Manmohan Singh Chadha, Chandigarh V. DCIT, Chandigarh

ITA 92/CHANDI/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81079 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-12-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 20-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 92/CHD/2014 ASSESSMENT YEAR : 2010-11 MANMOHAN SINGH CHADHA, VS. THE D.C.I.T., PLOT NO.194-195, INDL. AREA II, CIRCLE 1(1), CHANDIGARH. CHANDIGARH. PAN: AMJPS2069Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINEET KRISHAN RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 09.12.2014 DATE OF PRONOUNCEMENT : 16.12.2014 O R D E R PER BHAVNESH SAINI, J.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEAL S), CHANDIGARH DATED 29.11.2013 FOR ASSESSMENT YEAR 201 0, CHALLENGING THE ADDITION OF RS.43,41,842/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INT EREST CLAIMED UNDER SECTION 24(B) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSING OFFICER QUESTIONED THE ASSESSEE AB OUT THE ALLOWABILITY OF INTEREST UNDER SECTION 24(B) OF THE ACT AND THE ASSESSEE SUBMITTED THAT BANK CERTIFICATE FROM THE B ANK 2 SHOWING THE LOAN GIVEN FOR THE PURPOSE OF PROPERTY AND BUSINESS HAS BEEN GIVEN. THE ASSESSEE HAD GOT THE LOAN FROM THE BANKS FOR THE PURPOSE OF INVESTMENT IN THESE PR OPERTIES. THE BANKS FOR THEIR SAFEGUARD HAVE ALSO MENTIONED T HE WORD BUSINESS. THE BALANCE SHEET IN RESPECT OF THE B USINESS CARRIED OUT BY THE ASSESSEE HAS ALREADY BEEN SUBMIT TED WHERE NO SUCH AMOUNT HAS BEEN SUBMITTED. EVEN IF FOR TH E SAKE OF ARGUMENTS, IT IS ASSUMED THAT THIS LOAN WAS FOR THE PURPOSE OF BUSINESS, EVEN THEN IT IS ALLOWABLE BUT THE FACTS R EMAINED THAT THIS AMOUNT WAS TAKEN ONLY FOR THE PURPOSE OF INVES TMENT IN THE PROPERTIES ON WHICH INTEREST HAS BEEN CLAIMED. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE DEDUCTIO N CLAIMED UNDER SECTION 24(B) OF THE ACT AND OBSERVED THAT TH E DEDUCTION IS ALLOWABLE UNDER THIS SECTION ONLY INTE REST PAID ON HOUSE PROPERTY. THE ASSESSEE HAS NOT CLAIMED THIS DEDUCTION FOR BUSINESS PURPOSE. IT WAS ALSO NOT CLEAR THAT THE ASSESSEE HAS SPENT THIS MONEY ON BUSINESS PURPOSES. THE AS SESSING OFFICER, THEREFORE, DISALLOWED THE CLAIM OF THE ASS ESSEE. 3. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT (APPEALS) AND WRITTEN SUBMISSION IS REPRODUCED IN T HE APPELLATE ORDER, WHICH READS AS UNDER : 'THE DISALLOWANCE HAS BEEN MADE ON THE GROUND THAT T HE APPELLANT HAS INVESTED IN MANY PROPERTIES AND HAS WRONGLY CLAIMED TH E INTEREST. IT IS SUBMITTED THAT INTEREST HAS BEEN CLAIMED ONLY IN RESP ECT OF THE PROPERTY FROM WHERE THE INCOME HAS BEEN EARNED AND THE INTER EST IN RESPECT OF THE PROPERTY FROM WHICH NO INCOME WAS EARNED HAS BE EN CAPITALIZED AS IS EVIDENT FROM THE ORDER OF THE LD. ASSESSMENT ORDER DISCUSSED IN PARA NO.2.1 TO 2.5. THE FACTS IN BRIEF ARE EXPLAI NED AS UNDER:- 3 THE APPELLANT HAD RENTAL INCOME FROM PLOT NO. 