2016 (9) TMI 68 - AT - Income Tax

Disallowance on account of loss from house property - joint ownership with the wife - assessee claimed that the installments towards the repayment of the loan taken from bank for purchase of the property were paid by him only not by his wife - Held that - Nothing is brought on record to substantiate that the wife of the assessee made any contribution towards purchase of the house under consideration or the income from that house was assessable in her hands also. Furthermore, this claim of the assessee that the entire investment was made by him and installments towards term loan were paid has not been rebutted. Therefore, the income of the house, if any, should have been taxed in the hands of the assessee. Similarly, if loss from the house property was there the benefit was to be given towards that loss to the assessee only since the house was shown by the assessee in joint ownership with his wife for safety purposes. In that view of the matter the impugned order is set aside on this issue and the AO is directed to allow the claim of the assessee. Disallowance of the short term capital loss - Held that - In the former part of this order it has already been observed that the assessee made the entire payments for purchasing the house property and the name of his wife was entered only for the security purposes. Therefore, the ld. CIT(A) was not justified in restricting the short term capital loss claimed by the assessee to the extent of 50%. I, therefore, considering the peculiar facts of this case set aside the impugned order on this issue and direct the AO to allow the claim of the assessee for short term capital loss.

Summary

Issues Involved:
1. Confirmation of disallowance of ?1,57,839/- made by AO on account of loss from house property.
2. Confirmation of disallowance of ?1,25,550/- made by AO on account of short-term capital loss.

Issue-Wise Detailed Analysis:

1. Confirmation of disallowance of ?1,57,839/- made by AO on account of loss from house property:

The assessee filed a return declaring an income of ?10,74,650/-. During scrutiny, the AO noticed that the assessee claimed a loss from house property of ?3,15,679/- on a property jointly owned with his wife, each having a 50% share. The AO restricted the loss to 50% (?1,57,839/-) and disallowed the balance, reasoning that according to Sections 22 to 24 of the Income Tax Act, the assessee should be the owner of the property, and in this case, he was only a 50% owner.

The assessee contended that he paid all housing loan installments from his taxable income, and the property was in joint names for family safety purposes. The entire investment was made by the assessee, and he claimed the income and deductions in his hands. The assessee cited various judicial pronouncements to support his claim.

The CIT(A) upheld the AO's decision, stating that ownership of the property is a condition precedent for levy of tax under Section 22 of the Act. The CIT(A) noted that the loan was taken jointly, and the property was registered in both names, making the payment of EMI an internal arrangement. The dominion over the property existed in the name of the wife, who was lawfully entitled to claim the income from the property.

The Tribunal, however, considered the submissions and the evidence, noting that the entire investment was made by the assessee and the installments towards the loan were paid by him. Citing the Supreme Court's decision in CIT Vs Podar Cements Pvt. Ltd. and other relevant case laws, the Tribunal concluded that the income or loss from the property should be taxed in the hands of the person who made the investment and was entitled to receive income from the property in his own right. Thus, the Tribunal set aside the impugned order and directed the AO to allow the claim of the assessee.

2. Confirmation of disallowance of ?1,25,550/- made by AO on account of short-term capital loss:

The AO observed that the assessee sold a house property during the year but did not show any capital gain in the original return. In the revised return, the assessee claimed a short-term capital loss of ?1,25,650/-, providing copies of the purchase and sale deed, bank account details, and renovation expenses. The AO disallowed the claim, stating that the payments for renovation were made in cash and were not verifiable from the bank withdrawals.

The assessee argued that the renovation expenses were funded by a loan from ICICI Bank, and the cash withdrawals for renovation were supported by bank statements and bills. The CIT(A) partially agreed with the assessee, reducing the disallowance by 50% on the ground that the property was jointly owned.

Upon appeal, the Tribunal reviewed the evidence and noted that the entire investment for purchasing the property was made by the assessee, and the name of his wife was added only for security purposes. The Tribunal found that the CIT(A) was not justified in restricting the loss to 50% and directed the AO to allow the entire short-term capital loss claimed by the assessee.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, setting aside the disallowances made by the AO and directing the AO to allow the claims related to the loss from house property and the short-term capital loss in full.