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Facts
The assessee claimed a deduction for interest on borrowed capital related to two house properties for the financial year 2017-18. One property was treated as 'deemed to be let out' (DLOP) for a part of the year, and the other as 'self-occupied' (SOP). The Assessing Officer (AO) disallowed the interest claim, treating the property as SOP for the entire year.
Held
The Tribunal held that Section 23(4)(a) of the Income Tax Act allows an assessee to choose one house property as self-occupied. However, it does not permit switching or splitting the option between 'deemed to be let out' and 'self-occupied' for a fraction of the year. The return of income is the document to exercise this option.
Key Issues
Whether the interest claimed on borrowed capital for a property treated as 'deemed to be let out' for a part of the year is allowable when the assessee had two properties during that period and later one was sold.
Sections Cited
23(2)(a), 23(4)(a), 143(3), 24(b)
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Income Tax Appellate Tribunal, Mumbai “D” Bench, Mumbai.
Before: Shri Satbeer Singh Godara (JM) & Shri Girish Agrawal (AM)
Per Satbeer Singh Godara (JM) :-
This assessee’s appeal for A.Y. 2018-19, arises against the National Faceless Appeal Centre “NFAC”, Delhi’s Din and order No. ITBA/NFAC/S/250/2023-24/1062123515(1) dated 6.03.2024 in proceedings under section 143(3) of the Income Tax Act 1961 in short (the “Act”).
Heard both the parties at length. Case file perused. 3. The assessee pleads that following substantive grounds in the instant appeal :-
The CIT(A) erred in law and in facts by confirming disallowance of interest claimed u/s 24(b) of Rs.13,81,247/- against the deemed let out property by the appellant. 2. The learned CIT(A) erred in not appreciating that the appellant had two (2) house properties for part year of FY 2017-18 i.e. from 01.04.2017 to 23.07.2017. The appellant considered one house property as SOP for the said period and accordingly considered the other property as DLOP. After 23.07.2017, the appellant owned only one property which was
considered SOP for the rest of the year because one property sold on 23/07/2017.
The learned CIT (A) erred in not appreciating the facts that the appellant had only one property as on 31/03/2018 as against two properties as on 01/04/2017 because one property was sold during the year and therefore only one property is correctly shown on 31/03/2018 in the return of income prepared and filed.
The appellant prays that the finding of CIT(A) is incorrect, and the interest claimed on borrowed capital be allowed in full.
We next note that the learned CIT(A)/NFAC appellate discussion herein affirms the Assessing Officer’s action disallowing the assessee’s section 24(b) next deduction claim of Rs. 13,81,247/- as under :-
Decision: -1 have carefully considered the facts on record, the assessment order, grounds of appeal and written submissions made by the appellant during appellate proceeding. The ground-wise adjudication is as under; -
6.1 Grounds of appeal no.1 & 2 are interrelated hence taken up for disposal together. These grounds of appeal relate to disallowance of interest deduction u/s 24(b) of Rs. 13,81,247/-.
6.1.1 The case of the appellant was selected for scrutiny assessment on the issue of Income from House Property. AO noticed that in ITR appellant has claimed loss from house property. In response to show cause notice, appellant submitted that during the F.Y.2017-18 (i.e. A.Y.2018-19) he had following two house properties:
Sr. Details of Period of Type of Occupation No. Property Holding
1 Kshitij, 1st April 2017 From 01 .04.2017 to 202, Nepean Sea to 31st March 23.07.2017 Road, Mumbai 2018 Shown as Deemed to be let out Property (DLOP)
From 24.07.2017 to 31.03.2018
Shown as Self-Occupied Property (SOP)