28, IN DUSTRIAL AREA, PHASE-I, CHANDIGARH. THE SALE DEED WAS EXECUTED ON 10 .03.2004 ON WHICH A SUM OF RS. 41,68,030/- WAS SPENT. THOUGH T HE AGREEMENT WAS MADE EARLIER, ANOTHER 1/6 TH SHARE WAS REGISTERED ON 09.01.2007 FOR WHICH THE PAYMENT OF RS.52,80,000/- INCLUDING STAMP DULY WAS MADE FOR PURCHASE OF THIS 1/6 TH SHARE. ON 08.12.2003 RS.25,05,400/- WAS PAID. THE APPELLANT HAD RAISED A LOAN OF RS.75 LACS FROM ICICI BANK LTD. OUT OF WH ICH RS.20 LACS WAS PAID OUT OF THE WITHDRAWALS FROM ICICI BANK AND RS.5,05,400/- AND RS.1,39,016/- WERE PAID OUT OF TH E LOAN OF RS.15 LACS TAKEN FROM ONE SH.S.K. AHUJA. AGAIN OUT OF THAT RS. 75 LACS FROM ICICI BANK ON 09.0 3.2004 RS. 14,87,464/- WAS PAID. THE BALANCE OF RS. 36,150/- W AS PAID ON 10.03.2004 FOR THE PURCHASE OF ANOTHER 1/6 SHARE OF RS. 36,50,000/- WAS PAID ON 17.06.2005. RS. 1 LACS ON 21.06.2005. OU T OF THE LOAN OF RS. 95 LACS AND ANOTHER AMOUNT OF RS. 4.00 LACS WAS SPENT ON 21.06.2005, RS. 50,000/- ON 22.08.2005 AND RS. 10.80 LACS ON 09.03.2007. AS SUCH THE TOTAL PAYMENT FOR THE PURCHASE OF ANOT HER SHARE COMES TO RS. 52,80,000/-. THE CONSTRUCTION OF BUILDING WAS STARTE D ON 01.10,2004 AND WAS COMPLETED ON 31.03.2009, TOTAL COST OF CONS TRUCTION WAS AT RS. 32899241/-. THE INVESTMENT WAS MADE FROM THE FOL LOWING SOURCES:- RS.55,00,0007- SPENT OUT OF THE LOAN FROM ICICI BANK, IN THIS CONNECTION, IT IS SUBMITTED THAT THE APPELLANT HAD TAK EN A LOAN OF RS. 60 LACS FOR THE PURCHASE OF PLOT NO. 90, INDL AREA, CHA NDIGARH. OUT OF THIS RS 55 LACS WAS SPENT ON PURCHASE OF PLOT NO, 90 IND L. AREA PH 2 CHANDIGARH AND RS 5 LACS ON PLOT NO. 187 INDL. AREA PH 2 CHANDIGARH. HOWEVER, THE APPELLANT SOLD PLOT NO.90 INDL. AREA PH 2 AND THE LOAN AMOUNT WAS NOT RETURNED TO THE BANK AND THIS AMOUNT WAS UTILIZED IN THE CONSTRUCTION OF THE BUILDING. THE LOAN OF RS 95 LACS WAS FURTHER INCREASED TO 1.34 CRORE AND RS 75,50,900/- WAS SPENT ON THE CONSTRUCTION OF THE BU ILDING. AGAIN A SUM OF RS. 1,98,48,341/- WERE WITHDRAWN FROM HDFC B ANK. 4 IT IS FURTHER SUBMITTED THAT LOAN OF RS. 15 LACS TAK EN FROM SH. S.K.AHUJA WAS RETURNED TO HIM. ON 14.02.2004 AT RS. 5 LACS, AND 04.03.2004 AT RS. 5 LACS. OUT OF THE LOAN TAKEN FROM ICICI BANK, THE OTHER PROPERTY ON WHICH THE, INTEREST HAS BEEN CLAI MED AT GODOWN AT VILLAGE PABHAT, ZIRAKPUR WHICH WAS PURCHASED AT RS. 77,94,500/- ON 27.03.2006. THE FACTS IN THIS CASE ARE THAT THE APPELLANT HAD PU RCHASED PLOT NO. 25, INDL AREA, CHANDIGARH OUT OF THE LOAN OF RS. 95 LACS FROM HDFC BANK, RS. 95 LACS WHICH WAS FURTHER INCREASED TO RS. 1,34,00,000/- AND THE AMOUNT WAS INVESTED IN PLOT NO. 25, INDL. A REA, PHASE-I, CHANDIGARH. HOWEVER, THIS PLOT WAS SOLD AND OUT OF THE SALE PROCEEDS OF PLOT NO. 25, INDL. AREA, CHANDIGARH, THE INVESTMENT IN WHI CH WAS MADE OUT OF THE LOAN. RS. 20 LACS WAS PAID ON 24.12.2005 RS. 20 LACS WAS PAID ON 23.03.2006 RS. 20 LACS WAS PAID ON 23.03.2006 RS. 3,50,000/- WAS PAID ON 30.03.2006 RS. 3,50,000/- WAS PAID ON 30.03.2006 RS. 3,50,000/- WAS PAID ON 30.03.2006 RS.7,34,500/- OUT OF THE CASH IN HAND OF THE APPELLAN T. THE CONSTRUCTION OF THIS PLOT WAS STARED ON 01.10.2 006. RS.58,49,100/- WAS SPENT FROM THE LOAN OF RS. 1,34, 00,000/- FROM HDFC BANK AND RS. RS. 36,59,533/- OUT OF THE SALE PROCEEDS OF PLOT NO. 25,IND. AREA, PHASE-1, CHANDIGARH. A PERUSAL OF THIS WILL SHOW THAT THE LOAN TAKEN FRO M BANK, THOUGH AT CERTAIN TIMES WERE UTILISED FOR INVESTMEN T IN PLOT NO.25, INDL. AREA, PHASE-I, CHANDIGARH, PLOT NO. 28, INDL. AREA, PHASE I, CHANDIGARH AND PLOT NO. 187, INDL. AREA, PHASE-II, CHANDIGARH. HOWEVER, THE LOANS WERE NOT RETURNED TO THE BANK AN D THE SALE PROCEEDS OF THOSE PROPERTIES WERE INVESTED IN ITS B UILDING ON WHICH INTEREST HAS BEEN CLAIMED. IT MAY BE MENTIONE D HERE THAT THE PROPERTY ON WHICH RENT HAS NOT BEEN EARNED) THE SAME HAS BEEN CAPITALISED. IT IS PRAYED THAT THE INTEREST MA Y KINDLY BE ALLOWED. 5 4. THE LEARNED CIT (APPEALS), HOWEVER, CONFIRMED T HE ADDITION. HIS FINDINGS IN PARA 3.3 ARE REPRODUCED AS UNDER : 3.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. C OUNSEL FILED BEFORE THE ASSESSING OFFICER AND BEFORE ME IN THE APPELLATE PR OCEEDINGS. FOR THE SAKE OF READY REFERENCE, PROVISIONS OF SECTION 24(B) ART REP RODUCED BELOW: '24. DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY. INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' SHALL BE COMPUTED AFTER MAKING THE FOLLOW ING DEDUCTIONS, NAMELY:- (B) WHERE THE PROPERTY HAS BEEN ACQUIRED) CONSTRUCT ED, REPAIRED, RENEWED OR RECONSTRUCTED WITH BORROWED CA PITAL, THE AMOUNT OF ANY INTEREST PAYABLE ON SUCH CAPITAL: ' 3.3.1 THUS, FOR CLAIMING DEDUCTION OF INTEREST U/S 24 (B), THE APPELLANT HAS TO PROVE THAT IT PERTAINS TO THE AMOUNT BORROWE D, WHICH WERE DIRECTLY UTILIZED FOR INVESTMENT IN. PROPERTIES, INCOM E FROM WHICH WAS DECLARED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY ', THE AMOUNT OF INTEREST PAYABLE ON CAPITAL BORROWED FOR ACQUIRING/CO NSTRUCTING A PROPERTY IS ALLOWABLE AS DEDUCTION OUT OF 'INCOME FRO M HOUSE PROPERTY' AND SO IT WAS INCUMBENT UPON THE APPELLANT TO PROVE THE DIRECT NEXUS BETWEEN THE BORROWING OF FUNDS ARID INVESTMENT IN P ROPERTY FROM WHICH RENT IS RECEIVED. THE SUBMISSION FILED BY THE A PPELLANT ONLY GIVES DETAILS OF HOW THE LOANS WERE UTILIZED AND FROM THIS REPLY, IT IS RIOT ESTABLISHED THAT THE LOANS WERE DIRECTLY UTILIZE D FOR THE PURPOSE OF INVESTMENT IN PROPERTY, INCOME FROM WHICH WAS DECLARE D AS 'INCOME FROM HOUSE PROPERTY'. NEXUS BETWEEN THE BORROWING OF FUND S AND PAYMENT FOR PROPERTY HAS NOT BEEN ESTABLISHED BY THE APPELLANT. AS THE DEDUCTION OF INTEREST IS BEING CLAIMED BY THE APPELLANT, THE ONU S TO 'PROVE THAT THE FUND BORROWED HAD BEEN UTILIZED FOR ACQUISITION OF P ROPERTY, IS ON THE APPELLANT AND THIS ONUS HAS NOT BEEN DISCHARGED BY H E APPELLANT. HENCE, THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION U/S 24(B) OF THE ACT AND THE ADDITION MADE BY THE ASSESSING OFFICER IS ACCORD INGLY CONFIRMED. GROUND OF APPEAL NO.2 DISMISSED 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. THE ASSESSING OFFICER DIS ALLOWED THE 6 CLAIM OF THE ASSESSEE BECAUSE THE BANK IN THE CERTI FICATE HAS MENTIONED THAT THE PURPOSE OF THE LOAN WAS FOR PURC HASE OF PROPERTY AND BUSINESS USE. THE CERTIFICATE DATED 14.2.2013 IS REPRODUCED IN THE ASSESSMENT ORDER, IN WHICH ALS O THE BANKER HAS MENTIONED THE LOAN WAS GIVEN AGAINST REN T RECEIVABLES. THEREFORE, IF THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, HE SHOULD VERIFY THIS FACT FROM THE BANK, OTHERWISE DETAILS N OTED IN THE CERTIFICATE IN ITS TOTALITY CLEARLY SUGGEST THAT TH E LOAN WAS TAKEN FOR INVESTMENT IN PURCHASE OF PROPERTY. THE ASSESSEE WAS, THEREFORE, JUSTIFIED IN CONTENDING THAT THE BA NKS FOR THEIR SAFEGUARD HAS MENTIONED IN THE CERTIFICATE THE WORD BUSINESS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED COMPLETE DETAILS IN THE PAPER BOOK TO SHOW AS TO HO W THE INVESTMENT HAS BEEN MADE IN THE PROPERTY IN QUESTIO N. EVEN IF THE CONTENTION OF THE ASSESSEE WAS REJECTED BY T HE ASSESSING OFFICER FOR DEDUCTION OF INTEREST UNDER THE HEAD H OUSE PROPERTY AND IT WAS NOTED BY THE ASSESSING OFFICER THAT THE LOANS WERE TAKEN FOR THE PURPOSE OF BUSINESS, THE D EDUCTION WAS ALLOWABLE UNDER SECTION 37 OF THE ACT. WE MAY ALSO NOTE HERE THAT IF DEDUCTION UNDER SECTION 37 OF THE ACT IS ALLOWED TO THE ASSESSEE TO THE EXTENT WHOLLY AND EXCLUSIVEL Y INCURRED FOR THE PURPOSE OF BUSINESS, THEN THE ASSESSEE WOUL D GET MORE BENEFIT AS AGAINST DEDUCTION CLAIMED UNDER SECTION 24(B) OF THE ACT, AS RATE MAY BE LOWER IN THAT CASE. THE L EARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN THE CASE OF ITO VS. MAKRUPA CHEMICALS (P) LTD., 108 ITD 95 (MUM ) IN 7 WHICH IT WAS HELD THAT THE INTEREST ON THE SECOND LOAN HAS TO BE ALLOWED IF THE ASSESSING OFFICER IS SATISFIED TH AT THE SECOND LOAN WAS OBTAINED FOR REPAYMENT OF THE ORIGINAL LOA N WHICH WAS OBTAINED FOR ACQUIRING OF THE PROPERTY. THE L EARNED COUNSEL FOR THE ASSESSEE DEMONSTRATED FROM THE DETA ILS SUBMITTED IN THE PAPER BOOK THAT THE PART OF THE AM OUNT WAS UTILIZED FOR THE PURPOSE OF LOAN RETURNS, WHICH WAS UTILIZED FOR THE PURPOSE OF ACQUIRING OR FOR CONVERSION FEE IN C ONNECTION WITH THE PROPERTY IN QUESTION. CONSIDERING THE DE TAILS SUBMITTED IN THE PAPER BOOK, CONTENTION OF THE ASSE SSEE AND TOTALITY OF THE FACTS AND CIRCUMSTANCES NOTED ABOVE , WE ARE OF THE VIEW THAT THE ASSESSEE WAS ENTITLED FOR DEDUCTI ON UNDER SECTION 24(B) OF THE ACT. WE, THEREFORE, SET ASID E THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.43,41,842/-. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF DECEMBER, 2014. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 16 TH DECEMBER, 2014 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8