2019 (3) TMI 1296 - AT - Income Tax

Deduction of interest u/s 23(3) being let out property - Rent received from mother, co-owner of property - Shown nil annual value in return later claimed as let out and rent received in cash - AO denied claim u/s 23(3) and allowed deduction u/s 23(2) as self occupied property only - HELD THAT - The assessee has claimed that the residential house was actually let out during the year to his mother for which he has received rent of ₹ 30,000/- from mother albeit in cash. On the basis of property being let out, the assessee seeks claim of interest deduction to full extent. The assessee has also tried to support his case of let out by an affidavit. When seen in the context, it is very difficult to believe the position taken by the assessee. Assessee, at first instance, has not declared rental income while filing the return of income duly verified under s.140 of the Act. The omission to disclose the so-called rent income derived from mother in the return of income is not explained. the income claimed to have been received and not declared in the return cannot be seen in a light hearted banner. The assessee has conveniently revised the computation to introduce the source of rental income from mother who also happens to be co-owner of the same property. The receipt has been shown to be in cash to shun any possibility of verification. Thus, no trail is available to verify the correctness of the version of the assessee in a reasonable manner. Thus, one has to rely only on the preponderance of probabilities. The version of the assessee is prima facie improbable having regard to the ground realities. The assessee neither satisfies the condition from exclusion from the ambit of Section 23(2) of the Act nor satisfies its case for inclusion under s.23(3) of the Act on facts The affidavit filed was clearly bald and a self serving document. No cross examination of the deponent of the affidavit has been offered therein. On a query from the bench about the payment of electricity bill by the licensee of the property, no evidence could be furnished to prove actual occupation by mother on rental basis. It is also difficult to comprehend such a claim of the assessee on the touch-stone of societal value prevalent and ethos in Indian society. The case of the assessee towards claim of rent from mother for occupation of his house clearly appears be eyewash to merely put the property in the bracket of Section 23(3) of the Act with a view to claim deduction of full interest costs without any restriction applicable to self-occupied house. - Decided against assessee.

Summary

Issues:
Disallowance of interest on borrowed capital under s.23(2)(b) of the Income Tax Act, 1961 for AY 2012-13.

Analysis:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of interest on borrowed capital under s.23(2)(b) of the Act. The Assessee, a salaried employee, claimed a deduction of interest on borrowed capital at &8377; 8,27,014/- under s.24 of the Act for the AY 2012-13. The Assessing Officer (AO) observed that the Assessee had not derived any income from the house property, and thus, raised a query regarding the allowability of the deduction of interest against the self-occupied house property. The Assessee claimed that the property was let out to his mother and claimed the deduction based on rental income. However, the AO restricted the claim of interest to &8377; 1,50,000/-, questioning the bonafides of the rent paid to his mother. The CIT(A) upheld the AO's decision, finding the Assessee's claim bereft of merits.

The Assessee appealed to the Tribunal, arguing that the property was actually let out to his mother, justifying the full deduction of interest expenses against the rental income. The Assessee presented cash vouchers and an affidavit to support the claim. The Revenue, however, contended that the Assessee's conduct was questionable, alleging that the Assessee falsely claimed rental income to avoid the statutory restriction on interest deduction. The Tribunal considered the allowability of interest expenditure on borrowed capital under s.24 of the Act. The crucial issue was whether the property was actually let out, which would exclude it from the restriction of deduction under s.24. The Tribunal found it difficult to believe the Assessee's position, noting the lack of rental income declaration in the initial return and the dubious nature of the subsequent claim. The Tribunal concluded that the Assessee failed to prove the property was actually let out, and the claim was merely an attempt to avoid the statutory restriction on interest deduction. Referring to a previous decision, the Tribunal dismissed the appeal, upholding the CIT(A)'s decision.

In summary, the Tribunal dismissed the Assessee's appeal, upholding the decision to restrict the deduction of interest on borrowed capital under s.23(2)(b) of the Act. The Tribunal found the Assessee's claim of rental income from the property to be unsubstantiated and an attempt to circumvent the statutory restrictions on interest deduction for self-occupied properties. The Tribunal emphasized the lack of credible evidence and the implausibility of the Assessee's assertions, ultimately supporting the lower authorities' decision to disallow the excess interest claim.