GURUMUKH I SANGTANI,MUMBAI vs. ITO 33(2)(2) , MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

Identical issues are involved in both these appeals and hence, they are taken up together and disposed of by this common order for the sake of convenience.

2.1. Let us take up the appeal of the assessee in for A.Y.2010-11 in the case of Komal Gurumukh Sangtani.

3.1. The assessee purchased two residential flats jointly with her husband Shri Gurumukh I Sangtani in the building known as “The Breezy Corner”, Mahavir Nagar, Kandivili (W), Mumbai. The details of the said purchases are as under:- SI. Area Purchased from Flat No. Date of Purchased in Amount of Stamp Duty Registration Total Cost Fee Purchase (Rs.) No Purchased of the name Purchase Amount . (Rs.) (Rs.) the flat 1) 482 sq. ft. 20-4-2006 20,15,000 84,500 21,580 21,21.080 705, 7™ Saroj Sales Jointly by Organization Assessee & Floor, B2 Wing Her husband Gurmukh I Sangtani 2) 505 sq. ft. 20-4-2006 21,10,000 89,300 22,480 22,71,780 706, 7th Saroj Sales Jointly by Corporation Floor, B2 Assessee & his Wing wife Komal G. Sangtani Total Cost 43,42,860 3.2. The ld. AO observed that the main source of purchase of this property was housing loan availed from HDFC Ltd., on 06/05/2006 for Rs.30,00,000/-. The assessee is 50% owner of the subject mentioned properties and remaining 50% is held by her husband.

3.3. These properties were sold by the assessee together with her husband during the year under consideration as under:-

Sl. Flat No. sold Area of Date of Sold to Amount of No. the flat Sale Sale (Rs.) 705, 7th Floor, B2 482 sq.ft 1) 04/02/2010 Mrs. Kusumkasliwal 38,74,400 Wing 706, 7th Floor, B2 2) 505 sq.ft 04/02/2010 Mr. Amit Kasliwal 40,74,400 Wing Total Sale Consideration 79,48,800 3.4. The assessee in the return of income filed in response to notice u/s.148 of the Act offered capital gains but also claimed certain expenditure on account of purchase of furniture and fixtures and interest paid on housing loan adding to the cost of acquisition and cost of improvement to the property. The assessee was asked to file the copies of evidence for purchase of furniture and fixtures and proved all the payments made for the same together linking the said payments with the bank statements. The ld. AO observed that assessee vide letter dated 28/11/2017 expressed inability to provide copy of bank account. However, the assessee filed the following bills which are described as hereunder:-

Sl. Bill Party Buyer Date of the Material Paid by Amount (Rs.) Enquiry made / result No. Name Name Bill Purchased Cash / Cheque 1 Mr. 28. 8. 2016 wall Unit Cash 43,700 "A" not provided …. Gurmukh name and address Sangtani hence enquiry Not possible Mr. 10.8.2006 Painting Cash 1.21,000 "A" not provided 2. …. Gurmukh & POP on Wall name and address Sangtani hence enquiry Hot possible 3. Mangalam Mrs. 24.7.2006 Safety Door Cash 49,000 Notice u /s.133(6) Hardware Komal dtd. 14.12.2017 Malad Sangtani issued but no reply received 4 …. Mr. 10.8.2006 POP in hall , Cash 98,000 "A" not provided Gurmukh 190 sq. ft. Name and address Sangtani hence enquiry not possible

5 …. Mr. 10 8.2006 POP in 90,000 "A" net provided Gurmukh three bedroom name and address Sangtani hence enquiry Not possible 6 Furniture & Mr, 10.8.2006 6 Cash 1,23,300 Notice u/s. 133(6) Mattress Gurmukh Chair dtd. 14.12.2017 Goregaon Sangtani W/Dining issued, but no reply Table Set, received. Centre Table & Seater, Four Leather Sofa Set 7 Casarano Mrs. 15.8.2006 Wall Unit, Bed Cash 1,43,000 Address on the bill KomalSa Set, Side not available, hence ngtani Table, Dressing enquiry not possible lablf 8 Manish Mr. 25.10.2006 Vitrified Tiles Cash 3,95,673 Address on the bill Industries Gurmukr (Hall), Digital not available, hence Sangtani Floor enquiry not possible Tiles. Bathroom Tiles, Granite Slabs 9 Manish Mrs. 5.11.2006 Kitchen Tiles Cash 13,000 Address on the bill Industries Komal and Flooring | not available, hence Sa ngtani enquiry not possible 10 Climate Cool Mrs. 30.7.2006 Samsung AC Cash 1,02,500 Notice u/s. 133(6} Service Komal 1.5 Ton dtd. 14.12.207/ Sangtani Samsung issued, but no reply AC 1.0Ton received. 11 Shreeji Mr. 25.08.2006 Samsung 32" Cash 38,000 Notice u/s. 133{6) Electronics Gurmukh LED dtd. 14.12.2017 Sangtani issued, but no reply received. 12 Shreeji Mr. 2.8,2006 LG 450 Cash 79,000 Notice u/s. Electronics Komal Ltr Double 133(6) dtd. Sa ngtani Door 14.12.2017 issued, but Refrigerator no reply received. 13 Mangaiam Mr. 1.11.2006 Wardrobe Cash 1.28,250 Notice u/s. Fixtures & Gurmukh Handles, 133(6) dtd. Fitting*. Sangtani Wardobe 11.12.2017 issued, drawer hut no reply Handles. received. Kitchen Drawer Handles Big, Bedroom Door Handles, Main Door Handles,

