L.Ramesh Kumar, Salem V. ITO, Salem

ITA 1714/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64564 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 11-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA IRS
• Assessee Lawyers: G BASK
• Keywords: Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1714(MDS)/2012 ASSESSMENT YEAR : 2006-07 SHRI L.RAMESH KUMAR, 43A, POCHIN ROAD, SALEM 636 001. PAN AAVPR4027P. VS. THE INCOME-TAX OFFICER, WARD I(1), SALEM. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.BASK AR, ADVOCATE RESPONDENT BY : DR. S.MOHARANA, IRS, CIT DATE OF HEARING : 19 TH NOVEMBER, 2012 DATE OF PRONOUNCEMENT : 19 TH NOVEMBER, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) AT SALEM, DATED 31-7-2012 AND ARISES OUT OF THE ASSESSMENT CO MPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. - - ITA 1714 OF 2012 2 2. THE ASSESSEE HAD PURCHASED A HOUSE PROPERTY AT DOOR NO.2/41, VIP NAGAR, VILLANKURICHI VILLAGE, COI MBATORE. THE PURCHASE WAS MADE ON 26-4-2004. THE ASSESSEE HAD A VAILED A LOAN OF ` 13 LAKHS FROM M/S. SHERUL PORWAL WELFARE TRUST, NE W DELHI-92 ON 16-4-2004, IN ORDER TO ARRANGE THE NECE SSARY FUNDS TO PURCHASE THE PROPERTY. 3. THE PROPERTY WAS SOLD ON 28-10-2005. MEANWHILE , THE ASSESSEE HAD PAID AN INTEREST OF ` 2,24,250/- FOR THE PERIOD ENDING 31-3-2005 AND ` 1,60,046/- FOR THE PERIOD ENDING ON THE DATE OF SALE ON 28-10-2005 TO M/S.SHERUL PORWAL WEL FARE TRUST, NEW DELHI. THE SURPLUS GAINED BY THE ASSESSEE ON S ALE OF THE HOUSE PROPERTY WAS OFFERED FOR TAXATION AS SHORT-TE RM CAPITAL GAINS. WHILE COMPUTING THE SHORT-TERM CAPITAL GAIN S, THE ASSESSEE CLAIMED DEDUCTION OF THE INTEREST PAYMENTS MADE TO M/S.SHERUL PORWAL WELFARE TRUST, NEW DELHI. THE AS SESSING OFFICER DENIED THE DEDUCTION ON THE GROUND THAT INT EREST PAYMENTS WOULD NOT FORM PART OF COST OF THE ASSETS SOLD BY THE ASSESSEE. - - ITA 1714 OF 2012 3 4. IN FIRST APPEAL, THE COMMISSIONER OF INCOME- TAX(APPEALS) ALSO HELD THAT THE INTEREST PAYMENTS M ADE BY THE ASSESSEE CANNOT FORM PART OF COST OF ACQUISITION. ACCORDING TO THE COMMISSIONER OF INCOME-TAX(APPEALS), THE INCOME FROM HOUSE PROPERTY IS TO BE ASSESSED UNDER SECTION 24 O F THE INCOME-TAX ACT, 1961 AND THAT THERE ARE SEPARATE PR OVISIONS FOR ALLOWING INTEREST ON BORROWED CAPITAL AND AS SUCH, SUCH INTEREST ON BORROWED CAPITAL CANNOT BE CONSIDERED WHILE COMP UTING THE COST OF ACQUISITION OF THE PROPERTY. 5. IT IS AGAINST THE ABOVE THAT THE ASSESSEE HAS C OME IN APPEAL BEFORE US. 6. THE GROUNDS RAISED BY THE ASSESSEE READ AS BELOW:- 1. THE COMMISSIONER OF INCOME-TAX(APPEALS) IS NOT JUSTIFIED IN NOT ALLOWING ENTIRE AMOUNT OF INTEREST OF ` 3,84,296/- PAID ON BORROWAL UTILIZED TO ACQUIRE TH E - - ITA 1714 OF 2012 4 HOUSE PROPERTY, WHILE COMPUTING LONG TERM CAPITAL GAINS. 2. DECISIONS (EXTRACTS ENCLOSED) CITED IN ASSESSEE S FAVOUR (305 ITR 434, 325 ITR 136 KAR AND 308 ITR 151 PUNE IT) SHOULD NOT HAVE BEEN DISTINGUISHED ON THE GROUND THAT THEY RELATE TO SHARES OR HOTEL BUILDING. 3. INTEREST PAID WAS CLAIMED AGAINST CAPITAL GAINS AND NOT INCOME FROM PROPERTY; RESTRICTING ALLOWABLE INTEREST TO 1.5 LAKHS IS THEREFORE NOT CORRECT, THO UGH CLAIMED SO ALTERNATELY. 4. HAVING ACCEPTED THAT THE BORROWED FUNDS WERE INVESTED IN THE PURCHASE OF THE PROPERTY, INTEREST THEREON SHOULD BE ACCEPTED AS FORMING A PART OF ITS COST. 7. A SIMILAR CASE WAS CONSIDERED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. K.RAJA GOP ALA RAO, 252 ITR 459. IN THAT CASE THE ASSESSEE HAD PURCHAS ED IMMOVABLE PROPERTY FOR ` 5,45,349/- ON DECEMBER 6, 1970. ON - - ITA 1714 OF 2012 5 THE SAME DAY THE ASSESSEE MORTGAGED THE PROPERTY TO SECURE A LOAN OF ` 4 LAKHS AND THIS LOAN WAS RAISED SOLELY FOR THE PU RPOSE OF PAYING HIS VENDOR AND FOR MEETING THE COST OF ST AMP DUTY ON THE SALE DEED. THE ASSESSEE SOLD THE PROPERTY PART LY IN THE ASSESSMENT YEAR 1973-74 AND PARTLY IN THE ASSESSMEN T YEAR 1974-75. WHILE COMPUTING THE CAPITAL GAINS, THE AS SESSEE CLAIMED INTEREST AS FORMING PART OF COST OF ASSET A ND ALSO COST OF EXECUTION OF THE MORTGAGE DEED. THE ASSESSING OFFI CER AND THE COMMISSIONER OF INCOME-TAX(APPEALS) DISALLOWED THE CLAIM OF THE ASSESSEE. THE TRIBUNAL ALLOWED THE CLAIM, WHER EUPON A REFERENCE WAS MADE TO THE HONBLE HIGH COURT AND TH E HONBLE HIGH COURT HELD THAT THE COST OF ASSET WOULD INCLUD E COST OF EXECUTION OF MORTGAGE OF ASSET AND MORTGAGE INTERES T PAID TILL THE DATE OF SALE. IN VIEW OF THE ABOVE DECISION, WE FI ND THAT THE CLAIM MADE BY THE ASSESSEE IS ONLY LEGITIMATE. THE ASSES SING AUTHORITY IS DIRECTED TO RECOMPUTE THE SHORT-TERM C APITAL GAINS IN THE HANDS OF THE ASSESSEE AFTER GIVING DEDUCTION FO R THE INTEREST AMOUNTS PAID BY THE ASSESSEE ON THE LOAN TAKEN FROM M/S.SHERUL PORWAL WELFARE TRUST, NEW DELHI. - - ITA 1714 OF 2012 6 8. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON MONDAY, THE 19 TH OF NOVEMBER, 2012 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 19 TH NOVEMBER, 2012. V.A.P. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.