PRAKASH VENKATAKRISHNAN,MUMBAI vs. CIT(IT)4, MUMBAI

Since, both the captioned appeals of the same assessee are preferred on account of identical issues, similar facts and circumstances, inextricablyinterwoven in terms of challenges raised by the assessee, thus for the sake of brevity these matters are heard together and decided under this consolidated order.

The grounds of appeal raised by the assessee in both the aforesaid appeals are as under:

At the outset, it is notice that the captioned appeals filed by the assessee are barred by limitation. To substantiate the delay in filing of appeal, the assessee has furnished an affidavit for condonation of delay. As per contents of the affidavit signed on 13.10.2023, the ld. CIT(IT)-4, Mumbai has passed an order u/s 263 of the Act on 26.03.2021 for A.Y. 2010-11 and the assessee was to file an appeal before ITAT against the said order.But, due to the pandemic COVID-19, for which the Hon’ble Apex Court has extended the period to file the appeals upto 30.05.2022,statutory date of which fills within the period from 15.03.2020 to 28.02.2022. Considering the aforesaid relaxation granted by the Hon’ble Apex Court, the delay in present appeal which was filed on 21.10.2022 was for 144 days. It is submitted that the delay was on account of bonafide reasons. To elaborate further, it is explained that, consequent to order u/s 263, the matter was under fresh assessment before the ld. A.O. and the assessee was under impression that he can argue the issue on merits before the A.O. and if the A.O. was not satisfied then issue can be argued on merits before the Appellate Authorities. As the A.O. has confirmed the addition in consequential order u/s 147 r.w.s. 263 on 27.03.2022. The assessee preferred an application before the DRP against the draft assessment order. Further, DRP has rejected the objection of the assessee stating that the order u/s 263 wasa specific order with clear directions, therefore, unless the same is modified or reversed no relief can be granted. The assessee, immediately thereafteron receipt of the communication from DRP dated 19.02.2022 has filed an appeal before the Tribunal on 21.10.2022. It is also the matter of fact that the DRP had passed an order dated 24.11.2022 with the same finding that the order of Ld. CIT was very specific and that unless the same is reversed or set aside the A.O. has to simply follow the directions and no relief can be given. Under the backdrop of aforesaid facts wherein the assessee was continuously trying for finding out remedies before the authorities below,the time has surpassed and therefore a delay in filing of the appeal. It is submitted that the reasons in delay for filing the appeal was inadvertent, unintentional and for bonafide reasons beyond the control of the assessee therefore, the delay in filing of appeal may please be condoned. Identical affidavitswere furnished for both the appeals. After considering the request of assessee, we find that the delay in filing of present appeals are on sufficient and bonafide reasons beyond the control of assessee. Therefore, we deem it appropriate to condoned the delay in present matters.

Coming to the merits of the issues in the present case. First, we shall be taking the appeal of the assessee filed against the order u/s 263.

Briefly stated the assessment in present case was completed u/s 147 r.w.s. 143(3) of the Act dated 06.11.2017 wherein the return income of the assessee at Rs. 1,92,703/- was accepted by the A.O. Further, Ld. CIT(Int Tax)-Mumbai-4, had pickedthe matter of assessee by invoking his powers u/s 263 of the Act, for the reason that as per information available on record during F.Y. 2009-10, the assessee had sold two flats for a consideration of Rs. 1,29,90,492/-. On perusal of the computation chart furnished by the assessee, it is observed by the ld. CIT that assessee has purchased both these flats on 07.03.2007 and sold the same in June/December 2009. Since, it was a short-term capital asset, the cost of acquisition of both the flats has been takenat Rs. 1,11,72,710/- after adding the registration and other charges to the basic cost. It is further revealed that assessee had availeda loan of Rs. 75 lacs from HDFC on 15.09.2007 i.e. six months after the date of purchase of both the flats. The duration of loan was 28 months i.e. 15.09.2007 to 15.02.2009 and till 29.12.2009. It is observed by the Ld. CIT that the assessee repaid the said loan for Rs.89,45,960/- including the principal of 75 lacs and interest of Rs.14,45,960/-. It is also observed that the assesseehad claimedthe interest on loan amounting to Rs.14,45,960/- as part of its cost of acquisition and has subtractedit from the sale consideration besides the purchase consideration. Therefore, the short-term capital gain has been computed at Rs.1,29,90,492/-(–)1,11,72,710/-(COA) (–)14,45,960/-(interest on loan) =3,71,822. It is observed by the Ld. CIT that the loan from HDFC was taken by the assessee on 15.09.2007 i.e. six months after the purchase of these two flats on 07.03.2007. Therefore, the loan of Rs. 75 lacs availed by assessee on 15.09.2007 cannot be stated to be availed for the purpose of purchase of flat no. 801 & 802, which are the capital asset under consideration. Further, the interest payment made by the assessee after the purchase of flats cannot be considered as cost of acquisition of the asset, as the same is the fixed amount as on the date of transfer of asset in the name of the assessee. The manner of repayment of loan cannot affect the cost of acquisition of asset acquired by the assessee, therefore interest payment of 14,45,960/- cannot be claimed as part of cost of acquisition. Ld. CIT thereafter had discussed the issue at length in his order and has concluded that the cost of acquisition was only Rs. 1,11,72,710/- and the interest on loan amounting to Rs. 14,45,960/- which was paid on the loan availed on 15.09.2007 onwardsi.e. much after the date of acquisition of asset cannot be claimed as deduction for the purpose of capital gains. The interest amount claimed by the assessee while computing the capital gain should not be allowed as part of the cost of acquisition of the asset, accordingly, the assessment u/s 143(3) r.w.s. 147 dated 06.11.2017 passed by the A.O. for A.Y. 2010-11 was treated as erroneous as well as prejudicial to the interest revenue.

Before us, the learned counsel of the assessee has submitted that the Ld. CIT(A) has misconstrued the facts of the case, as the assessee has furnished an ECS mandate before the Bank for repayment of loan through debit clearing with effect from 15.09.2007 (copy of ECS mandate) is placed on page 14 of the assessee’s paper book. It is further clarified that such date of mandate furnished by the assessee,has inadvertently mentioned in the computation of income as date of loan, which was an inadvertent mistake on the part of assessee however as per the loan statement and schedule of repayment which is furnished at page 27, 28 & 29 of the paper book,the loan was taken by the assessee for the period from 1st April 2007upto December 2009. Ld. Counsel drew our attention to the statement issued by HDFC bank having description of loan type which is NRI housing loan variable rate monthly rest the loan amount reflected in the said statement was Rs.73,92,025/- at the interest of 10.25%. Further, the bank has also charged a pre-EMI of Rs.22,835/- therefore, it was submission that the loan was disbursed in the month of March itself, when the property was registered by the assessee through sale agreement. He is also submitted that all these documentswere submitted before the A.O. as well as before the CIT however, they have not considered the submissions of the assessee. Therefore, the order u/s 263 as well as the consequential assessment are liable to be quashed. It is also the contention by the ld. Counsel that the loan had been taken for purchase of property and as per normal banking practices especially in the case of HDFC the loan amount is directly disbursed to the seller therefore the first objection of the Assessing Officer, namely that the loan was not taken for acquisition of propertyis factually incorrect. It is further submitted by the ld. Counsel that the assessee was allowed deduction of interest u/s 24(B) of the Act by the A.O. therefore, it can be safely concluded that the A.O. has a view that theloan was taken for the purchase of property only. Otherwise, deduction u/s 24(B) of the Act ought not to have been allowed by the A.O. It is also the contention by ld. A.R. that there is no provision u/s 48 for the year under consideration, which prohibits deduction on interest on loan taken for acquisition of the property as part of cost of acquisition. Ld. A.R. relied on the decision of Hon’ble Delhi High Court in the case of CIT VMithilesh Kumrireported in [1973] 92 ITR (9) Delhi wherein the Hon’ble Court has held that the interest on account of borrowed funds for acquisition of property which is ultimately sold by the assessee would constitute the part of actual cost which shall be reduced from the sale consideration while computing the capital gain. It is submitted by the learned counsel that a new amendment has been brought in the Finance Act, 2023 with effect from 1st April, 2024 to pluck this loopholes for which a copy of relevant extract of the memorandum was also tendered and accordingly the amendment is categorically stated to apply for assessment year 2024-25 and subsequent years therefore, the said amendment cannot be applied in the present case pertains to Assessment Year 2010-11 and accordingly there is no bar in claiming deduction of interest on a loan taken for acquisition of property as part of cost of acquisition u/s 48 of the Act. It is submitted in the light of above aforesaid submissions it was the prayer that appeal filed by the assessee be allowed and deduction of sum of Rs.14,45,960/- be granted to assessee.

