A) HAS GRA NTED RELIEF TO THE ASSESSEE ON THIS ACCOUNT. THE SAME HAS BEEN OP POSED BEFORE US ON BEHALF OF THE REVENUE, INTER ALIA, SUBMITTED THAT THE CIT(A) HAS ERRED IN DECIDING THAT DEDUCTION U/S.24(B) IS A VAILABLE EVEN IN PARTIALLY COMPLETED HOUSE PROPERTY IN CONTRAVENT ION OF SECTION 24(B) OF THE ACT. ACCORDINGLY, REQUESTED TO SET AS IDE THE ORDER OF CIT(A) AND THAT OF ASSESSING OFFICER BE RESTORED. ON THE OTHER HAND, THE LEARNED AUTHORIZED REPRESENTATIVE HAS SUP PORTED THE ORDER OF CIT(A). 2.3 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE ASSESSING OFFICER HAS RESO RTED TO ADDING THE SAME AMOUNT AS DISALLOWED BY THE ASSESSING OFFI CER IN THE ASSESSMENT ORDER DATED 16.12.2009 AND HAD ALSO TAKE N INTO ACCOUNT THE FINDINGS OF THE SEARCH ACTION AS MENTIO NED IN THE APPRAISAL REPORT. THE MATERIAL ON RECORD INDICATES THAT NOTHING INCRIMINATING WAS FOUND BY THE ASSESSING OFFICER PE RTAINING TO A.Y. 2007-08 AND HENCE HAS FOLLOWED THE EARLIER ASS ESSMENT ORDER DATED 16.12.2009 AND FINALIZED IN THE CASE OF THE ASSESSEE AND HAS MADE THE DISALLOWANCE ON SIMILAR ISSUE FOR THE SAME AMOUNT. THE ASSESSEE HAS CONTESTED THE ADDITION OF RS. 11,54,382/- U/S 24(B) WITH REGARD TO DISALLOWANCE O F THE PRE- 5 ITA NO.1189/PN/13 PRAKASH R. DHARIWAL CONSTRUCTION PERIOD INTEREST EXPENSES CLAIMED BY TH E ASSESSEE. THE ASSESSING OFFICER WHILE PASSING THE ORIGINAL OR DER U/S 143(3) OF THE ACT HAD DISALLOWED THE INTEREST PERTAINING T O THE PRE- CONSTRUCTION PERIOD U/S 24(B) OF THE ACT IN RESPECT OF THE LOAN TAKEN FOR CONSTRUCTION OF A COMMERCIAL PREMISE AT M UNDHWA, PUNE. THE ASSESSING OFFICER HELD THAT THE ENTIRE P ROPERTY WAS REQUIRED TO BE COMPLETED BEFORE THE INTEREST COULD BE CLAIMED AND THE ASSESSING OFFICER FOUND THAT ONLY THE GROUND FL OOR OF THE HOUSE PROPERTY WAS COMPLETED AND THE CONSTRUCTION O F THE OTHER FLOORS WERE NOT COMPLETE. THE ASSESSING OFFICER TH US DISALLOWED THE CLAIM OF DEDUCTION AMOUNTING TO RS.11,54,382/-. 2.4 THE ASSESSEE HAS CONSTRUCTED A NEW COMMERCIAL P REMISE SPREAD OVER 3 FLOORS LOCATED AT MUNDHWA, PUNE AND D URING THE YEAR UNDER CONSIDERATION, ONE FLOOR OR 1/3 RD OF THE TOTAL PREMISE HAS BEEN GIVEN ON LEASE FROM 01.12.2006 ONWARDS FOR A MONTHLY FEE OF RS.15,51,300/-. THE ASSESSEE HAD TAKEN LOAN FOR THE CONSTRUCTION OF THE PREMISE AND INTEREST PERTAINING TO PRE- CONSTRUCTION PERIOD HAS BEEN CAPITALIZED OUT OF WHI CH 1/5 TH CLAIM WAS MADE AS DEDUCTION U/S 24(B) OF THE I.T. ACT. T HE ASSESSING OFFICER WAS OF THE VIEW THAT THE PERIOD OF PRE-CONS TRUCTION WILL BE RECKONED