Smt. Mohinder Kaur, Chandigarh V. ACIT, Chandigarh

ITA 861/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8539 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 27-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 27-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MINKY MITTAL; MRS MOHINDER KAU R
• Keywords: Opportunity of being heard

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 861/CHD/2015 ASSESSMENT YEAR : 2005-06 SMT. MOHINDER KAUR, VS. THE ACIT, CENTRAL CIRCLE II, CHANDIGARH CHANDIGARH PAN NO. AGTPK4925L (APPELLANT) (RESPONDENT) APPELLANT BY : MS. MINKY MITTAL & MRS MOHINDER KAU R RESPONDENT BY : SH. SUSHIL KUMAR DATE OF HEARING : 27.01.2016 DATE OF PRONOUNCEMENT : 28.01.2016 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-3 GURGAON DATED 29.9.2015 RELATING TO ASSESSMENT YEAR 2005-06. THE FIRST GROUND OF APPEAL IS AS UNDER:- THAT THE LD. CIT(A) HAS ERRED IN DISALLOWING OF RS . 5,46,519/- OUT OF GENUINE CLAIM OF INTEREST OF RS. 13,86,799/- 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSEE CLAIMED DEDUCTION AMOUNTING TO RS. 13,86,798/- ON ACCOUNT OF INTEREST ON BORROWED CAPITAL FOR PRE- CONSTRUCTION PERIOD. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE 2 ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH DET AILS OF LOAN TAKEN, THE DATE OF CONSTRUCTION OF PROPERTY AND THE DATE OF COMPLETION OF CONSTRUCTION. ON A PERUSAL OF THE ABOVE DETAILS, THE ASSESSING OFFICER NOTICED THAT PENAL INTEREST PAID CLAIMED TO BE WRITTEN OFF IN FIVE YEARS AMOUNT ED TO RS. 27,32,595/- AND 1/5 TH OF WHICH CAME TO RS. 5,46,519/-. THE ASSESSING OF FICER DISALLOWED PENAL INTEREST U/S 24 OF THE INCOME-TAX ACT, 1961 (IN SHO RT 'THE ACT') AMOUNTING TO RS. 5,46,519/- AND ADDED THE SAME TO THE TOTAL INCOME O F THE ASSESSEE. 3. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION AND , HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE VERY OUTSET, M/S MINKY MITTAL, LD. COUNSE L FOR THE ASSESSEE INVITED OUR ATTENTION TO THE DECISION OF THE TRIBUNAL PASSE D IN ASSESSEES CASE IN ITA NO. 745/CHD/2007 RELATING TO ASSESSMENT YEAR 2004-0 5, AND SUBMITTED THAT A SIMILAR ISSUE WAS ADJUDICATED UPON BY THE TRIBUNAL VIDE ITS ORDER DATED 23.4.2008 AND THE ISSUE WAS REMANDED TO THE ASSESSI NG OFFICER FOR A FRESH CONSIDERATION WITH CERTAIN DIRECTIONS AND GUIDELINE S. MS. MINKY MITTAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ORDER OF TH E CIT(A) MAY BE SET ASIDE AND THE ISSUE BE REMANDED TO THE ASSESSING OFFICER FOR AFRESH DECISION AS PER THE DIRECTIONS AND GUIDELINES GIVEN BY THE TRIBUNAL IN ASSESSMENT YEAR 2004-05. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UN DER:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED ORDERS OF THE LOWER AUTHORITIES. THE RELEVANT PROV ISION IN THE PRESENT CONTROVERSY IS SECTION 24(B) DEALING WI TH, INTER- ALIA, THE DEDUCTIONS ALLOWABLE WHILE COMPUTING INCO ME FROM HOUSE PROPERTY WHICH READS AS UNDER : DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY . 24. INCOME CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCT IONS, NAMELY: 3 . (B) WHERE THE PROPERTY HAS BEEN ACQUIRED, CONSTRUC TED, REPAIRED, RENEWED OR RECONSTRUCTED WITH BORROWED CAPITAL, THE AMOUNT OF ANY INTEREST PAYABLE ON SUCH CAPITAL: . 6. THE CASE OF THE ASSESSEE IS THAT IT HAS TAKEN A LOAN FOR CONSTRUCTION OF HOUSE PROPERTY AND CLAIMED RS.13,86 ,798/- ON ACCOUNT OF INTEREST EXPENDITURE ON SUCH BORROWED CAPITAL IN TERMS OF SECTION 24(B) OF THE ACT. OUT OF THE SAID CLAIM, A SUM OF RS.5,46,519/- IS IN DISPUTE. THE A SSESSING OFFICER FOUND THAT THE SAID SUM WAS 1/5 TH OF RS.27,32,595/- PAYABLE BY THE ASSESSEE AS PENAL INTEREST OVER 5 YE ARS. BEING PENAL IN NATURE, THE ASSESSING OFFICER DISALL OWED THE SAME. THE CLAIM OF THE ASSESSEE IS THAT SUCH INTER EST RELATES TO THE DELAYED PAYMENT OF THE PERIODIC INST ALLMENTS OF PRINCIPAL AMOUNT OF LOAN; THAT THE ENTIRE PAYMEN T OF INTEREST IS AN ALLOWABLE DEDUCTION UNDER SECTION 24 (B) OF THE ACT AND RELIANCE IS PLACED ON THE JUDGEMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SUNIL KUMAR SHARMA (SUPRA). IN THIS CONTEXT IT WOULD BE RELEVANT TO PERUSE SECTION 24(B) WHICH PROVIDES FOR DEDUCTIO N OF ANY INTEREST PAYABLE ON BORROWED CAPITAL FOR ACQUIRING, CONSTRUCTING, REPAIRING, RENEWING OR RE-CONSTRUCTIN G ANY HOUSE PROPERTY. THE EXPRESSION ANY INTEREST PAYAB LE ON SUCH CAPITAL APPEARING IN SECTION 24(B) IS RELEVAN T TO ADDRESS THE PRESENT CONTROVERSY. THE INTERPRETATIO N PLACED BY THE REVENUE IS THAT THE ABOVE EXPRESSION SIGNIFI ES ONLY THE REGULAR INTEREST PAYABLE ON THE CAPITAL OR LOAN IN QUESTION AND NOT THE PENAL INTEREST. IN THIS CONNE CTION, THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SHEW KISSEN BHATTER (SUPRA) IS RELEVANT. THE SAID JUDGEMENT HAS BEEN DELIVERED BY THE HON'BLE SUPREME COURT IN THE CONTEXT OF THE PROVISIONS OF SECTION 9(1)(I V) OF THE ERSTWHILE INDIAN INCOME TAX ACT, 1922 WHICH IS PARI MATERIA TO THE PRESENT SECTION IN SO FAR AS IT IS RELEVANT TO ADJUDICATE THE CONTROVERSY IN QUESTION. IN TERMS O F THE RATIO OF THE JUDGEMENT, IT CAN BE DEDUCED AS FOLLOW S. 4 PERTINENTLY WHAT THE LAW PERMITS TO BE DEDUCTED IS ONLY INTEREST PAYABLE ON CAPITAL BORROWED FOR CONSTRUCTI NG OR ACQUIRING THE PROPERTY. THE INTEREST REFERABLE IS IN RELATION TO THE CAPITAL BORROWED. IN CASE THERE IS A FAILURE TO PAY THE LOAN AS PER CONTRACT, THE ASSESSEE MAY B E LIABLE TO PAY COMPOUND INTEREST. IN OTHER WORDS, IF THERE IS FAILURE TO PAY INTEREST IN ACCORDANCE WITH A CONTR ACT, THE BORROWER MAY BE LIABLE TO PAY INTEREST ON INTEREST. CLEARLY THE PAYMENT OF SUCH INTEREST ON INTEREST DOES NOT Q UALIFY FOR DEDUCTION UNDER SECTION 24(B) SINCE SUCH PAYMENT CA NNOT BE SAID TO BE AN INTEREST PAYABLE ON CAPITAL. THIS