Income Tax Appellate Tribunal - Agra
Sh. Rajeev Malhortra, Agra vs A.C.I.T.-2, Agra on 9 April, 2018
IN THE INCOME-TAX APPELLATE TRIBUNAL,
AGRA BENCH, AGRA
Before: Shri A.D. Jain, Judicial Member And
Shri Dr. Mitha Lal Meena, Accountant Member
I.T.A No. 239/Agra/2016
(A.Y. 2010-11)
Rajeev Malhotra, Vs ACIT-2,
182-Jaipur House, Agra Agra
PAN AAZPM 0020 B
(Appellant) (Respondent)
Appellantby Shri Rajendra Sharma And
Shri Mannu Sharma, Advocates
Respondentby Shri Waseem Arshad, Sr. DR
Date of Hearing 13.03.2018
Date of Pronouncement 09.04.2018
ORDER
DR. MITHA LAL MEENA, A.M. This appeal by the assessee is directed against the order of the ld. CIT(A)-I, Agra, dated 01.03.2016 wherein the assessee has taken the following grounds of appeal:
"1. That the Authorities below have erred on facts and in law while sustaining the addition for Rs.4,57,279/- made by the AO by disallowing of the interest claimed and was set of with the income earned under the head interest, addition so made by the AO and sustained by CIT(Appeals) is highly unjustified and against the law, same is liable to be deleted.
I.T.A. 239/Agra/2016 2
2. That the CIT(Appeals) has erred on facts and in law while sustaining the addition at Rs. 21,69,260/- which was made by the AO by not allowing of the deduction claimed by the appellant u/s 54F of the I.T. Act, the deduction, the deduction so claimed u/s 54F of the I.T. Act is liable to be allowed. The addition made by the AO and sustained by the CIT (Appeals) is liable to be deleted.
3. That while sustaining the additions as above, the authorities below have not appreciated the submissions and the facts of the case, after taking into consideration the submission made by the appellant, no addition is liable to be sustained, additions made by the AO and sustained by the CIT (Appeals) is liable to be deleted."
2. The Ground No.1 pertains to sustaining the addition for Rs.4,57,279/- made by the AO by disallowing of the interest claimed by way of set of.
3. The facts on record are that the assessee has shown interest receipts of Rs.5,77,279/- from M/s Cilent Technologies Pvt. Ltd and set off the same against interest paid of Rs.11,90,415/- to City Finance Ltd. The AO required the assessee to prove that how the said deduction u/s 57(iii) can be allowed in absence of any nexus between the interest paid and interest received. The AO observed from the copy loan account and the bank statement of the assessee that he has received a loan of Rs.70,36,559/- from City Finance Ltd. on 23.03.2009 and out of the said loan, an amount of Rs.6.00 and Rs.4.00 lakh has been advanced on 26.3.2009 and 13.04.2009 to M/s Cilent Technology Pvt. Ltd. and that I.T.A. 239/Agra/2016 3 balance amount has been utilized by the assessee for making various other payments as evident from the extract of the bank book as follows:
Date Particulars Debit Credit 20.03.2009 Bank charges 80 23.03.2009 Bank charges 120 To Citi finance Ltd. 7036559 26.03.2009 Bank charges 325 Client Tech.P.Ltd. 600000 ResLHouse198,J.H.Agra 4064000 30.03.2009 Cash 800000 31.03.2009 Citi Finance Ltd. 1036559 Citi Finance Ltd. 1036559 By Closing Bal. 1645464 Total 8598290 8598290 01.04.2009 Opening Balance 1645464 02.04.2009 National Oils 500000 Cash 1000000 09.04.2009 Advance Res. House 400000 Advance Res. House 400000 11.04.2009 Salary Receivable 7000 13.04.2009 Client Tech. P. Ltd. 400000 I.T.A. 239/Agra/2016 4 20.04.2009 National Oils 150000
4. Thus, the AO noted that the assessee could prove the nexus only to the extent of Rs.10,00,000 and hence, interest of Rs.1,20,000 @ 12% was allowed as deduction u/s 57(iii) of the I.T. Act. He didn't allow the claim of the assessee under Section 70(1), stating that first the income under the particular head of the income has to be computed as per the provisions of the Act and thereafter, if the assessee can claim set-off u/s 70(1) against loss incurred under others heads whereas in the case of the assessee there is no loss under the head income from other sources, therefore, the provisions of Section 70(1) do not apply in the case of the assessee. Accordingly, the AO disallowed the claim of the assessee.
5. In appeal, the ld. CIT(A) has confirmed the addition by observing as under: -
".......... The assessee filed the written replies dated 31.01.2013 which is as under:
"As required by our good self to furnish the reason for adjusting of the interest paid at Rs.11,90,415/- to City Finance Ltd. Out of which Rs.5,77,279/- has been adjusted with the interest received from M/s Cilent Technologies Pvt. Ltd. To that extent, in this connection it is respectfully submitted that assessee in the preceding year has received loan from City Finance at Rs.70,36,559/- which was transferred to M/s Cilent Technologies Pvt. Ltd. From where assessee in the year under consideration has earned Interest amounted to Rs.5,77,279/- and same time paid Rs. 11.90.415/- as interest to the City Finance Ltd."
Assessee has also filed reply dt. 28.02.2013 which is as under: - I.T.A. 239/Agra/2016 5
"Interest paid at Rs.11,90,415/- to City Finance Ltd. out of which Rs.5,77,279 has been adjusted with the interest received from M/s Cilent Technologies Pvt. Ltd. to that extent, in this connection it is respectfully submitted that as explained in my earlier reply that assessee in the preceding year has received loan from M/s City Finance at Rs. 70,36,559/- in personal capacity against which assessee has paid Rs. 11,90,415/- as interest, same interest to the extent of Rs. 5,77,279/- was adjusted with the interest received at Rs. 5,77,279/- from M/s Client Technologies Pvt. Ltd. It is requested that in the light of section 70(1) of the income tax act 1961 the adjustment made to extent of Rs. 5,77,279/- out of total interest paid to City Finance at Rs.11,90,4I5/- may kindly be allowed to be set off with the interest Income at Rs. 5,77,279/- earned from M/s Client Technologies Pvt. Ltd."
5.2 During the course of appellate proceedings assessee submitted as the following: -
That the 1st ground taken in respect of the addition made by not allowing of the set off of (he income under the head interest at Rs.5,77,729/- which has been adjusted with the negative income earned under the head interest. During the rear under consideration the assessee has shown the interest income at Rs.5,77,279 earned from the firm M/s Client Technology' Pvt. Ltd. which the assessee has set off against the payment of interest paid to City Finance Ltd, at Rs. 11,90,415/-, the assessee has set off the amount of interest received at Rs. -5,77,279/- with the payment of interest at Rs. 11,90,415/- paid to City Finance Ltd., during the course of assessment proceedings, it was submitted before the AO that the assessee has taken the loan from City Finance Ltd. at Rs. 70,36,559/- which was either transferred to Client Technology Pvt. Ltd. or utilized in the business etc. from where the assessee has earned income. The assessee has paid the interest at Rs. 11,90,415/- to the City Finance Ltd, and at the same time has earned the interest at Rs. 5, 77,219/- from Client Technology Pvt, Ltd., as both the amount are income under the head interest and are to be considered as income under section 56 of the I.T. Act and are to be set off with each other which the assessee did. The AO has not accepted the assessee's a/c of interest which he has prepared by making of the adjustment of negative income with positive income and has only allowed the amount of Rs.1.5 lakh to be set^ off with negative income at Rs. 11,90,415/- under the head interest, being as per the AO's view the assessee has only transferred Rs. 10.00 lacs to the firm Client Technology Pvt. Ltd. out of loan taken from City Finance Ltd, therefore the interest to the extent of transfer amount of Rs.10.00 lakh is liable to be set off against the interest income earned from Client Technology Pvt. Ltd. as discussed by the AO at Page 7, para 4.3 of the assessment order.
