2020 (7) TMI 302 - AT - Income Tax

Revision u/s 263 - Capital gain computation - A.O had failed to appreciate that as the assessee had sold the property for a sale consideration which was less than the value assessed by the stamp valuation authority therefore, the provisions of section 50C were applicable and A.O had erred in failing to verify that now when the assessee for computing the indexed cost of acquisition/improvement had included interest paid on borrowed funds that were utilized for construction of property, therefore, whether the same was claimed by the assessee as an expenditure under any head viz. business income or Income from house property in the previous assessment years, and if so, the same were to be disallowed during the year under consideration - HELD THAT - Although both the parties i.e the assessee and the purchaser had executed a deed of correction wherein they had mentioned that the value of the property as per ready reckoner rate was ₹ 4,53,00,690/-, but then, we cannot remain oblivious of the fact that there is no material available on record from where it could be gathered that the valuation adopted by the stamp valuation authority at ₹ 5,53,35,670/- had been substituted by the aforesaid ready reckoner rate of ₹ 4,53,00,690/-. In sum and substance, there is nothing discernible from the records which would reveal that the valuation adopted by the stamp valuation authority had been revised at ₹ 4,53,00,690/-. In the backdrop of the aforesaid facts, we find that the Pr. CIT had directed the A.O to verify as to whether the excess payment of stamp duty was refunded to the assessee or not. No infirmity in the aforesaid direction of the Pr. CIT, except for the fact that as the stamp duty qua the transfer of the property under consideration was paid by the purchaser party viz. M/s SVG Investments Pvt. Ltd., therefore, the question of refund of any part of the excess stamp duty paid to the assessee would not arise. Accordingly, we to the said extent modify the directions of the Pr. CIT., and direct the A.O to verify as to whether or not the valuation adopted by the stamp valuation authority had been revised at ₹ 4,53,00,690/-. In case, the valuation adopted by the stamp valuation authority had not been revised, then for working the valuation of the property the A.O shall refer the matter to the DVO, as per Sec. 50C(2) of the Act. As such, in terms of our aforesaid observations we uphold the well reasoned view taken by the Pr.CIT and dismiss the objection raised by the assessee. Verification of the cost of acquisition/improvement of the property - Pr. CIT had observed that as the assessee for computing the indexed cost of acquisition/improvement had included interest paid on borrowed funds as having been utilized for construction of property, therefore, whether the same were claimed by the assessee as expenditure under any head viz. business income or Income from house property in the previous assessment years, and if so, the same were liable to be disallowed during the year under consideration. In our considered view there in no infirmity in the aforesaid observation of the Pr. CIT. As a matter of fact, the inconsistent approach adopted by the A.O for partly sustaining the interest expenses and partly excluding the same while determining the indexed cost of acquisition/improvement of the property under consideration is beyond our comprehension. Be that as it may, the Pr. CIT in our considered view had rightly directed the A.O to verify as to whether the expenses claimed by the assessee and allowed by him in the course of the assessment proceedings as part of the indexed cost of acquisition/improvement were claimed by the assessee as expenditure under any head viz. business income or Income from house property in the previous assessment years, and if so, to disallow the same during the year under consideration. Accordingly, finding no infirmity in the aforesaid observations of the revisional authority, we uphold the same. On both the issues i.e (i). applicability of sec. 50C to the transfer transaction under consideration; and (ii). verification of cost of acquisition/improvement of the property in question, which had been adopted by the A.O as the A.O had failed to make necessary inquiries and verifications, therefore, the Pr. CIT in our considered view had rightly exercised his revisional jurisdiction u/s 263 of the Act. Deduction of the interest expense u/s 24(b) claimed while computing its income under the head Income from house property - A.Y 2014-15 - HELD THAT - Admittedly, the assessee while computing its income in the previous years under the head Income from House Property had claimed deduction u/s 24(b) of the interest paid on loan raised from Janalaxmi Co-op Bank Ltd , which funds are stated to have been utilized in construction of the property in question. In our considered view, there is substance in the view taken by the CIT(A) that now when the interest expenditure was allowed as a deduction to the assessee while computing its income under the head Income from house property , the same could not have thereafter been allowed as a deduction by allowing it to be capitalized as a part of the cost of acquisition while computing its income under the head capital gains at the time of sale of the property. In fact, a view to the contrary would lead to allowing of a deduction to the assessee twice. Our aforesaid view is fortified by the judgment in the case of CIT Vs. Maithreyi PaiI 1983 (11) TMI 43 - KARNATAKA HIGH COURT . Now when the assessee in the case before us had claimed deduction of the interest paid to Janalaxmi Co-op Bank Ltd while computing its income for the previous years under the head Income from House Property , therefore, it would not be eligible to once again claim deduction of such interest expenditure in the garb of cost of acquisition of the property while computing the income under the head Capital gains at the time of sale of the property in question - finding no infirmity in the view taken up the CIT(A) in context of the issue under consideration, we uphold the same. Disallowing claim for deduction of repairs and maintenance expenses as part of the cost of improvement of the property while computing its income under the head Capital gain - HELD THAT - Assessee as per its certification of the APB , had claimed, that the copies of the aforesaid invoices/bills were furnished with the lower authorities. On a perusal of Sec. 55(2) of the Act, we find, that if an assessee had incurred an expenditure of a capital nature in making any addition or alterations to a capital asset after it had became his property, then the same would form part of the cost of improvement of such property. At the same time, there is a rider provided in the aforesaid statutory provision, which therein envisages that any such expenditure which is deductible in computing the income chargeable under the other heads of income is not to be included within the meaning of cost of improvement . In our considered view, in all fairness, the aforesaid issue requires to be restored to the A.O with a direction to verify afresh the maintainability of the aforesaid claim of deduction so raised by the assessee. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate his aforesaid claim on the basis of fresh documentary evidence. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Applicability of Section 50C of the Income-tax Act, 1961.
3. Verification of Cost of Acquisition/Improvement.
4. Deduction of Interest Expenses.
5. Deduction of Repairs and Maintenance Expenses.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income-tax Act, 1961:
The appellant challenged the Principal Commissioner of Income-tax's (Pr. CIT) jurisdiction under Section 263, arguing that the Pr. CIT could not assume jurisdiction as an appeal against the order under Section 143(3) was pending before the ITAT. The tribunal rejected this claim, stating the appellant failed to substantiate it. The tribunal upheld the Pr. CIT's jurisdiction, citing that the assessment order was erroneous and prejudicial to the interest of the revenue due to inadequate inquiries and verifications by the Assessing Officer (A.O).