ONLY WHEN CONSTRUCTION OF THE ENTIRE BUILD ING IS COMPLETED AND NOT BY THE COMPLETION OF A SINGLE FLO OR. IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS OBTAINED THE COMPLETION CERTIFICATE FOR THAT 1/3 RD PART OF THE THREE STORIED COMPLEX FROM THE PMC FOR THE SAID PROPERTY. THE LO AN TAKEN BY THE ASSESSEE FROM PUNE PEOPLES CO-OP. BANK LTD. WAS SPECIFICALLY TAKEN FOR THE AFORESAID PREMISE WHICH HAS ALREADY B EEN REPAID BY 31.03.2006. 2.5 IT IS CLEAR THAT THE PROVISIONS OF SECTION 24(B ) GOVERNS THE PROVISIONS RELATING TO DEDUCTION OF INTEREST PAID O N BORROWED CAPITAL WITH EFFECT FROM A.Y. 2002-03. THE MAIN PA RT OF CLAUSE (B) 6 ITA NO.1189/PN/13 PRAKASH R. DHARIWAL OF SECTION 24 PROVIDES THAT WHERE THE PROPERTY HAS BEEN ACQUIRED, CONSTRUCTED, REPAIRED, RENEWED OR RECONSTRUCTED WIT H BORROWED CAPITAL, THE AMOUNT OF ANY INTEREST PAYABLE ON SUCH CAPITAL SHALL BE DEDUCTED FROM THE COMPUTATION OF INCOME FROM HOU SE PROPERTY. THIS DEDUCTION FOR INTEREST ON BORROWED CAPITAL IS ALLOWED ON ACCRUAL BASIS AND NOT PAYMENT BASIS. AS PER THE EXPLANATION APPENDED TO CLAUSE (B) OF SECTION 24 IN TEREST FOR PRE- CONSTRUCTION PERIOD IS ALLOWABLE IN FIVE EQUAL INST ALMENTS. THUS THE ASSESSING OFFICER'S CONTENTION THAT THE ENTIRE BUILDING HAS TO BE CONSTRUCTED FOR BEING ELIGIBLE TO CLAIM PRE-CONS TRUCTION INTEREST IS NOT PRIMA FACIE CORRECT AS ON A PLAIN R EADING OF THE PROVISION, THE ONLY REQUIREMENT IS THAT THE PROPERT Y SHOULD HAVE BEEN CONSTRUCTED WITH BORROWED CAPITAL. IN THE CAS E BEFORE US, THE ASSESSEE HAS IN THE PAST OBTAINED THE OCCUPANCY / COMPLETION CERTIFICATE FOR 1/3 RD PORTION OF THE PREMISE FROM THE CONCERNED COMPETENT AUTHORITY I.E. PMC. THE ONE FL OOR WHICH HAS BEEN LEASED HAS BEEN PUT TO USE AND THE RESULTA NT INCOME OFFERED TO TAX AND EVEN IN LINE WITH THE MATCHING P RINCIPLE UNDER THE ACT, IF INCOME BROUGHT TO TAX, THE EXPENSES INC URRED TO EARN THAT INCOME SHOULD BE ALLOWED. IN THE FACTS AND CI RCUMSTANCES, THE ASSESSEES CLAIM FOR INTEREST WAS RIGHTLY FOUND IN ORDER BY THE CIT(A). ACCORDINGLY, HE RIGHTLY DELETED THE ADDITI ON IN QUESTION. THIS REASONED FACTUAL FINDING OF CIT(A) NEEDS NO IN TERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 3. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 22 ND DAY OF AUGUST, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 22 ND AUGUST, 2014 GCVSR 7 ITA NO.1189/PN/13 PRAKASH R. DHARIWAL COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-II, PUNE 4) THE CIT-II, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE