2015 (8) TMI 884 - AT - Income Tax

Addition u/s 68 - unsecured loan - AO made impugned addition in absence of details, confirmation, bank accounts and ITR copies of the alleged creditors Shri Manoj Kumar and Shri Uttam Singh - CIT(A) deleted the addition on the basis of information received from the respective banks of the creditors in compliance to the notice issued to these banks u/s 133(6) - Held that - CIT(A) was right in holding that the assessee discharged her onus by way of filing required details, confirmation and other relevant documentary evidence and also by filing PAN Number and addresses of the respective creditors. However, the alleged creditors did not comply with the notice u/s 131 of the Act and did not appear either before the AO or before the CIT(A) but the first appellate authority adopted course of verifying the genuineness of the transaction and creditworthiness of the respective creditors from their respective banks by issuing notice u/s 133(6) of the Act. On the basis of information received therefrom the CIT(A) has drawn a logical conclusion that Shri Manoj Kumar and Shri Uttam Singh had sufficient bank balance in their accounts before issuing cheques to the assessee which shows genuineness of the transaction as well as creditworthiness of the alleged creditors. In this situation, the addition made by the AO u/s 68 of the Act could not be held as sustainable and the same was rightly deleted by the CIT(A). - Decided in favour of assessee. Interest paid on the loan taken from the bank - whether to be capitalized and reduced from the sale consideration of the property while computing the capital gain as directed by CIT(A) - Held that - Respectfully following the dicta laid down by the Hon ble Jurisdictional High Court in the case of CIT vs Mithilesh Kumari (1973 (2) TMI 11 - DELHI High Court), we hold that the assessee is entitled for capitalization of interest actually paid by the assessee on the loan taken for purchase of said property provided the interest so proposed to be capitalized is not claimed as deduction under the head of income from house property. We are also of the considered view that the calculation and verification of the interest for the period between date of acquisition and date of sale of property has to be done at the end of AO. Therefore, we reach to a logical conclusion that the AO was not correct in denying the capitalization of interest pertaining to the amount which was actually invested towards purchase of property for the period between the date of acquisition and date of sale of property. At the same time, we further hold that the CIT(A) was also not justified and correct in directing the AO for capitalization of entire amount of interest and to reduce it from the sale consideration of property at the time of calculating capital gains because the assessee obtained loan of ₹ 85 lakh jointly with her husband , a part therefrom which was utilized for repayment of home loan which was originally obtained at the time of purchase of property. In view of above conclusion of the AO as well as findings of the CIT(A) being not completely sustainable and in accordance with law, this issue is restored to the file of AO for a fresh adjudication in the light of relevant provisions of the Act and in accordance with the facts and circumstances of the case. The AO is directed to allow the interest on the loan raised for purchase of property and repayment of property loan which was utilized for the purpose of acquisition of property in question subject to verification - Decided in favour of revenue for statistical purposes Disallowance of vacancy allowance - Held that - About the fact of vacancy of seven months, on careful consideration of observations and findings of the authorities below, we note that tax can only be imposed on the rental income actually earned by the assessee. The rental income from house property cannot be admitted for want of negative evidence about the vacancy period of the property under consideration. In this situation, we are of the considered view that the issue requires proper verification and examination at the end of AO and we restore this issue to the file of AO with a direction that the AO shall verify and examine the issue afresh after affording due opportunity of hearing for the assessee and without being prejudiced from the earlier assessment and impugned order on this issue.- Decided in favour of assessee for statistical purposes

Summary

Issues Involved:
1. Deletion of addition of Rs. 28,75,000 under Section 68 of the Income Tax Act, 1961.
2. Admissibility of additional ground regarding interest of Rs. 12,82,571 paid on a bank loan.
3. Addition of Rs. 3,92,000 to the returned income and non-allowance of vacancy allowance.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 28,75,000 under Section 68:

The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 28,75,000 made by the AO under Section 68 of the Income Tax Act, 1961, due to the assessee's failure to prove the genuineness of the unsecured loan. The Revenue argued that no confirmation was filed before the AO or CIT(A), and the addition was deleted merely because the payment was made through banking channels without other supporting evidence.

The assessee argued that the addition was made without basis, as the assessee had provided details and confirmations of loans from Shri Manoj Kumar and Shri Uttam Singh. The AO failed to summon the creditors for verification, and the CIT(A) rightly considered the confirmations and bank balances of the creditors, leading to the deletion of the addition.

The CIT(A) observed that the creditors had sufficient bank balances before issuing cheques to the assessee, and the addition was thus untenable. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not verify the genuineness of the transactions and creditworthiness of the creditors despite the assessee providing necessary details. The Tribunal dismissed the Revenue's grounds as devoid of merits.

2. Admissibility of Additional Ground Regarding Interest of Rs. 12,82,571:

The Revenue sought to admit an additional ground regarding the capitalization of interest of Rs. 12,82,571 paid on a bank loan, which was allowed by the CIT(A) to be reduced from the sale consideration while computing capital gains. The Revenue argued that the interest should not be capitalized as the loan was taken in the name of the assessee's husband, and the property was purchased much earlier.

The CIT(A) granted relief to the assessee, noting that the loan was taken jointly by the assessee and her husband, and the interest was paid from the assessee's bank account. The Tribunal observed that the AO denied capitalization due to confusion regarding the loan account name. The Tribunal held that the assessee is entitled to capitalize the interest paid on the loan for the property purchase, subject to verification by the AO. The issue was restored to the AO for fresh adjudication, directing the AO to allow capitalization of interest not claimed as a deduction under "income from house property."

3. Addition of Rs. 3,92,000 to Returned Income and Non-Allowance of Vacancy Allowance:

The assessee contended that the CIT(A) erred in confirming the addition of Rs. 3,92,000 and not allowing the claim of vacancy allowance. The property was rented out for five months, and the remaining seven months it was vacant. The AO made the addition based on the assumption that the property was expected to be let out year to year and calculated the net property income.

The Tribunal noted that the rental income from house property cannot be admitted without evidence of the vacancy period. The issue was restored to the AO for proper verification and examination, directing the AO to afford due opportunity to the assessee and verify the vacancy period.

Conclusion:

The Tribunal dismissed the Revenue's grounds regarding the addition under Section 68 and admitted the additional ground for statistical purposes. The issue of capitalization of interest was restored to the AO for fresh adjudication. The Tribunal also restored the issue of vacancy allowance to the AO for proper verification. The order was pronounced in the open court on 14.8.2015.