The assessee's only submission is, that the assessee has earned Rs.5,77,279/- as interest out of his advance of loan and has paid the I.T.A. 239/Agra/2016 6 interest at Rs.11,90,415/- to City Finance Ltd. Both (the amounts either received or paid are the interest amount chargeable to lax under the head income from other sources, can be set off with each other which the assessee did. The AO has incorrectly allowed the amount of Rs.1.50 lakh only to be set off with the payment of interest paid to the City Finance Ltd. against the income of Rs. 5,77,279/- earned under the head interest. The entire amount of Rs. 5,77,279/-is liable to be allowed to be set off with the interest at Rs. 11,90,415/- paid by the assessee to the City Finance, no addition no addition on this score is liable to be made, addition made by restricting the set off of the income under the head interest with payment of interest is liable to be deleted."
"5.3 I have gone through the assessment order, submissions of the assessee and legal position in this regard. It is seen that the assessee has claimed deduction of Rs. 11,90,415/- as interest paid to M/s City Finance against interest of Rs. 5,77,279/-received from M/s Client Technologies Pvt. Ltd. But the AO has restricted the interest claim amounting to Rs. 1,20,000/- on the basis of transfer entries (to Client Technologies) shown in the bank statement of the assessee and on account of nexus between the two loans only to the extent of Rs. 10 Lakhs.
The assessee has claimed that he has taken loan from M/s City Finance on which he has paid interest amounting Rs. 11,90,415/- and has transferred the amount to Client Technologies Pvt. Ltd. Further he has received interest of Rs. 5,77,279/- from M/s Client Technologies Pvt. Ltd., which he has adjusted against the interest paid.
It is observed by the AO that the assessee has taken loan of Rs. 70,36,559/- from City Finance Pvt. Ltd. on which he has paid interest amounting to Rs. 11,90,415/- and out of the financed amount he has only advanced Rs. 10,00,000/- to M/s Client Technologies Pvt. Ltd., as per the transaction shown in the bank statement provided by the assessee.
As per section 57fiii) of the Income Tax Act 1961, the expenditure which are incurred wholly and exclusively for the purpose of earning or making such income can only be allowed as deduction. AO clearly brought out that such loan raised was mainly used for purchase of residential properties and that the assessee has advanced only Rs. 10,00,000/- to M/s Client Technologies Ltd, and hence interest earned of Rs.5,77,279/- is not from advancing this money to only M/s Client Technologies Pvt. Ltd., and hence the same cannot be allowed u/s 57(iii) of the Income Tax Act, 1961. As assessee has paid interest of Rs. 11,90,415/- for the financed amount of Rs. 70,36,559/- from M/s City Finance, AO restricted the deduction to amount of interest on Rs. 10,00,000/- @12% i.e. at Rs. 1,20,000/-.I.T.A. 239/Agra/2016 7
"57. The income chargeable under the head "Income from other sources" shall be computed after making the following deduction, namely: -
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income:"
As per Section 57(iii) the expenditure that can be allowed against income from other sources has to be incurred wholly and exclusively for the purposes of making or earning of such income, but in this case, in the expenditure incurred by the assessee no such nexus could be established and hence AO has rightly disallowed this expenditure in the hands of the assessee.
In view of the foregoing discussions, the stand of the assessing officer is correct.
Accordingly, addition of Rs.4,57,279/- made on account of disallowance of interest paid under section 57(iii) is hereby confirmed."