IS FOR THE REASON THAT WHAT THE SECTION ENVISAGES IS THE DEDUC TION FOR INTEREST PAYABLE ON THE ORIGINAL PRINCIPAL BUT DOES NOT INCLUDE INTEREST ON PAYMENT OF DEFAULT IN PAYMENT O F INTEREST. THE AFORESAID PREMISE IS CLEARLY DISCERN ABLE FROM THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE C ASE OF SHEW KISSEN BHATTER (SUPRA). CONSIDERED IN THIS LI GHT, WE HAVE TO EXAMINE THE NATURE OF THE PENAL INTEREST TH AT HAS BEEN PAID BY THE ASSESSEE HEREIN. FROM THE ORDERS OF THE ASSESSING OFFICER AS WELL AS THAT OF THE CIT(APPEAL S), THERE IS NO FINDING AS TO THE NATURE OF SUCH PENAL INTERE ST I.E. THERE IS NO DISCUSSION OR REFERENCE TO THE TERMS OF CONTRACT WHICH HAS ENTAILED SUCH PAYMENTS BY THE ASSESSEE. CLEARLY, IF THE PENAL INTEREST HAS BEEN INCURRED BY THE ASSE SSEE, MERELY ON ACCOUNT OF A DELAY IN PAYMENT OF PRINCIPA L AMOUNT OF LOAN, THE SAME WOULD NOT BE HIT BY THE AF ORESAID REASONING ENUNCIATED BY THE SUPREME COURT IN THE CA SE OF SHEW KISSEN BHATTER (SUPRA) AND WOULD BE AN ALLOWAB LE DEDUCTION IN TERMS OF THE DECISION OF THE HON'BLE P UNJAB & HARYANA HIGH COURT IN THE CASE OF SUNIL KUMAR SHARM A (SUPRA). SO HOWEVER, IF THE PENAL INTEREST HAS BEE N INCURRED ON THE FAILURE OF THE ASSESSEE TO PAY THE CONTRACTED INTEREST OR IN OTHER WORDS, THE PENAL IN TEREST REPRESENTS PAYMENT OF INTEREST ON FAILURE TO PAY IN TEREST IN TIME, IN THAT SITUATION THE SAME WOULD NOT QUALIFY FOR DEDUCTION UNDER SECTION 24(B) HAVING REGARD TO THE RATIO OF THE DECISION OF THE SUPREME COURT IN THE CASE OF SH EW 5 KISSEN BHATTER (SUPRA). IN THE ABSENCE OF ANY FIND ING WITH REGARD TO THE NATURE OF PENAL INTEREST IN QUESTION, WE THEREFORE, DEEM IT FIT AND PROPER TO SET ASIDE THE ORDER OF THE CIT(APPEALS) AND DIRECT THE ASSESSING OFFICER T O VERIFY THIS ASPECT AND THEREAFTER ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. 7. WE MAY ALSO MAKE A MENTION REGARDING THE JUDGEME NT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF SUNIL KUMAR SHARMA (SUPRA) RELIED UPON BY THE CIT(APPEALS). WE HAVE PERUSED THE SAID DECISION AN D FIND THAT THE SAME IS NOT IN CONFLICT WITH THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF SHEW KISSEN BHATTER (S UPRA). IN THE CASE BEFORE THE HON'BLE PUNJAB & HARYANA HIG H COURT, THE ISSUE RELATED TO PAYMENT OF INTEREST ON INSTALLMENTS OF UNPAID PURCHASE PRICE OF THE PLOT. THE ISSUE BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COUR T DID NOT RELATE TO PAYMENT OF INTEREST ON FAILURE TO PAY INTEREST ON TIME, WHICH CLEARLY IS OUTSIDE THE PURVIEW OF SE CTION 24(B), FOLLOWING THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF SHEW KISSEN BHATTER (SUPRA). THEREFORE, IN THE ABSENCE OF THE RELEVANT FACTS DETERMINING THE NATUR E OF THE PENAL INTEREST IN QUESTION, THE APPLICATION OF THE JUDGEMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF SUNIL KUMAR SHARMA (SUPRA) BY THE CIT(APPEALS) IS UNJUSTIFIED. HENCE, OUR DECISION IN THE EARLIER PAR AGRAPHS TO SET ASIDE THE ORDER OF THE CIT(APPEALS) AND DIRE CT THE ASSESSING OFFICER TO CULL OUT THE APPROPRIATE FACTS AND THEREAFTER ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. OF COURSE, THE ASSESSEE SHALL BE AT LIBERTY TO PRODUCE SUCH RELEVANT FACTS AS WOULD BE NECESSARY TO ENABLE THE ASSESSING OFFICER TO CULL OUT THE NATURE OF THE PAY MENT IN QUESTION. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. 6 5. WE FIND THAT THE ISSUE IS IDENTICAL AND THERE IS NO MATERIAL CHANGE IN THE FACTS OF THE CASE. RESPECTFULLY FOLLOWING THE ORDE R OF THE TRIBUNAL PASSED IN ASSESSEES CASE FOR ASSESSMENT YEAR 2004-05 REFERRE D TO ABOVE, WE SET ASIDE THE ORDER OF CIT(A) AND REMAND THE ISSUE TO THE ASSESS ING OFFICER WITH A DIRECTION TO DECIDE THE SAME AFRESH KEEPING IN VIEW THE OBSER VATIONS MADE BY THE TRIBUNAL IN ITS ORDER DATED 23.4.2008 FOR THE ASSESSMENT YEA R 2004-05. THE ASSESSING OFFICER SHOULD GIVE AN OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. 6. THE NEXT GROUND OF APPEAL READS AS UNDER:- THAT THE LD. CIT(A) HAS ERRED IN DISALLOWING THE B ANK GUARANTEE CHARGE OF RS. 40,600/- WHICH ARE INCIDENT ALLY TO DECLARED INTEREST EARNED ON FDR OF RS. 54,00,000/-. 7. THE ASSESSEE CLAIMED DEDUCTION OF RS. 40,600/- O N ACCOUNT OF COMMISSION ON BANK GUARANTEE GIVEN IN AFVOUR OF U.T. DISTT. CO URTS CHARGED BY THE BANK. THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF TH E ASSESSEE STATING THAT THE REPLY SUBMITTED BY THE ASSESSEE AND THE BANK GUARAN TEE DID NOT MENTION THE REASONS AND BACKGROUND FOR EXTENDING THIS BANK GUAR ANTEE. FURTHERMORE, NO PURPOSE HAS BEEN DISCLOSED AS TO WHETHER THE EXPENS ES WERE INCURRED FOR BUSINESS PURPOSE OR NOT. ACCORDINGLY, THE ASSESSIN G OFFICER MADE THE ADDITION. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF THE ASSES SING OFFICER AND, HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS OBSE RVED THAT THE AUTHORITIES BELOW HAVE NOT BROUGHT ON RECORD THE MATERIAL FACTS OF THE PRESENT CASE. WE ALSO NOTICE THAT THE LD. CIT(A) HAS PASSED AN EX. PARTE ORDER AND NO PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WAS GIVE N. IN THE ABSENCE OF MATERIAL FACTS OF THE CASE, WE ARE UNABLE TO ADJUDICATE THE ISSUE CORRECTLY. THEREFORE, WE 7 THINK IT APPROPRIATE TO SET ASIDE THE ORDER OF CIT( A) ON THIS ISSUE AND REMAND THE SAME TO THE ASSESSING OFFICER WITH THE DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONA BLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS MADE CLEAR THAT THE AS SESSING OFFICER WILL PASS A SPEAKING ORDER AFTER HEARING THE ASSESSEE. 9. FOR STATISTICAL PURPOSES, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.01.2016 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 28 TH JANUARY, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR