CHANDRA SEKHAR PINAPALA,USA vs. ITO, WARD-4(1), HYDERABAD, HYDERABAD

At the outset, there is a delay of 5 days in filing the present appeal before the Tribunal. The learned counsel for the assessee, Shri Aditya Kiran, C.A. submitted that, the assessee has filed an affidavit explaining the reasons for the delay, wherein it was submitted that, the assessee is an employee working in the private sector and for the assessment year 2020-21 had filed return of income declaring total income of Rs. 1,92,55,530/-. It was further submitted that, the assessment under Section 143(3) of the Income- tax Act, 1961 was completed on 26.09.2022, wherein the A.O. made substantive addition of Rs. 26,44,952/- under Section 23 of the Act towards deemed let out value, which was subsequently upheld by the Ld. CIT(A). It was further submitted that the delay of 5 days in filing the present appeal before the Tribunal occurred due to bona fide circumstances and not on account of any negligence or malafide intention on the part of the assessee. The assessee further submitted that, refusal to condone the delay would result in serious prejudice and may lead to taxation without lawful authority despite the factual errors pointed out by the assessee. Therefore, it was prayed that, the delay of 5 days in filing the appeal may kindly be condoned in the interest of justice.

The learned Sr. A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, did not seriously object to the condonation petition filed by the assessee.

We have heard both parties and perused the petition and affidavit filed in support of the condonation petition seeking condonation of delay of 5 days in filing the appeal before the Tribunal. We find that, the reasons explained by the assessee appear to be bona fide and constitute reasonable cause for not filing the appeal within the prescribed time. The Hon'ble Supreme Court in the case of Collector, Land Acquisition Vs. MST. Katiji reported in 167 ITR 471 (SC), has laid down that a liberal and pragmatic approach should be adopted while considering applications for condonation of delay so as to advance substantial justice. Similar view has been taken by the Hon'ble Karnataka High Court in CIT &

The brief facts of the case are that, the assessee is a non- resident of India and filed his return of income for A.Y. 2020-21 declaring total income of Rs. 1,92,55,530/-. The case was selected for limited scrutiny for the reason being assessee has shown Annual Lettable Value (for short “ALV”) of the properties in the ITR is very low in comparison to high interest paid on borrowed capital in relation to such properties. During the course of assessment proceedings, the A.O. noticed that, the assessee had owned three properties at different locations, on which the assessee has reported ALV in respect of two properties and claimed the interest under Section 24(b) of the Income Tax Act, 1961. The A.O. further noted that, the assessee had claimed the interest on borrowed capital at Rs. 12,88,342/- in respect of property at Nallagandla, Hyderabad, however, on perusal of the interest certificate issued by ICICI Bank, the said housing loan has been taken for property at Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, on which the assessee had not claimed any deduction in the return of income. The A.O. called upon the assessee to explain the discrepancy by furnishing relevant details. In response, the assessee submitted that, he has owned three properties, one at Flat No. 301, Madhavpuri Colony, Hyderabad, another at House No. 7/481, Machilipatnam, Krishna District, and another one at Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, which was purchased in the financial year 2020-21 and the same has been let out in the F.Y. 2021-22 relevant to A.Y. 2022-23. However, by an inadvertent error, the interest paid on loan taken for purchase of house property has been wrongly claimed against the property at Nallagandla, Hyderabad. The A.O., after considering the relevant submissions of the assessee, computed annual lettable value of three properties and after allowing 30% standard deduction, computed total income from house property at Rs. 6,44,952/-. The A.O. has not allowed any deduction towards interest paid on borrowed capital in respect of the properties and made addition of Rs. 6,44,952/- to the total income.

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee contended that, the A.O. has wrongly computed annual lettable value of two properties, even though the property at 7/481, Machilipatnam, Krishna District, had not been let out during the F.Y. 2019-2020 relevant to A.Y. 2020-21. Further, the property at Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, was let out in the F.Y. 2021-22, but not for the assessment year under consideration.

The Ld. CIT(A), after considering the relevant submissions of the assessee, allowed partial relief to the assessee in respect of annual lettable value computed by the A.O. in respect of House No. 7/481, Machilipatnam, Krishna District, for Rs. 1,61,112/- by holding that, the documents submitted by the assessee clearly established the case of the assessee that, the building whose ALV has been assessed to tax by the A.O. for F.Y. 2019-20 was not constructed in that period as the very approval of the design and construction was given by Municipal Authorities on 04.07.2020. In respect of Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, the Ld. CIT(A) sustained the ALV computed by the A.O. at Rs. 4,83,840/- by holding that although the assessee has purchased the flat in the financial year 2020-21, but the same has been let out to Shri K.L. Srikanth for a monthly rent of Rs. 70,000/- which is evident from the statement of ICICI Bank account No.004801001259 where the assessee has received rent of Rs. 70,000/- for the months of November and December, 2021, and also for the months of January and February, 2022 and therefore, observed that, even before this date, the assessee might have let out the property and earned rental income. Therefore, the Ld. CIT(A) rejected the explanation of the assessee and upheld the ALV computed by the A.O.

