PRANUTHI MURALI KRISHNAN,BANGALURU vs. INCOME TAX OFFICER, CIRCLE 1(1), SALEM

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A) stating that the AO has erred in disallowing the interest paid on housing loan to the tune of Rs.46,66,652/-. Further, the assessee submitted

On perusal of the documents and details furnished by the assessee during the appellate proceedings, the ld.CIT(A) was not convinced and hence confirmed the order of the AO stating that all those evidences, which are examined by the ld.CIT(A), has already been verified by the AO and passed an order by dismissing the appeal of the assessee dated 28.11.2025.

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The ld.AR for the assessee, assailing the action of the ld.CIT(A), stated that both the authorities have erred in interpreting the provisions of sec.24(b) of the Act and also not appreciating the documents furnished during the respective proceedings. The ld.AR filed a paper book of 280 pages consisting of return of

Per contra, the ld.DR for the Revenue, relying on the orders of the authorities, submitted that the ambiguity in records like joint ownership shown in the sale deed and co-applicants added in the housing loan borrowings from the Federal Bank clearly shows that the assessee is not the single owner and hence prayed for confirming the orders of the authorities by dismissing the appeal of the assessee.

We have heard the rival submissions, perused the material available on record and carefully gone through the orders of the authorities below and the documents placed in the paper book. The issue arising for our consideration is whether the authorities below were justified in disallowing the interest expenditure of Rs.46,66,652/- claimed by the assessee u/s.24(b) of the Act, in respect of the housing loan availed for the property situated at Jayanagar, Bengaluru.

From the facts on record, we find that the AO disallowed the entire interest expenditure primarily on two grounds, namely, that the property was let out and, therefore, the deduction u/s.24(b) r.w.s 23(2) of the Act was not available, and that there was ambiguity regarding the ownership of the property since the housing loan documents reflected the names of the assessee, her husband and her father-in-law, whereas the registered sale deed reflected the names of the assessee and her husband. The ld.CIT(A) sustained the disallowance without granting relief to the assessee, notwithstanding the documentary evidence furnished during the appellate proceedings.

At the outset, we find merit in the contention of the ld.AR that the AO has fundamentally misconstrued the provisions of Section 24(b) r.w.s 23(2) of the Act. Section 24(b) provides for deduction of interest payable on capital borrowed for the purposes specified therein, subject to the conditions prescribed under the Act. The restriction on the quantum of interest deduction applicable to a property

We further find that the assessee has furnished substantial documentary evidence in support of her claim that the purchase consideration for the property was borne by her and that the housing loan instalments were repaid from her individual bank account. The paper book contains the registered sale deed dated 17.08.2015, the housing loan certificate and loan statement issued by Federal Bank, the relevant bank statements, the municipal tax payment receipt and the rental agreement executed with the tenant. The assessee has also furnished the income-tax return and computation of total income of her husband to demonstrate that he has not claimed any deduction towards the interest expenditure in question u/s.24(b) of the Act.

On a cumulative consideration of the aforesaid evidence, we find that the assessee has substantiated her contention that the rental receipts were received and deposited in her bank account and that the housing loan instalments were serviced from the same account. The municipal tax payment receipt also stands in the name of the assessee. These contemporaneous records lend support to the assessee's explanation regarding the manner in which the property was acquired, the rental income was received and the housing loan was serviced. The authorities below have not brought any contrary material on record to demonstrate that the interest expenditure claimed by the assessee was not

We also find that the objection raised by the Assessing Officer regarding the inclusion of the names of the assessee's husband and father-in-law in the housing loan documents is not, by itself, sufficient to disallow the interest expenditure claimed by the assessee. The persons included as co-applicants or co-obligants for the purpose of obtaining a housing loan cannot automatically be regarded as owners of the property merely because their names appear in the loan documentation. The question of ownership has to be considered with reference to the registered conveyance and the other relevant evidence. In the present case, the registered sale deed identifies the assessee and her husband as the purchasers, whereas the name of her father-in-law appears in the housing loan documentation. The inclusion of his name in the loan documents, in the absence of any corresponding evidence establishing ownership in his favour, cannot be treated as conclusive evidence against the assessee's claim.

As regards the joint ownership of the property by the assessee and her husband, we find that the assessee has explained that the entire purchase consideration was borne by her and that the loan repayments were made from her individual bank account. She has further demonstrated that her husband has not claimed the interest deduction in his return of income. The Revenue has not brought on record any material to establish that the assessee's claim of having borne the purchase consideration and the loan repayments is factually incorrect. Nor have the authorities below identified any specific portion of the interest expenditure which was not incurred by the assessee or was otherwise inadmissible under the provisions of the Act. In these circumstances, the disallowance of the entire interest expenditure merely on the basis of the names appearing in the housing loan documents is not justified.

We are also unable to agree with the approach adopted by the ld.CIT(A) in sustaining the disallowance without properly addressing the evidentiary contentions raised by the assessee. The assessee had furnished the relevant purchase deed, housing loan certificate, bank statements, municipal tax payment receipt, rental agreement and the income-tax particulars of her husband. These documents were required to be examined collectively to determine the genuineness and admissibility of the interest expenditure. The rejection of the claim without demonstrating any specific defect in the documentary evidence or establishing that the expenditure was not allowable u/s.24(b) of the Act cannot be sustained.

Having regard to the facts and circumstances of the case, we hold that the Assessing Officer was not justified in denying the deduction of interest merely because the property was let out or because the housing loan documents contained the names of persons other than the assessee. The assessee has furnished documentary evidence in support of the acquisition of the property, receipt of rental income and repayment of the housing loan. In the absence of any cogent contrary material brought on record by the Revenue, we find that the disallowance of interest expenditure of Rs.46,66,652/- is not sustainable in law. Accordingly, we set aside the order of the ld.CIT(A) on this issue and direct the Assessing Officer to allow the interest deduction claimed by the assessee u/s.24(b) of the Act, subject to the applicable provisions governing the computation of income from house property.

Consequently, the AO is directed to recompute the income under the head “Income from house property” after allowing the aforesaid interest expenditure in accordance with law. The consequential claim relating to the set-off and carry- forward of the loss under the head “Income from house property” shall also be considered in accordance with Sections 71 and 71B of the Act, as applicable,

In the result, the appeal filed by the assessee is allowed.

The brief facts of the case are that the assessee filed its return of income u/s.139 of the Act on 06.08.2016 by declaring total income of Rs.2,35,08,980/- and subsequently filed a revised return of income for the AY 2016-17 by declaring total income of Rs.2,32,14,210/- under the head `income from house property and other sources’. While filing the revised return, the assessee claimed an exempt income of Rs.81 lakhs as interest on compensation received. The case was reopened after obtaining the approval from the competent authority and notice u/s.148 of the Act was issued on 04.03.2021. Subsequently, based on the Hon’ble Supreme Court decision, the notice u/s.148A(b) of the Act were issued and consequently notice u/s.148 of the Act issued on 27.07.2022 pursuant to order passed u/s.148A(b) of the Act. Further, during the assessment proceedings, the AO issued statutory notices calling for details and supporting documents in respect of the exemption claimed towards interest received on compensation of Rs.81 lakhs. On perusal of the submissions made by the assessee, the AO concluded that the interest on compensation received is liable to be taxed under the head `income from other sources’ by allowing 50% as deduction u/s.57(iv) of the Act and the balance amount of Rs.40,50,000/- has been brought to tax by passing an order u/s.147 of the Act dated 19.04.2023.

Consequent to the reassessment order u/s.147 of the Act by making an addition of Rs.40,50,000/-, the AO issued a notice u/s.271(1)(c) of the Act by

Aggrieved by the orders of the AO in respect of quantum assessment and penalty u/s.271(1)(c) of the Act, the assessee preferred separate appeals before the ld.CIT(A). During the appellate proceedings, the assessee submitted the written submissions in response to the notice issued and stated that the compensation was received by the assessee is on account of loss of both the parents of the assessee due to a road accident happened on 28.06.1993. Based on the delay in obtaining the compensation, the interest of Rs.81 lakhs has been granted by making an award on 11.11.2011, hence, the claim of interest as exempt is due to the character of the interest received partake the character of compensation only. Hence, the same is exempt from income-tax. Further, the details of the interest income has been clearly shown in the return of income, hence, there is no reason to levy penalty u/s.271(1)(c) of the Act as it was completely disclosed in the return of income itself. Therefore, the authorities have erred in making the addition in the assessment as well as levying penalty u/s.271(1)(c) of the Act on the impugned addition made. In view of the above, the assessee prayed for deleting the addition as well as the penalty levied. On perusal of the submissions made by the assessee, the ld.CIT(A) rejected the contention of the assessee and confirmed additions made by the AO by passing an order dated 12.11.2025. Similarly, the ld.CIT(A) confirmed the penalty levied by the AO by passing an order dated 12.11.2025.

Aggrieved by the orders of the ld.CIT(A), the assessee preferred these appeals before us by raising the following grounds of appeal:-

The learned AR submitted that the notice under Section 148 of the Act dated 27.07.2022 was issued after the expiry of three years from the end of the relevant assessment year, with the prior approval of the learned Principal Commissioner of Income Tax (PCIT), instead of the Principal Chief Commissioner of Income Tax (PCCIT), as required under the applicable

Per contra, the ld.DR supported the orders of the authorities below. However, the learned DR could not controvert the legal contention advanced by the ld. AR with reference to the decision of the coordinate Bench relied upon by the assessee.

