2016 (1) TMI 564 - AT - Income Tax

Denial of deduction being interest on a housing loan, in the computation of his income u/s.22 - Held that - A.R. during hearing, would take us through the interest certificate issued by the concerned bank, which clearly reflects the assessee s name as among the names of the borrowers and, in fact, in the first place (PB pg. 5), i.e., along with that of his spouse as the second borrower. Further, in first appeal, the ld. CIT(A) specifically asked the assessee if his case was that the investment in the house was made by him in the name of his wife, and to which he categorically denied. We see no reason for the disallowance in the circumstances and, accordingly, direct its deletion. Denial of the cost of improvement - Held that - Any addition and/or alteration to the house, enhancing its functional utility, so as to qualify as an improvement, would also require being notified to the housing society or even approval of the relevant authorities. In fact, apart from nonspecification of the work, so that the very basis of the assessee s claim remains unknown, the certificate speaks of the renovation work having been carried out during the years 1997-98 and 2001-02, implying the relevant financial years. How could renovation be carried out in f.y. 1997-98, whereat the house was, by own admission, purchased? The additional loan of ₹ 2 lacs from the bank was sanctioned on 06/9/2001 (PB pg. 8), which is claimed to be the source of the investment, with even the assessee claiming the improvement to have been carried out in the year 2001, contradicting the said certificate. For the reasons afore-stated, we are inclined to be in agreement with the Revenue of the assessee as having been unable to establish its claim of having undertaken improvement of its house in 2001. Deduction u/s.54 on the capital gains denied - Held that - Assessee being not eligible for deduction u/s.54 in view of the non-satisfaction of the primary condition of acquisition of house property within the time period stipulated u/s.54(1). The investment of the capital gains therein, naturally, is to be within this time period, for which a mechanism is provided. This represents the second limb of the provision; the return of income for the relevant year being, it may be appreciated, required by law to be filed by the due date u/s. 139(1). The assessee s claim for deduction u/s. 54, which extends up to the entire LTCG, accordingly, fails.

Summary

Issues Involved:
1. Legality of the order passed by the CIT(A).
2. Consideration of submissions and facts by the CIT(A).
3. Addition of Rs. 4,112 on account of Income from House Property.
4. Addition of Rs. 15,83,345 on account of Long-term Capital Gain and denial of exemptions.

Detailed Analysis:

1. Legality of the Order Passed by the CIT(A):
The appellant contended that the order passed by the CIT(A) was unjust, unwarranted, and bad in law. However, grounds 1 and 2 were dismissed as they were general in nature and did not warrant adjudication.

2. Consideration of Submissions and Facts by the CIT(A):
The appellant argued that the CIT(A) failed to appreciate or consider the submissions and facts of the case. This issue was also dismissed as non-maintainable along with the first issue.

3. Addition of Rs. 4,112 on Account of Income from House Property:
The assessee was denied a deduction of Rs. 4,112, being interest on a housing loan, under the head of income 'income from house property'. The Authorized Representative presented an interest certificate from the bank showing the assessee as a borrower along with his spouse. The CIT(A) had specifically asked if the investment was made in the name of the spouse, which the assessee denied. Given the evidence, the tribunal saw no reason for the disallowance and directed its deletion.

4. Addition of Rs. 15,83,345 on Account of Long-term Capital Gain and Denial of Exemptions:
- Short-term vs. Long-term Capital Gain: The A.O. considered the gain as short-term, while the CIT(A) found that the flat was acquired much earlier, making it a long-term capital gain. The tribunal agreed with the CIT(A) on this matter.

- Cost of Improvement: The assessee claimed a cost of improvement based on a loan taken in 2001 and a letter from Munna Furniture Makers. However, the tribunal found the evidence insufficient and unreliable, noting inconsistencies and lack of specifics in the certificate provided. The claim for cost of improvement was thus disallowed.

- Deduction u/s 54: The CIT(A) disallowed the deduction for several reasons:
- The new residential house at Noida was not completed within three years from the date of transfer.
- The unutilized capital gain was not deposited in a specified account.
- Payments towards the new flat were made after the due date of filing the return of income.
- The new flat was in joint names of the assessee and his wife.

The tribunal examined relevant case law and found that the primary condition of the purchase or construction of a house within the specified period was not met. The tribunal noted that the decisions cited by the assessee did not apply as the primary condition was not satisfied. The tribunal also pointed out that even if the construction was considered, the acquisition was not complete within the stipulated time. Therefore, the claim for deduction u/s 54 failed.

Conclusion:
The tribunal partly allowed the assessee's appeal, directing the deletion of the Rs. 4,112 disallowance on account of income from house property, but upheld the denial of the cost of improvement and the deduction u/s 54 for long-term capital gains. The order was pronounced in the open court on June 29, 2015.