2021 (7) TMI 139 - AT - Income Tax

Revision u/s 263 - assessee had claimed the interest on loan as deduction u/s. 24(b) of the Act under the Head Income from House Property in the return of income of the preceding assessment years prior to the sale of the capital asset/flat - HELD THAT - According to Ld. PCIT the AO has erred in allowing the claim of deduction of interest by passing the assessment order dated 29.11.2018 but we do not agree with the PCIT. The assessee has not claimed in the preceding assessment years starting from AY 2006-07 to AY 2015-16 deduction of the interest u/s. 24(b). As carefully gone through the ITR Acknowledgements filed by the assessee from AYs 2006-07 to AY 2015-16 and the computation of total income, Balance Sheet and Ledger account of the interest of housing loan which are placed and thus we find that the Ld. PCIT has erroneously made the finding that the assessee has claimed deduction of interest from AYs 2007-08 to 2015-16 and, this finding of fault/allegation that the AO by allowing the deduction of interest expenses has committed is erroneous act is not sustainable. The interest expenses as not an expenses on transfer of asset as erroneously observed by the Ld. PCIT. It is part of the cost of acquisition of the asset and not expenses related to sale of flat. PCIT s observation that the assessee was showing loss from self occupied house property is also factually wrong/erroneous because it is baseless again flowing from imagination - we find that the Ld. PCIT s impugned order cannot be sustained since he has assumed facts which was not borne out of any material/document and is contrary to the material/evidence on record. Therefore, the assessee succeeds. We note that in this case the AO had issued u/s. 142(1) of the Act dated 26.11.2018 and has enquired about the details of sale of flat and LTCG etc. by asking question regarding the cost of acquisition of purchase and cost of improvement with evidence in the case of flat sold and pursuant to which the assessee had replied vide letter dated 29.11.2018 placed along with supporting evidence wherein the assessee had filed the computation of LTCG as well as the breakup of the interest which he had capitalized in the AY 2016-17 to the tune - Thus, we note that the AO had enquired about the issue of LTCG on sale of flat and has discharged his duty as on investigation and cannot be faulted; and allowing the interest expenditure (capitalized) and which becomes part of the cost of acquisition in the facts of this case is allowable, and is a plausible view and so it cannot be held erroneous and at any rate be held un-sustainable view in law . We hold that the very usurpation of jurisdiction by Ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act is invalid/absent, so the action of Ld PCIT is without jurisdiction and consequently the impugned order of the Ld. PCIT is quashed. Appeal of assessee is allowed.

Summary

Issues Involved:
1. Validity of the invocation of revisional jurisdiction by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
2. Alleged double deduction of interest on housing loan claimed by the assessee.

Detailed Analysis:

1. Validity of the Invocation of Revisional Jurisdiction by the PCIT under Section 263 of the Income Tax Act, 1961:

The primary issue raised by the assessee was the challenge against the PCIT's invocation of revisional jurisdiction under Section 263 of the Income Tax Act, 1961. The assessee contended that the PCIT did not satisfy the condition precedent prescribed under Section 263, which requires the Assessing Officer's (AO) order to be both erroneous and prejudicial to the interest of the revenue.

The tribunal referred to the legal principles established by the Hon'ble Supreme Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC), which states that for the PCIT to exercise revisional jurisdiction, two conditions must be satisfied: the order of the AO must be erroneous, and it must be prejudicial to the interest of the revenue. An erroneous order is one that is based on incorrect facts, incorrect application of law, or passed without proper enquiry or application of mind. The tribunal noted that every loss of revenue cannot be treated as prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in law.

2. Alleged Double Deduction of Interest on Housing Loan Claimed by the Assessee:

The PCIT's main contention was that the assessee had claimed a double deduction of interest on housing loan. The PCIT observed that the assessee had claimed interest expenses of ?30,38,124/- as part of the cost of acquisition while computing Long Term Capital Gain (LTCG) on the sale of a flat. The PCIT alleged that this interest had already been claimed as a deduction under Section 24(b) of the Act in the preceding assessment years.

The tribunal examined the facts and found that the assessee had not claimed the interest on loan as a deduction under Section 24(b) in the preceding years. The tribunal reviewed the ITR acknowledgments, computation of total income, balance sheets, and ledger accounts of the interest on housing loan from AY 2006-07 to AY 2015-16, and concluded that the PCIT's findings were factually incorrect. The tribunal noted that the interest expenses were part of the cost of acquisition and not expenses related to the transfer of the asset.

The tribunal also addressed the argument by the CIT-DR, who pointed to the computation of income for AY 2007-08, suggesting that the assessee had shown loss from self-occupied house property. The tribunal found that this contention was devoid of merit as the assessee had not claimed any deduction of housing interest on the loan taken for purchasing the flat.

Additionally, the tribunal observed that the AO had issued a notice under Section 142(1) and had enquired about the details of the sale of the flat and the LTCG computation. The assessee had provided the necessary details and supporting evidence, which the AO had considered before passing the assessment order. Therefore, the tribunal concluded that the AO had conducted a proper enquiry and had taken a plausible view, which could not be termed as erroneous or unsustainable in law.

Conclusion:

The tribunal held that the PCIT's invocation of revisional jurisdiction under Section 263 was invalid as the conditions precedent were not satisfied. The tribunal quashed the impugned order of the PCIT and allowed the appeal of the assessee. The order was pronounced in the open court on 23rd June 2021.