6. The ld. counsel for the assessee has reiterated the submission made before the ld. CIT(A). He submitted that in compliance to the query of AO, the assessee has filed a written reply as discussed in the assessment order at page 5 in para 4.1 which is reproduced in the order of the ld. CIT(A) at page no. 3, whereby the assessee has claimed that he has taken a loan from M/s City Finance Ltd. on which he has paid interest amounting to Rs.11,90,415/- and has transferred a part amount to M/s Cilent Technology Pvt. Ltd. He has received an interest of Rs.5,77,279/- from M/s Cilent Technology Pvt. Ltd. which he adjusted against the interest paid. The counsel for the assessee submitted that the assessee is claiming set off u/s I.T.A. 239/Agra/2016 8 70(1) whereas there is no loss under the head income from other sources, therefore, the provisions of Section 70(1) do not apply in the case of the assessee. The written reply filed by the assessee reads as under:
͞The first ground related with the sustaining of the addition for Rs.4,57,279/-made by the AO by not allowing of the set off of interest income with the expenses under the head 'interest'. In this connection, it is respectfully submitted that during the year under consideration, the assessee has earned income under the head 'interest' at Rs.5,77.279/- which is against the loan financed to Cilent Technologies Pvt. Ltd. At the same time, the assessee has also paid interest against the loan taken from City Finance Ltd. at Rs. 11,90,415/-. In short, the assessee has earned income under the head 'interest' at Rs.5,77,279/- and also has paid expenses under the head 'interest7 at Rs. 11,90,415/-. The assessee has set off the amount of expenses under the head 'interest' at Rs.11,90,415/- with the income earned under the head 'interest' at Rs.5,77,279/- and no income from the interest has been shown being the same is set off with the expenses on account of payment of interest at Rs. 11,90,415/-. The AO and the learned CIT (Appeals) have no objection or have doubt in respect of receipt of amount of interest at Rs.5,77,279/- and also in respect of payment of interest at Rs.11,90,415/-. The only objection of the AO was that there is no nexus between the loan taken and given except the amount of Rs.10,00,000/- financed to Cilent Technologies Pvt. Ltd. which is out of the loan taken from Citi Finance Ltd. Accordingly, the AO has allowed the amount of Rs.1,20,000/- i.e. @ 12% on the amount of Rs.10,00,000/- to be set off with the expenses incurred under the head 'interest' by way of payment, while allowing set of only to the extent of Rs.1,20,000/- as against the claim of the assessee at Rs.5,77,279/- (interest received from Cilent Technologies Pvt. Ltd.). The AO has given reason as mentioned at page 6 para 4.2 of the assessment order that only the amount of Rs.10,00,000/- out of the amount of Rs.70,36,559/- taken loan from Citi Finance Ltd. is utilized for financing the loan to the Cilent Technologies Pvt. Ltd., therefore, the proportionate amount of interest received from Client Technologies Pvt.Ltd.at Rs.1,20,000/- is only liable to I.T.A. 239/Agra/2016 9 be set off with the expenses in respect of interest paid to Citi Finance Ltd. and the remaining amount of Rs,4,57,279/- is added to the income. That while not allowing of the set off of the expenses under the head 'interest' with the income earned by the assessee from interest, the authorities below have completely ignored that the assessee has set off the expenses under the head 'interest' with the income earned under the head 'interest', which the AC) has not allowed by recording the reason that the set off under Section 70(1) is not allowable being there is no loss under the head 'income from other sources. The authorities below while not allowing of the set off, have completely ignored that there was a loss under the head 'other sources' being excess amount of interest is paid against the income earned under the head 'interest1. The set off as claimed by the assessee out of the payment of interest i.e. expenses related with the payment of interest with income under the head 'interest' is liable to be set off being the loan taken against which interest is paid and loan given against which interest is received are the part of the assessee's balance sheet and receipt of interest and payment of interest are part of computation of income, same are to be set off with each other. No addition on this score is called for, the addition made by the AO, sustained by the learned CIT (Appeals) is liable to be deleted.͟
7. The ld. DR placed strong reliance on the impugned order.
8. Having considered the rival contentions and the impugned order, we find that the assessee has taken a loan of Rs.70,36,559/- from City Finance Pvt. Ltd. on which he has paid interest amounting to Rs.11,94,15/- and out of this loan amount he has only advanced Rs.10,000,00/- to M/s Cilent Technology Pvt. Ltd. as per the transaction shown in the bank statement provided by the assessee (Syn., Pg.3).
