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2023 (2) TMI 302 - AT - Income TaxDeduction u/s.54F - Disallowance of claim as assessee has purchased new house property beyond one year from the date of sale of original asset - agreement to sale is not bona fide - Although, the assessee claims to have entered into agreement to sale on 28.09.2012, but in the recitals of Sale Deed, there is no specific reference to agreement to sale - HELD THAT - We find that the assessee has filed copy of deed of agreement dated 28.09.2012, and agreed to sell in favour of Mrs.S.Lalitha Lakshmi and we find that the parties have set out terms and conditions for purchase of property. Further, the parties have acted upon the sale agreement and executed a Sale Deed dated 07.01.2013 in favour of the purchaser. From the above, what we understood are that the assessee had entered into an agreement to sale with the buyer on 28.09.2012 and had executed final Sale Deed on 07.01.2013. Therefore, we are of the considered view that the AO and the Ld.CIT(A) is erred in not considering the agreement to sale between the parties to allwo the benefit of deduction u/s.54F. Whether the assessee has invested consideration for purchase of property or not? - When the assessee has filed evidences in the form of agreement to sale and if the agreement to sale date is considered, then the period of investment in new house property is less than one year before the date of sale of original asset and thus, in our considered view, the assessee is entitled for deduction u/s.54F of the Act. Multiple deductions in two assessment years - In this case, on the basis of details filed by the assessee, we find that amount paid for purchase of new property at Besant Nagar is much more than the amount of sale consideration received for transfer of original asset, including the asset sold in AY 2012-13 and thus, in our considered view, the assessee can claim deduction u/s.54F of the Act, as long as he or she satisfies other conditions. Since, the assessee has satisfied all conditions prescribed therein, as per provisions of Sec.54F of the Act, he is entitled to claim deduction towards re-investment of sale consideration for purchase of residential house property. Therefore, we direct the AO to allow deduction u/s.54F of the Act, as claimed by the assessee and delete additions made towards disallowance u/s.54F of the Act. Disallowance of interest claimed on second loan u/s.24(b) - AO has disallowed interest claimed u/s.24(b) on the ground that the assessee could not establish nexus between borrowed funds and purchase of house property - HELD THAT - There is a direct nexus between loan availed from HDFC Bank and purchase of property at OMR, in our considered view, subsequent loan taken from Karvy Finance to re-pay existing loan with HDFC Bank, satisfies the conditions prescribed u/s.24(b) of the Act, and the assessee is entitled for deduction towards interest paid on loan borrowed from financial institution. In fact, the CBDT Circular No.28 dated 20.08.1969 has clarified that if the second borrowing has really been used merely to re-pay the original loan and this fact is proven to the satisfaction of the AO, the interest paid on second loan would also be allowed as deduction u/s.24(1)(vi) of the Act. In this case, the Ld.CIT(A) recorded categorical findings that the assessee has used second loan from Karvy Finance to re-pay existing loan borrowed from HDFC Bank and there is a nexus between loan borrowed from purchase of property and thus, the assessee is entitled for deduction towards interest paid on second loan. The findings of facts recorded by the Ld.CIT(A) is uncontroverted. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the Revenue. Disallowance of interest paid on loan borrowed for purchase of property at Besant Nagar - AO has disallowed interest claimed u/s.24(b) in respect of house property at Besant Nagar, on the ground that said property has been used by the assessee for self-occupation purpose - HELD THAT - CIT(A) came to conclusion that when the property has been let out and rental income is offered to tax, under the head income from house property , then interest paid on loan borrowed for acquisition of property should be allowed as deduction u/s.24(b) of the Act. The Ld.CIT(A) further noted that the observation of the AO on the basis of report of Inspector obtained in the course of the assessment proceedings for the AY 2016-17, has no relevance to decide whether the property has in fact let out for the AY 2013-14 or not. In our considered view, the findings and facts recorded by the Ld.CIT(A) is uncontroverted with any evidences except stating that there is a violation of Rule 46A of Income Tax Rules, 1962 - assessee has placed all evidences to prove that rental agreement was filed before the AO and also rental income has been offered for earlier assessment years also. Therefore, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A) to delete the additions made towards disallowance of interest u/s.24(b) of the Act and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the Revenue. Short term capital gains OR income from business - commission brokerage income - AO has made addition on the ground that the assessee claimed exemption on sale of his own land and thereby concluded that business profit claimed by the assessee needs to be treated as short term capital gains - HELD THAT - There is no dispute with regard to the fact that the assessee has admitted commission income apart from real estate deals for the earlier assessment years and the Department has accepted the claim of the assessee. AO has taken a different view for the impugned assessment year without there being any change in facts and circumstances of the case. Therefore, no error in the reasons given by the Ld.CIT(A) to direct the AO to assess commission brokerage income under the head income from business and profession as against income assessed by the AO under the head short term capital gains and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the Revenue.