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

The learned counsel for the assessee, Shri Aditya Kumar, C.A. submitted that, the only dispute is with regard to the computation of ALV for Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, and the A.O. has computed the ALV on the above property only on the ground that, the assessee has claimed interest on borrowed capital of Rs. 12,88,342/- in respect of the property at Nallagandla, Hyderabad, even though the interest paid to ICICI Bank pertains to the loan borrowed for purchase of property at Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad. However, the fact remains that although the assessee had wrongly claimed interest in the computation but restricted the interest at Rs. 2,00,000/- as per law, and the balance has been carried forward to the subsequent year, and even in the subsequent year also, the assessee has not claimed any deduction, and therefore, computing the ALV on Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, is incorrect because, as observed by the Ld. CIT(A) himself, the assessee has let out the property to Sri K.L. Srikanth for the month of November, 2021, and the same is assessable for A.Y. 2022-23 and not for the assessment year under consideration. Therefore, the learned counsel for the assessee submitted that, the addition made by the A.O. should be deleted.

The learned Senior A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the assessee has failed to explain as to how he has claimed deduction towards interest even though the property was not let out during the previous year. The assessee claims that, the property in question was not let out for the year under consideration and the interest claimed was only an inadvertent mistake. Therefore, he submitted that, the matter may be set aside to the file of the A.O. for further verification of the facts and decide the issue as per law.

We have heard both parties, perused the material available on record, and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, the assessee has owned three properties at different locations and computed ALV in respect of one property at Flat No. 301, Madhavpuri Colony, Hyderabad. The A.O. has computed ALV in respect of House No. 7/481, Machilipatnam, Krishna District, and Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad on the ground that, the assessee has borrowed loan from ICICI Bank for the purpose of purchase of property at Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, however, claimed interest paid on borrowed capital of Rs. 12,88,342/- in respect of property at Nallagandla, Hyderabad. Therefore, it was presumed that, the assessee has received rental income in respect of Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad and not reported the income. It was the argument of the learned counsel for the assessee that Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad has been purchased in the financial year 2020-21 and the same has been let out in the financial year 2021-22 relevant to A.Y. 2022-23, which is evident from rent receipt from Shri K.L. Srikanth from the month of November, 2021 onwards. The assessee further claimed that, claiming interest against wrong property is only an inadvertent mistake, however fact remains that the assessee has not claimed any set-off loss from the house property against income from other sources and the same has been carried forward to the subsequent year and has also not claimed the same against any income.

We find that, the assessee has purchased Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad by way of registered sale deed dated 27.12.2020. Further, the assessee had let out the above property from the month of November, 2021 to Shri K.L. Srikanth for a monthly rent of Rs. 70,000/-, and the rental income has been credited into ICICI Bank account. From the above, it is very clear that, although the assessee had purchased the property in December, 2020, but the same has been let out from November, 2021 and the rental receipts of the above property have been offered in the F.Y. 2021-22 relevant to A.Y. 2022-23. Therefore, in our considered view, computation of ALV of the property for the year under consideration, even though the property was not in the possession of the assessee and not let out to any person, is incorrect. Although the assessee has wrongly claimed interest against the property at Nallagandla, Hyderabad, but fact remains that, the assessee has not claimed set-off of loss from house property against any income, which is evident from relevant statement of total income filed by the assessee and the assessee has also submitted that, he has not claimed any set-off of loss against income from house property in the subsequent financial year also in respect of interest claimed for the year under consideration. Therefore, in our considered view, the A.O. ought not to have computed ALV of the property at Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, only on the basis of incorrect claim of interest paid on borrowed capital. To this extent, we cannot appreciate the reasons given by the A.O. and the Ld. CIT(A) to compute the ALV of the property at Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, However, the facts with regard to the computation of loss from house property and set-off of loss from house property against income from other sources needs to be verified from the side of A.O. Thus, we set aside the order of the Ld. CIT(A) and restore the issue back to the file of A.O. with a direction to compute the ALV of the property which has been let out during the year under consideration, i.e., Flat No. 301, Madhavpuri Colony, Hyderabad alone. In respect of Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad, the assessee has not let out the property for the year under consideration and thus, the A.O. is directed to delete the computation of income from house property in respect of Flat No. 901, Lansum Etania, Puppalaguda, Hyderabad. Insofar as the claim of interest on borrowed capital and the claim of loss from house property, the A.O. is directed to verify the claim of the assessee in light of any evidences that may be produced at the time of hearing and decide the issue as per law.

In the result, the appeal filed by the assessee is allowed for statistical purposes.

The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file