MR.DINESH RAMESHWARDUTT SHARMA,MUMBAI vs. PR.CIT-28, MUMBAI

The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax-28, Mumbai, (for short „Pr. CIT‟) under Sec.263 of the Income Tax Act, 1961 (for short „Act‟), dated 16.03.2018 for A.Y. 2014-15. The assessee has assailed the impugned order on the following grounds of appeal before us : “The ld. CIT erred in passing an order u/s 263 and thereby setting aside the assessment order on issue that had been adjudicated by the assessing officer after due verification of the details given during the course of the assessment.”

Subsequently, the Pr. CIT in exercise of the powers vested with him under Sec.263 called for the records of the assessee. On a perusal of the records the Pr.CIT held a conviction that the order passed by the A.O under Sec.143(3), dated 10.03.2016 was erroneous, in so far it was prejudicial to the interest of the revenue, on two grounds viz. (i) that, the A.O had wrongly allowed the assesse‟s claim for deduction of interest paid on housing loan of Rs.29,45,721/- against the „capital gain‟ on sale of residential property; and (ii) that, the A.O had wrongly allowed the „carry forward‟ of long term capital loss of Rs.21,30,756/-. In the backdrop of his aforesaid conviction the Pr. CIT called upon the assessee to explain as to why the order passed by the A.O under Sec. 143(3), dated 10.03.2016 may not be revised under Sec. 263 of the Act. As the reply filed by the assessee did not find favour with the Pr. CIT, therefore, he set aside the assessment order passed by the A.O under Sec. 143(3), dated 10.03.2016 to his file with two fold directions viz. (i). to disallow the claim of the assessee towards deduction of interest of Rs.29,45,721/- on housing loan against the amount of„capital gain‟; and (ii). to disallow the claim of the assessee for „carry forward‟ of long term capital loss of Rs.21,30,756/-after conducting proper inquiries. Accordingly, the Pr.CIT directed the A.O to pass a fresh assessment order after affording an opportunity of being heard to the assessee.

We have heard the ld. Departmental Representative, perused the orders of the lower authorities and the judicial pronouncements relied upon by him in the course of hearing of the appeal. As observed by us hereinabove, the Pr.CIT had exercised his revisional jurisdiction under Sec. 263 on twofold issues viz. (i) that, the A.O had erroneously allowed the claim of deduction of housing loan interest of Rs.29,45,721/- for the purpose of computing the „capital gain‟ on sale of residential property by the assessee; and (ii) that, the A.O had erroneously allowed the claim of the assessee for „carry forward‟ of long term capital loss of Rs.21,30,756/-.

We shall first advert to the claim raised by the assessee wherein he had sought deduction of interest on housing loan of Rs.29,45,721/- while computing the capital gain on sale of the residential property. As is discernible from the records, the assessee had purchased a residential property on 04.12.2006, vide an agreement that was registered on 07.12.2006. For purchase of the aforesaid property the assessee had availed a housing loan from ICICI Bank of Rs.36,88,582/-. At the time of sale of the aforesaid residential property the assessee had claimed the interest paid on the housing loan that was spread over the period i.e Financial Year2006-07 to 2013-14 aggregating to Rs.29,45,721/- as an expense incurred in relation to purchase of the said property. It was the claim of the assessee that as he being a non-resident indian had no taxable income in India during the period relevant to A.Y 2008-09 to A.Y 2014-15, therefore, he had not taken any benefit in respect of the interest on housing loan in respect of the aforesaid self-occupied property during any of the previous years pertaining to A.Y 2010-11 to P a g e | Dinesh Rameshwardutt Sharma Vs. Pr. CIT-28 A.Y 2013-14. In the backdrop of the aforesaid facts, deduction of the interest paid on the housing loan during the Financial years: 2006-07 to 2013-14 was claimed by the assessee as a part of the expense incurred on purchase of the above mentioned property while computing the „capital gain‟ on the sale of the same during the year under consideration. In sum and substance, the assessee had included interest paid on the housing loan raised for purchase of residential property as a part of the „cost of acquisition‟ of the residential property while computing the „capital gain‟ on the sale of the same. We have given a thoughtful consideration to the aforesaid issue and are unable to accept the aforesaid claim of the assessee. As per Sec. 24(b) of the Act, any interest paid for acquiring, constructing, repairing, renewing or reconstruction of a house property by utilising borrowed capital is allowable as a deduction under the said statutory provision. There is nothing provided in the statute which allows capitalizing of the aforesaid interest expenditure and allowing the treating of the same as a part of the „cost of acquisition‟ of the property at the time of computing the „capital gain‟ on the sale of the same. We thus finding ourselves to be in agreement with the view taken by the Pr. CIT that the A.O had erroneously concurred with the assessee, and had wrongly allowed his claim for deduction of interest on „housing loan‟ by treating the same as a part of the „cost of acquisition‟ of the residential property under consideration, therefore, uphold his order to the said extent.

Now, we shall advert to the observation of the Pr. CIT that the A.O had erroneously allowed the claim of the assessee for „carry forward‟ of the long term capital loss of Rs.21,30,756/-, despite the fact that the assessee had filed his return of income for the year under consideration viz. A.Y. 2014-15 after the „due date‟ prescribed in sub- section (1) of Sec. 139 of the Act. As is discernible from the order of P a g e | Dinesh Rameshwardutt Sharma Vs. Pr. CIT-28 the Pr. CIT, the assessee who had filed his return of income for A.Y 2014-15 on 14.11.2014 i.e beyond the stipulated time period envisaged in sub-section (1) of Sec.139, had however, claimed the „carry forward‟ of long term capital loss of Rs.21,30,756/-. The Pr. CIT was of the view that as the return of income filed by the assessee for the year under consideration was beyond the prescribed time limit, therefore, the assessee was not entitled for carry forward of the long term capital loss of Rs.21,30,756/-, as was claimed by him in his return of income. We find that the aforesaid observation of the Pr. CIT is in absolute conformity with the mandate of law as is envisaged in Section 80 r.w sub-section (1) of Sec.139. As per Section 80 r.w. sub- section (3) of Section139, an assessee who seeks to „carry forward‟ the long term capital loss under sub-section (1) of Section 74 of the Act, is statutorily required to file his return of income within the stipulated time period prescribed under sub-section (1) of Section 139. In sum and substance, a long term capital loss suffered by an assessee during a year can be allowed to be carried forward to the following assessment year and so on for a period not exceeding 8 assessment years immediately succeeding the assessment year for which the loss was first computed, subject to the condition that the return of income for the year in which such loss had been computed was filed by the „due date‟ as envisaged in its case under sub-section (1) of Section 139. As per the facts discernible from the order of the Pr. CIT, as the assessee had not filed his return of income for the year under consideration i.e A.Y 2014-15 within the „due date‟ contemplated under sub-section (1) of Sec.139 i.e latest by 31.07.2014, therefore, he was not entitled to „carry forward‟ the long term capital loss of Rs.21,30,756/- as was claimed by him in his return of income. Accordingly, finding no infirmity in the view taken by the Pr. CIT, wherein he had directed the A.O to disallow the assesses claim for