Per contra, the Ld. D.R. representing the revenue strongly supported the orders of the revenue authorities.

We have considered the rival submissions, perused the material available on record and the case laws relied upon by the assessee. Apparently, the issue to be addressed by us emerging from both the aforesaid appeals, one against the order passed u/s 263 (ITA No. 2701/Mum/2022) and the other against the final assessment order passed u/s 144C (ITA No. 2135/Mum/2023) are identical and therefore the questions to be answered are that by the housing loan taken by the assessee was for the purchase of subjected property or not and therefore the second issue which is are depended one on the first issue which shall decide the eligibility of assessee to claim a deduction u/s 24B as well as the interest on housing loan to be treated and added as cost of acquisition while the said property was sold by the assessee in the year under consideration.

Adverting to the first issue that whether the loan was taken for acquisition of the subjected property or not. The ld. A.R. has furnished a loan account statement issued by HDFC showing loan amount, rate of interest, amount of EMI and amortizationschedule showing apportionment of principal and interest during the entire tenure of the loan starting from April, 2007 to December, 2009. On perusal of the loan documents, which are placed before us in the assessee’s paper book, we find that the assessee has paid a pre- EMI also for Rs.22,835/- on 21.03.2007 and the loan was disbursed to assessee for Rs.73,92,025/-. Further, as per repayment schedule the assessee is liable to pay EMIs amounting to Rs.80,570/- which includes interest as well as principal component on monthly basis which begins from 1st April, 2007. The impugned property in present matter was purchased by the assessee during month of March, 2007 therefore, it can be presumed that the loan taken by the assessee from HDFC bank under NRI Housing Loan Segment was used for purchase of property. It was the claim of assessee that the loan documents, sale agreement etc. arethere before the A.O. however the same were treated as additional evidence and has not been taken into consideration by deciding the issue. However, the assessee was allowed the benefit of Section 24(b),butthe deduction of interest claimed u/s 48 as cost of acquisition was denied, which in accordance with the decision of Hon’ble Delhi High Court in the case of Mithilesh Kumari v. CITreported in 92 ITR 9 Delhi was allowable.On this aspect, Hon’ble Delhi High Court has given their findings, which are reproduced as under:

In terms of official observations of the Hon’ble Delhi High Court, it is submitted by ld. Counsel of the assessee that the allowability of interest was available to the assessee as the transaction was carried out in F.Y. 2009-10 relevant to A.Y. 2010-11 which is not covered by the amendment in section 48 by Finance Act, 2023 have effect from 1st April, 2024. We found substance in the submissions of the ld. Counsel and therefore respectfully following the reason of law laid by Hon’ble Delhi High Court in the case of Mithilesh Kumari (supra) we are of the considered view that interest on loan shall be allowed to be added in the cost of acquisition while computing the capital gain by the assessee. Further, on allowability of deduction u/s 24(b), the assessee has made a presumption that the banks like HDFC do not disburse the loans to the borrower instead they directly made payment to the seller of the property for housing loan and under such presumption it can be construed that the loan was taken for the acquisition of property only. Therefore, the contention of ld. Assessing Officer that loan was not for acquisition of property was incorrect. We found substance in the submission of the assessee that the loan was paid directly to the seller of the property and not to the assessee, while the loan was taken by the assessee, in absence of any contrary material brought on record by the revenue.

Under such circumstances, we hold that the loan was taken by the assessee for purchase of the flat, deduction under section 24(b) was allowed, interest paid shall be allowed as cost of acquisition in terms of the ratio of law laid by Hon’ble Delhi high court in the case of Mithilesh Kumari (supra). The assessee therefore entitled for the deduction of interest paid on loan for computation of capital gain.

We, thus, found no substance in the findings of Ld. CIT in order u/s 263, which thus has been quashed and in consequence the consequential order u/s 143(3) would also not survive.

In result the captioned appeals of the assessee are allowed, in above terms.