2. Applicability of Section 50C of the Income-tax Act, 1961:
The Pr. CIT found the A.O had not properly applied Section 50C, which mandates adopting the stamp duty valuation as the sale consideration if it exceeds the actual sale consideration. The A.O accepted the sale consideration of ?4,55,00,000 based on a "deed of correction" without verifying if the stamp duty valuation of ?5,53,36,670 was revised. The tribunal directed the A.O to verify if the excess stamp duty was refunded and, if not, to refer the matter to the DVO as per Section 50C(2).

3. Verification of Cost of Acquisition/Improvement:
The Pr. CIT observed that the A.O failed to verify the inclusion of interest expenses in the cost of acquisition/improvement. The tribunal noted inconsistencies in the A.O's approach, who had only partially excluded interest expenses. The Pr. CIT directed the A.O to verify if these expenses were claimed as deductions under other heads in previous years and disallow them if so. The tribunal upheld this direction, emphasizing the need for thorough verification.

4. Deduction of Interest Expenses:
The appellant claimed interest paid on borrowed funds for constructing the property as part of the cost of acquisition. The A.O disallowed this, citing that the interest was already claimed under Section 24(b) for computing income from house property. The tribunal upheld the A.O's decision, referencing the Karnataka High Court's ruling in CIT Vs. Maithreyi Pai, which prohibits double deduction of the same expense under different heads. The tribunal agreed that allowing the interest as part of the cost of acquisition would result in double deduction.

5. Deduction of Repairs and Maintenance Expenses:
The appellant claimed repairs and maintenance expenses as part of the cost of improvement. The A.O disallowed this, considering these expenses routine and not enhancing the capital value of the property. The tribunal found merit in the appellant's claim that these expenses were capital in nature and directed the A.O to re-examine the claim with proper documentary evidence. The tribunal restored the issue to the A.O for fresh verification, allowing the appellant to substantiate the claim.

Conclusion:
The tribunal upheld the Pr. CIT's order under Section 263 for further verification on the applicability of Section 50C and the cost of acquisition/improvement. It rejected the appellant's claim of double deduction of interest expenses but allowed the claim for repairs and maintenance expenses to be re-examined. The appeal was partly allowed for statistical purposes, emphasizing the need for thorough verification and adherence to legal provisions.