I.T.A. 239/Agra/2016 10
9. It is seen that the loan raised was mainly used for the purchase of residential property; that out of the loan, the assessee advanced Rs.10.00 lakhs only to M/s Cilent Technology Pvt. Ltd. and therefore, interest earned of Rs.5,77,279/- is not from advancing this money to M/s Cilent Technology Pvt. Ltd. and hence the same cannot be allowed u/s 57(iii) of the Act, as per the provisions of the Act and so rightly confirmed by the ld. CIT(A).
10. The relevant part of Section 57(iii) of the I.T. Act and Section 70(1) reads as under:
"57. The income chargeable under the head "Income from other sources" shall be computed after making the following deduction, namely: -
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income:"
"70 (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than "Capital gains", is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head."
11. Thus, no expenditure can be allowed against the income from other sources, unless it is wholly and exclusively incurred for the purposes of making or earning of such income. As in the present case, no such nexus could be established in respect of the expenditure incurred by the assessee. Further to claim of set off u/s I.T.A. 239/Agra/2016 11 70(1) against interest income, there has to be a loss under the head income from other sources or any other head of income except capital gain which is not the case of the assessee.
12. In view of the above, we find no merit in the grievance of the assessee on the first issue and therefore the same is not acceptable. Accordingly, the impugned order on this issue is upheld.
13. The next issue pertains to the deduction claimed u/s 54F of the I.T. Act.
14. Briefly, facts on this issue are that the assessee sold his land at Hodal (Haryana); that against the sale consideration of land, he has claimed deduction u/s 54F which has been denied by AO holding that on the date of sale of original assets, the assessee has owned two residential houses and as per the provision of section 54F of the Income Tax Act, 1961, if the assessee has more than once residential houses on the day of transfer of original assets, then deduction u/s 54F of the Act is not allowable. Accordingly, the AO has disallowed the assessee's claim of deduction u/s 54F of the Act. I.T.A. 239/Agra/2016 12
15. While confirming the addition on disallowance of exemption claimed u/s 54F of the Act, the ld. CIT(A) inter alia observed as follows:
"6.3 I have gone through the assessment order, submissions of the assessee and legal position in this regard. It is seen that during the year under consideration the assessee has sold a building at Hodal and capital gain has arisen on account of such transaction. He has utilized Rs. 21,69,260/- in the construction of his residential house and has claimed the same as exemption u/s 54F of the Income Tax Act, 1961. The AO has disallowed the exemption claimed u/s 54F on account that the assessee is holding two more residential houses as on the date of expenditure made for construction of residential property for which exemption is claimed, which is not allowable as per the provision of section 54F of the Income Tax Act, 1961.
6.3.1 Relevant part of section 54F is as under-
"54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a hind Undivided family, the capital gain arises from the transfer of any long term capital asset. Not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer look place purchased, or has within a period of three years after that date -[constructed, one residential house in India] (thereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,--
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears lo the net consideration, shall not be charged under section 45:
Provided that nothing contained in this sub-section shall apply where--
(a) the assessee, --,
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the haul "Income from house property".I.T.A. 239/Agra/2016 13
6.3.2 The assessee has claimed that the other two properties are rented to the corporate for the purpose of running business from there, and hence those properties being used for commercial purposes. Thus, they can only be considered as commercial properties not residential properties. Therefore, the exemption should be allowed.
6.3.3 It is observed that the assessee has claimed to have rented both these properties for commercial purposes and the rental income from them are shown under the head house property. Further it is observed in light of Sec 54F of the Income Tax Act, 1961 that if the income from such residential house, other than the one, residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property" then deduction under section 54F is not allowable.
6.3.4 In this context a physical verification of both the properties is made. It is seen that Jaipur House is a residential colony, and hence giving the residential house on rent for the purposes of qodown would not change the basic character of house from residential to commercial. Since both these properties are actually residential houses located in Jaipur House residential colony, it is clear that on the day of transfer of original asset, assessee had in his possession two residential houses i.e. 273. Jaipur House and 293. Jaipur House, and hence assessee is not entitled for deduction under section 54F.
Residential properties cannot be treated as commercial properties merely because they are given on rent for commercial purposes. Moreover, its only in respect of 273, Jaipur House that assessee has taken a commercial electricity connection. The property at 293 is exclusively a residential house with no commercial use.