Issues Involved:
1. Disallowance of deduction under Section 54F. 2. Disallowance of interest claimed on OMR property under Section 24(b). 3. Disallowance of interest on Besant Nagar property under Section 24(b). 4. Addition to short-term capital gains. Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 54F: The assessee sold a property in Kunnakkadu for Rs. 3,63,50,450/- and claimed a deduction under Section 54F for Rs. 2,60,54,377/- towards the purchase of a new residential house at Besant Nagar. The Assessing Officer (AO) disallowed this deduction, arguing that the purchase of the new house was beyond one year from the sale of the original asset and deemed the agreement to sell as fabricated. The AO also noted that the assessee had already claimed a similar deduction in the previous assessment year. The Tribunal found that the assessee had indeed entered into an agreement to sell on 28.09.2012 and purchased the new property on 14.10.2011, which was within one year of the sale of the original asset. The Tribunal relied on the Supreme Court decision in Sanjeev Lal v. CIT, which allows the date of the agreement to sell to be considered for Section 54F benefits. The Tribunal concluded that the assessee met all the conditions for the deduction and directed the AO to allow the deduction under Section 54F. 2. Disallowance of Interest Claimed on OMR Property under Section 24(b): The AO disallowed the interest claimed on the OMR property, citing a lack of nexus between the borrowed funds and the purchase of the property. The assessee argued that the loan from Karvy Finance was used to pre-close an existing loan from HDFC Bank, which was initially taken for the purchase of the property. The Tribunal found that the assessee had provided sufficient evidence to establish the nexus between the loans. It referred to CBDT Circular No. 28, which allows interest on a second loan used to repay the original loan to be deductible under Section 24(b). The Tribunal upheld the CIT(A)'s decision to allow the interest deduction, noting that the findings were uncontroverted. 3. Disallowance of Interest on Besant Nagar Property under Section 24(b): The AO disallowed the interest on the Besant Nagar property, arguing that it was self-occupied. The assessee provided a rental agreement showing the property was let out and offered rental income for the relevant assessment year. The Tribunal upheld the CIT(A)'s decision, which accepted the rental agreement as evidence that the property was let out. The Tribunal noted that the rental income was offered for tax, and the interest on the loan for the property was deductible under Section 24(b). The Tribunal found no violation of Rule 46A, as the rental agreement was part of the records. 4. Addition to Short-Term Capital Gains: The AO reclassified the income from the sale of land as short-term capital gains instead of business income. The assessee argued that the income was from commission and brokerage, which had been consistently treated as business income in previous years. The Tribunal found that the assessee had consistently shown commission and brokerage income as business income, which the department had accepted in earlier years. The Tribunal upheld the CIT(A)'s decision to treat the income as business income, rejecting the AO's reclassification. Conclusion: The Tribunal allowed the assessee's appeal for the assessment year 2013-14, dismissing the Revenue's appeals for both assessment years 2013-14 and 2014-15. The Tribunal directed the AO to allow the deductions and treat the income as per the CIT(A)'s findings.
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