Main Door Handles, Bathroom Washbasin Taps, Bathroom Shower Kits, Bathroom Tap, Kitchen Tap, with Hose, Tap & Fillings for Washing Machine Total 1,45,375/- 3.5. The ld. AO issued notice u/s. 133(6) of the Act to the aforesaid suppliers and observed that no replies were received from the said parties. Accordingly, the ld. AO did not give deduction towards cost of improvement of property in respect of the aforesaid items and correspondingly denied the benefit of indexation also thereof claimed by the assessee while computing the long term capital gains. Similarly, the assessee also claimed the interest paid on housing loan to HDFC Ltd., as part and parcel of cost of acquisition eligible to be deducted while computing capital gains. The ld. AO observed that assessee had given the loan account No.1910036 dated 06/05/2006 wherein the EMI amount of Rs.62,276/- was duly mentioned. Since assessee could not provide the entire repayment schedule and the appropriation of EMI towards principal and interest portion thereof by HDFC Ltd., and that the assessee had bifurcated the interest by her own calculations by arriving at the interest figure of Rs.19,233/- per month on fixed amount basis, the ld. AO disbelieved the same and did not give deduction towards interest on housing loan to be part and parcel of cost of acquisition while computing capital gains. The ld. AO also observed that assessee would have claimed interest on housing loan as a deduction under the head „income form house property‟ u/s.24 of the Act in the returns of income. Accordingly, he observed that assessee is not entitled for deduction u/s.48 of the Act while computing capital gains. With these observations, he denied the benefit of deduction and correspondingly, the indexation benefit thereon on the interest paid on housing loan component while computing capital gains.

3.6. The assessee always pleaded that the purchase of various items as tabulated supra were made in order to make the house habitable and proper for living condition which is very normal and would be incurred by every citizen of the country who is purchasing a property from a builder. The notices u/s.133(6) of the Act issued by the ld. AO to the concerned suppliers were duly served and the suppliers had not responded to the same. The assessee is merely an individual not liable for any tax audit and not having any business income. It is quiet usual for an assessee to make payments in cash for the purchase of the aforesaid items. With regard to interest cost, the assessee pleaded that the ld. AO having accepted the fact that assessee together with her husband availed housing loan from HDFC Ltd., on 06/05/2006 for Rs.30,00,000/- and had also furnished the loan account details thereon , ought to have granted deduction towards interest. Even assuming if the interest component has been wrongly calculated by the assessee on fixed monthly basis, still the same is very much workable by the ld. AO himself and even that figure was not granted deduction by the ld. AO. The said figure could have easily been obtained by the ld. AO from HDFC Ltd., also by calling for information u/s 133(6) of the Act. The assessee vehemently pleaded that without incurring the aforesaid expenses as tabulated in the table, the flats purchased by it would not be habitable at all. Accordingly, the aforesaid costs would form an integral part of the total amount invested for acquisition of the house property. The assessee also placed reliance on the decision of Ahmedabad Tribunal in the case of Shrinivas R Desai vs. ACIT reported in 155 TTJ 743 (Ahd) in support of its contentions. The assessee also pleaded before the ld. CIT(A) that the following expenditures were incurred by the assessee towards improvement of the house through regular banking channels:-

Sr. No. Payment date in Bank Amount Statement 1 25/07/2006 49,000 2 30/07/2006 1,02,500 3 26/07/2006 38,000 4 02/11/2006 1,28,250 5 14/08/2006 1,23,300 6 18/08/2006 1,43,000 7 26/10/2006 3,95,625 8 04/08/2006 69,000 9 09/11/2006 43,000 3.7. All the aforesaid payments were made by cheques routed through regular banking channels. The ld. CIT(A) simply brushed aside the entire contentions of the assessee by stating that the aforesaid expenditures were incurred only on account of personal effects and the same would not be eligible to get added to the cost of acquisition or cost of improvement of the property and consequently not eligible for deduction while computing capital gains. With regard to claim of deduction towards interest of housing loan to be added to the cost of acquisition, the ld. CIT(A) upheld the action of the ld. AO.

3.8. At the outset, from the perusal of the list of aforesaid expenditure as detailed in the 3rd table supra, we are in complete agreement with the arguments advanced by the assessee before the lower authorities with the aforesaid expenses were incurred only in order to make the house habitable. From the perusal of the list of expenses incurred as stated supra, we find that majority of the items are embedded to the wall and becomes part and parcel of the building itself which is subject matter of sale by the assessee and her husband. Of course in the said list, items like refrigerator, air conditioner, LED Tvs, furnitures, dining tables etc., would certainly fall under the ambit of “personal effects” not liable for deduction. However, in respect of remaining items, the assessee would certainly be eligible for deduction as it becomes an integral part of the building. Accordingly, out of the total sum of Rs.14,54,375/- as tabulated supra, we hold that the following items would not be eligible for deduction to be treated as cost of acquisition / cost of improvement u/s.48 of the Act:-

Sl. Bill Party Buyer Name Date of the Material Purchased Paid by Cash / Amount No. Name Bill Cheque (Rs.)

1 Furniture & Mr, Gurmukh 10.8.2006 6 Chair Cash 1,23,300 Mattress Sangtani W/Dining Table Set, Goregaon Centre Table & Seater, Four Leather Sofa Set

2 Casarano Mrs. Komal 15.8.2006 Wall Unit, Bed Set, Cash 1,43,000 Sangtani Side Table, Dressing table 3 Climate Cool Mrs. Komal 30.7.2006 Samsung AC 1.5 Ton Cash 1,02,500 Service Sangtani Samsung AC 1.0Ton

4 Shreeji Mr. Gurmukh 25.08.2006 Samsung 32" Cash 38,000 Electronics Sangtani LED

5 Shreeji Mr. Komal Sa 2.8,2006 LG 450 Ltr Double Cash 79,000 Electronics ngtani Door Refrigerator 3.9. It is not in dispute that majority of the items were also purchased by making payments in cheques through regular banking channels as stated earlier. It is not in dispute that assessee never carried on any business and accordingly not liable for any tax audit. Hence, there is no bar for the assessee to incur certain expenditures for the purpose of house in cash. As long as the source for the said cash payment is explained from the disclosed income of the assessee, no fault could be attributed on the assessee. It is not a case of the Revenue that the assessee alongwith her husband did not have sufficient cash or cheque source to make the aforesaid payments. Hence, the aforesaid payments cannot be summarily disbelieved by the Revenue. In view of the aforesaid observations, we hold that assessee would be eligible for deduction along with her husband totaling to Rs.9,68,575/- towards cost of improvement made in the house which has to be reduced while computing capital gains in the hands of the assessee as well as in the hands of her husband. The assessee along with her husband would also be eligible for due indexation benefit on the same.

3.10. With regard to deduction claimed on account of interest on housing loan, though the ld. AO had accepted the fact that assessee and her husband had indeed availed housing loan from HDFC Ltd., at Rs.30,00,000/- for purchasing two flats, the assessee could not produce the EMI chart evidencing the total payment of principal and interest portion made to HDFC Ltd., But we also find that assessee had also claimed deduction on account of interest on housing loan of Rs.75,000/- under the head „income from house property‟. Hence, there is a possibility that the assessee could have claimed the interest on housing loan both under the head „income from house property‟ as well as trying to take further benefit by adding it to the cost of acquisition while computing capital gains. This doubt has been rightly raised by the ld. AO in the assessment order. We find that this fact has not been clarified by the assessee even before the ld. CIT(A). However, since this matter requires factual verification, we deem it fit and appropriate to remand this aspect of the issue alone i.e. claim of interest on housing loan to be treated as cost of acquisition of Rs.5,49,454/- while computing the capital gains to the file of the ld. AO for denovo verification in accordance with law. The assessee is at liberty to furnish further evidences in support of her / his contentions in this regard. Needless to mention that the assessee and her husband be given reasonable opportunity of being heard with regard to adjudication of this issue.

3.11. Accordingly, the ground No.1 raised by the assessee is partly allowed and ground No.2 raised by the assessee is allowed for statistical purposes.