As per the Income Tax Act, it is essential that the individual should not own more than one residential house property other than the new asset on the date of transaction, and since the assessee is holding two residential houses in his name, he is not entitled for this deduction under section 54F of the Income Tax Act, 1961.
Since in this case assessee is deriving income from residential house properties through claimed to be commercial by giving these properties on rent, assessee is not eligible for deduction under section 54F. Even though the property at 273, Jaipur House has commercial electricity connection, but both these houses are proper residences not located in any commercial area and income from these properties is chargeable in the hands of the assessee under the head Income from House Property, hence assessee is not eligible for deduction under section 54F.
In view of the foregoing discussions, when assessee has been found to hold two residential houses in residential colony of Jaipur House, the stand of the assessing officer is correct for not allowing deduction of Rs. 21,69,260/- under section 54F of the Income Tax Act, 1961.
I.T.A. 239/Agra/2016 14
Accordingly, addition of Rs. 21,69,260/- on account of deduction claimed u/s 54F of the I.T. Act, 1961 made by the AO is hereby confirmed.
16. The ld. AR while retreating the submissions made before the lower authorities, filed a written submission which reads as under: -
"That as per Ground No.2, the AO has also made the addition for Rs.21,69,260/- by not allowing of the deduction claimed under Section 54F of the Income Tax Act. In this connection, it is submitted that during the year the assessee has sold his land at Hodal. On the sale of land, the assessee has shown long term capital gain at Rs.21,69,260/- against which the assessee has claimed deduction under Section 54F of the Income Tax Act by making the investment of sale consideration towards acquiring of the new house properly at 198, Jaipur House, Agra, which the AO has not allowed as per reason recorded in the assessment order at page 2 that, 'the assessee owned more than one residential house other than the new asset, on the date of transfer of original asset. Before the AO, the assessee has submitted that the assessee owned two houses House No. 271 and 293 at Jaipur House, Agra, on the date of transfer of asset at Hodal. The assessee claimed the deduction under Section 54F by making investment towards the purchase of another residential house at 198, Jaipur House, Agra. It was submitted before the AO that both the houses owned by the assessee are rented and used for commercial activity, property No. 271, Jaipur House, Agra, let out to Anand Enterprises and property at 293, Jaipur House, Agra, to Client Technologies Pvt. Ltd. used commercially from where the assessee is getting rent at Rs.48,000/- and Rs.1,20,000/- respectively duly shown in the return of income^ Both the properties owned by the assessee on the date of transfer of asset (under consideration for capital gain) are being used for commercial purpose, the deduction which is being claimed under Section 54F by making of investment in the new residential house at 198, Jaipur House, Agra, is qualified for deduction under Section 54F which may kindly be allowed. To substantiate the submissions are being made before the AO, the assessee has also submitted by referring the definition of 'residential house' from Oxford and Collins Dictionaries that, 'structure which is not being used for a purpose of residence is not at all called as residential. If any commercial activities are being operated from very such area it will be called as commercial instead of residential. Further, a house is a home, building or structure that functions as a habitat for humans or other creatures.
(Source Wikipedia). It means that the structure which is not functioning as habitat for humans is not at all be called as a house. Firstly Similarities:-
1. Both Structures are covered.
2. Both are comprised of rooms, halls, kitchen and bathroom Secondly differences: -
The only difference is that Residential Units are being used by Humans for their living and on the contrary, Commercial Units are being used by Humans for running I.T.A. 239/Agra/2016 15 Commercial Activities. Both the buildings owned by the assessee on the day of selling of asset at Hodal are being used by the assessee for commercial activities, for which the assessee has furnished commercial electricity connection on the property at 273, Jaipur House, Agra, by which it is proved and established that the concerned properties are being used commercially and the assessee does not own the residential house on the day of selling its land, therefore, qualify the conditions for deduction. Therefore, the deduction claimed under Section 54F is liable to be allowed. The AO has not accepted the assessee's submission and has disallowed the deduction as claimed by the assessee.