We have heard the rival submissions, perused the material available on record and carefully gone through the orders of the authorities below and the documents placed in the paper book. Since the assessee has raised a jurisdictional ground challenging the validity of the reassessment proceedings, we deem it appropriate to adjudicate the said legal ground at the outset. If the assessee succeeds on this ground, the other grounds raised in the quantum appeal, as well as the consequential appeal against the penalty levied u/s.271(1)(c) of the Act would become academic.

We have carefully considered the rival submissions in the light of the material available on record. The facts brought before us indicate that the assessee filed the original return of income on 06.08.2016 and subsequently filed a revised return of income for the assessment year 2016-17, claiming exemption in respect of interest of Rs.81,00,000/- received on compensation awarded on account of the death of both her parents in a road accident. The Assessing Officer subsequently initiated reassessment proceedings and, by

In this regard, it is necessary to refer to Section 151 of the Act, which prescribes the specified authority competent to grant approval for the purposes of Sections 148 and 148A of the Act. Under the applicable statutory framework, the competent specified authority depends, inter alia, upon whether the relevant action is taken within three years or after the expiry of three years from the end of the relevant assessment year. Where the statutory provision requires the approval of the Principal Chief Commissioner of Income Tax or the other authority specified in the applicable clause, such requirement is mandatory and cannot be dispensed with merely because an approval has been obtained from an authority lower in the statutory hierarchy.

In the present case, the assessment year under consideration is 2016-17 and the notice u/s.148 of the Act was issued on 27.07.2022. The notice was thus issued beyond three years from the end of the relevant assessment year. The material placed before us, particularly the notice contained at pages 14 and 15 of the paper book, indicates that the approval was obtained from the Principal Commissioner of Income Tax-1, Coimbatore. The assessee's contention is that, in the circumstances of the present case, the applicable statutory provision required approval from the competent authority specified for cases falling beyond the three-year period and that the approval granted by the PCIT did not satisfy that requirement.

Having regard to the above facts and circumstances, we are of the considered opinion that the validity of the notice u/s.148 of the Act has to be tested with reference to the statutory requirement governing the competent specified authority on the date of issuance of the notice. Where the approval of a particular specified authority is mandated by law, the requirement cannot be treated as a mere procedural formality. The absence of approval from the authority prescribed under the applicable provision goes to the root of the jurisdiction assumed by the AO and cannot be cured by the subsequent completion of reassessment proceedings.

Accordingly, following the decision of the coordinate Bench in Thomas Victor v. ITO (supra), and subject to the applicability of the principle laid down therein to the facts and statutory provisions governing the present notice, we hold that the reassessment proceedings cannot be sustained if, as contended by the assessee and evidenced by the approval placed on record, the notice was issued without obtaining the approval of the competent specified authority required u/s.151 of the Act. We, therefore, allow the assessee's jurisdictional ground and quash the reassessment proceedings initiated pursuant to the notice u/s.148 of the Act dated 27.07.2022. Consequently, the reassessment order

Since we have quashed the reassessment proceedings on the jurisdictional ground, the other grounds raised by the assessee in the quantum appeal, including the grounds challenging the taxability of interest received on compensation u/s.56(2)(viii) and 145B of the Act and the applicability of Section 57(iv) of the Act, do not require adjudication and are left open.

We now take up the appeal filed by the assessee against the penalty of Rs.14,01,624/- levied u/s.271(1)(c) of the Act. The penalty was imposed by the AO by order dated 03.01.2024 solely in consequence of the addition of Rs.40,50,000/- made in the reassessment proceedings. We have already held that the reassessment proceedings pursuant to the notice u/s.148 dated 27.07.2022 are invalid and have quashed the consequential reassessment order. In this regard, the well-established legal maxim sublato fundamento, cadit opus aptly applies, which means that when the foundation falls, the superstructure also falls. Once the underlying reassessment and the addition forming the basis of the penalty are set aside, the penalty imposed solely on the basis of such addition cannot independently survive.

In view of the foregoing discussion, we set aside the order of the ld.CIT(A) confirming the penalty and direct the AO to delete the penalty of Rs.14,01,624/- levied u/s.271(1)(c) of the Act. The grounds raised by the assessee in the penalty appeal are accordingly allowed.

In the result, both the appeals filed by the assessee in ITA No.1022/Chny/2026 and 3370/Chny/2025 for the assessment year 2016-17 are allowed.