Against the additions made, as above, an appeal was preferred before the learned CIT (Appeals). The learned CIT (Appeals) vide their order dated 01.03.2013 has also dismissed the appeal and additions made in the assessment order were confirmed, hence, this appeal before the Hon'ble HAT, Agra Bench, Agra.
In the appeal before the Hon'ble ITAT, the appellant has taken three grounds.
That as per ground No.2, the appellant has challenged the addition for Rs.21,69,260/- made by the AO by not allowing of the deduction claimed by the assessee under Section 54F which the learned CIT (Appeals) has sustained.
That as stated above, the assessee has sold his asset on the sale of which the capital gain arises, against which the assessee has taken the exemption by showing the investment towards the residential house at No. 198, Jaipur I louse, Agra. The AO has not allowed the exemption on the reason that on the date of sale of asset, the assessee is already owned two residential houses No. 293, Jaipur House, Agra, and 271, Jaipur House, Agra. The assessee has submitted that these houses which he assessee owned on the day of selling of asset are used for commercial activities given to tenant receiving rent duly shown in the income tax return, in support of commercial activities, the assessee has furnished the copy of electricity connection obtained from electricity department for their commercial use. The only issue before the Hon'ble Bench is, whether the houses used by the assessee for commercial activities can be considered that the assessee's own residential houses for the purpose of allowing of deduction under Section 54F, particularly when the assessee has proved by furnishing of evidences that the houses owned by the assessee are used for commercial purposes. The appellant respectfully submitted that as the houses owned on the day of selling of asset were used for commercial activities cannot be said to be the residential houses which the assessee own for the purpose of allowing deduction under Section 54F. Thus, the deduction claimed under Section 54F by making investment towards the residential houses by the assessee is liable to be allowed for deduction, being the houses owned by the assessee are used for commercial activities. No addition on this score is called for, the addition made by the AO by disallowing on the deduction claimed by the assessee under Section 54F by the AO and sustained by the learned CIT (Appeals) is liable to be allowed and addition made on this score is liable to be deleted. For this purpose, he relied on the decision of ITAT, Delhi ͚G͛- Bench, in the case of Sanjeev Puri Vs. Dy. CIT, ITA No. 5474/ Del/2014.
I.T.A. 239/Agra/2016 16
17. The ld. DR supported the impugned order contending that on the day of transfer of original asset, assessee had in his possession two residential houses i.e. 273, Jaipur House and 293, Jaipur House, Agra and he has shown rental income under the head income from house properties; that merely taking commercial connection in the residential house does not change the nature of the capital asset from residential to commercial. In the absence of corroborative documentary evidence to prove that the same was used for official or business purpose, the property in question cannot be held to be used for business purpose and therefore, the assessee is not entitled for deduction under section 54F as per law.
18. We have heard the rival contentions, perused the material on record and the impugned order on the issue. It is admitted fact that assessee had in his possession two residential houses i.e. 273, Jaipur House and 293, Jaipur House, Agra and that one of the houses was leased out for commercial purpose. The assessee has claimed deduction under Section 54F of the Act, by way of investment towards the purchase of a residential house at 198, Jaipur House, Agra from the capital gains arisen on the sale of a Land/building (capital asset) at Hodel. The ld. CIT(A) noted that the assessee had two residential property namely i.e. 273, Jaipur House I.T.A. 239/Agra/2016 17 and 293, Jaipur House, Agra on the date of transfer of original asset and he has shown rental income under the head income from these house properties in its return of income. The ld. CIT (A) further noted that "Jaipur House is a residential colony, and hence giving the residential house on rent for the purposes of qodown would not change the basic character of house from residential to commercial. Since both these properties are actually residential houses located in Jaipur House residential colony, Agra it is clear that on the day of transfer of original asset, assessee had in his possession two residential houses i.e. 273. Jaipur House and 293.
Jaipur House, and hence assessee is not entitled for deduction under section 54F."
19. The Ld. AR contended before us that the residential houses were used by the lessee for commercial activities, although the assessee own both the residential houses. For the purpose of allowing of deduction under Section 54F, particularly when he has furnished commercial electric connection (APB, Pgs. 4-5), no other evidence in proof of the use of the residential house for commercial purposes is required as per law. In support, he relied on the decision in the case of Sanjeev Puri Vs. Dy. CIT, (Supra), wherein it was held that property owned by the assessee, which was being used by him as his office during the relevant period cannot be I.T.A. 239/Agra/2016 18 treated as residential property simply on the basis of municipal record ignoring the actual user thereof and therefore, the claim of exemption u/s 54F could not be denied on the basis that the assessee was owning more than one residential house (including the said property) on the date of transfer of the original asset.
20. It is seen that the property at 293, Jaipur House, Agra is exclusively a residential house but the property at 273, Jaipur House, is not a residential house property because the assessee has a commercial electricity connection on this property and that this property was let out to M/s Client Technology Ltd. Agra for godown purpose (APB, Pgs. 1 to 5). It is further seen that M/s Client Technology has used the said property for stocking of all kinds of mobiles, handsets, recharge coupons, sim e- recharge and other related goods which were duly insured with The Oriental Insurance Company Limited. The electric connection certificate and insurance receipt of the Oriental Insurance Company Ltd. filed by the assessee before the AO, in claim of commercial purpose reads as under
(APB, Pgs. 1-5):
I. Electric Connection Certificate dtd. 17.09.2010 Commercial (1 Kw) II. Electric Connection Certificate dtd. 23.12.2011 Commercial (2 Kw) III. Insurance Policy receipts dated. 04.08.2010 Godown (Burglary - Standard Policy Schedule, Standard Fire & Special Perils Policy Schedule and Misc. Provisional Cover note, APB, 1-3) I.T.A. 239/Agra/2016 19
21. We find that the observation of the CIT(A) in the case of the assessee that as per law, an individual should not own more than one residential house property other than the new asset on the date of transaction and since the assessee was holding two residential houses in his name, so he is not entitled for the deduction under section 54F of the Act., is not conformity with the facts of the case and the provisions of the law. The action of the CIT(A) cannot be justified in holding both these properties as residential houses merely on the basis of their location in Jaipur House residential colony, Agra without appreciating the material facts regarding the purpose for which the properties were used; the house no. 273 in particular which was used for business purpose as it was let out by the assessee to M/s Client Technology Ltd. Agra for godown purpose. It is clear that although on the day of transfer of original asset, assessee had in his possession two residential houses i.e. 273, Jaipur House and 293, Jaipur House, however, the house no. 273 was let out to M/s Client Technology Ltd. Agra for business purpose and therefore, assessee is legally entitled for deduction under section 54F of the Act.
22. In the case of 'Sanjeev Puri Vs. Dy. CIT', (Supra), the property was owned by the assessee, in the records of municipality which was being used by himself as his office during the relevant period. Admittedly, in the I.T.A. 239/Agra/2016 20 present case, the property was used by the assessee for business purpose by way of lease out to M/s Client Technology Pvt. Ltd. for commercial purpose of stocking of electronic items duly supported with commercial electricity connection for the period relevant. The ld. DR has not brought on record any material evidence in rebuttal to the contention of the assessee.
23. In view of the above, we accept the grievance of the assessee as genuine on this issue and allow his claim of the exemption of Rs. 21,69,260/- u/s 54F of the Act. Accordingly, Ground No.2 is allowed.
24. The 3rd ground is general in nature and needs no adjudication.
25. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 09/04/2018.
Sd/- Sd/-
(A.D. Jain) (Dr. Mitha Lal Meena)
Judicial member Accountant Member
Dated 09/04/2018
Aks/-DOC
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
I.T.A. 239/Agra/2016 21
Date
1. Draft dictated (DNS) 26.03.2018 PS
2. Draft placed before author 04.04.2018 PS
3. Draft proposed & placed before the second member JM/AM
4. Draft discussed/approved by Second Member. JM/AM
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
8. Date on which file goes to the AR
9. Date on which file goes to the Head Clerk.
10. Date of dispatch of Order.