2 Rajul, 8th Floor, 1st April 2017 Self-Occupied Property 804-B Rajul, J. to 23rd July Mehta Marg, 2017 Mumbai 400006.
In the return of income filed for the year under consideration, appellant considered the property 'Kshitij, 202, Nepean Sea Road, Mumbai 'as 'deemed to be let out property' for first 03 months and 'self-occupied property' for the remaining period of financial year 2017-18. Appellant claimed Rs. 13,38,247/- as interest on borrowed capital for 'deemed let out period and Rs.2,00,000/- for self occupied period respectively. Appellant contended that since he has shown property (1) i.e. Kshitij 202, Nepean Sea Road, Mumbai as 'deemed let out property' from 01.04.2017 to 23.07.2017 in computation of income, it is implied that there is another property shown as SOP. The appellant had an option to choose one house property as Self-Occupied Property (SOP) and the other property is considered as Deemed to let out property (DLOP). The contention of appellant was not acceptable to the AO since appellant has not shown the second property in the ITR. AO considered that appellant has knowingly termed the property as 'deemed to be let out' for a short period to avail more deduction of interest paid for the borrowed capital. AO treated the properly i.e. Kshitij, 202, Nepean Sea Road, Mumbai as 'self-occupied property' for the whole of the year and deduction for the interest paid on borrowed capital u/s 24 of the Act was restricted to Rs.2,00,000/- and excess deduction claimed amounting to Rs. 13,81,247/- was disallowed. Consequently, claim of carried forward of loss from house property amounting to Rs.12,95,147/- to next year also disallowed.
6.1.2 In appellate proceeding, appellant has repeated his contention which was placed before the AO during assessment proceeding. Appellant contended that as per section 23(4)(a) of the Act he has an option to choose one house property as self-occupied property (SOP) and the other property as deemed to be let out property (DLOP). He placed emphasis on term "at his option".
6.1.3 Section 23 speaks about the determination of annual value. Before proceeding further we need to look at the provisions of section 23(2) & 23(4) of the IT. Act, which are reproduced as under: -
"(2) Where the property consists of a house or part of a house which— (a) is in the occupation of the owner for the purposes of his own residence; or (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil. (3) ............. (4) Where the property referred to in sub-section (2) consists of more than one house— (a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assesses may, at his option, specify in this behalf; (b) the annual value of the house or houses, other than the house in respect of which the assesses has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let."
It is undisputed facts that as per section 23(4)(a) appellant can choose one house property as self-occupied property at his option. But at the same time, it is pertinent to note that there is no such provision in Act which allow the appellant to switch/toggle his option between 'deemed to be let out property' and 'self-occupied property' for the fraction of the year. As per sub-section 4 of section 23 if any person owns more than one house then as per clause (a) of sub-section 4 of section 23 a person can choose as self-occupied property only in respect of one of such houses at his option. The plain reading of the section 23(4)(a) state that an appellant can select only one house property as self-occupied property during the year. This option can be exercised only by specifying that which property appellant wish to consider as self-occupied property. The return of income is the only document where any person can exercise his option to choose the property as self-occupied property and specified the same. As per section 23(2)(a), self-occupied property means a property which is in the occupation of the owner for the purposes of his own residence. On perusal of Part-A - Gen-Personal Information of ITR it is noticed that appellant has been residing at 202, Kshitij Building, Nepean Sea
Road, Mumbai. The relevant part of ITR is re-produced below: -
Marg, Mumbai 400006 as 'self-occupied property' for the period 01.04.2017 to 23.07.2017 does not arise. Since appellant has been residing at Kshitij 202, Nepean Sea Road, Mumbai and thus in view of provisions of sec 23(2)(a), said property is required to be treated as 'Self Occupied Property' for the whole year. Hence, i am inclined to uphold the conclusion of AO to consider the property Kshitij, 202 as self-occupied property for the whole of the year. In return of income appellant himself, at his own option, choose the property Kshitij, 202, Nepean Sea Road, Mumbai as self-occupied property (SOP), therefore, the claim of appellant for the same property as 'deemed to be let out property' for fraction of the year, is not sustainable. Hence, disallowance of the interest deduction u/s 24(b) ofRs.13,81,247/- is confirmed. Ground of appeal is dismissed.
6.2 In view of the aforesaid discussion I uphold the order of the AO and dismissed the grounds of appeal. 6.3 Ground of appeal no.3 relates to initiation of penalty proceeding u/s 270A of the I.T. Act. Said aground is premature at this stage hence dismissed. 6.4 Ground of appeal no.4 is general in nature and need no adjudication. 7. In the result, the appeal is dismissed.” 5. Suffice to say, there is no dispute between the parties regarding the relevant facts herein. The assessee-Deepak Kantilal Shah had owned/possessed two house properties in the preceding assessment year 2017-18 namely “Rajul, 8th Floor, 804-B, J. Mehta Marg, Mumbai”.d ‘202- Kshitij, Nepean Sea Road, Mumbai. There is further no quarrel between the parties that the assessee had treated ‘Rajul’ as self occupied property under section 23(2)(a) of the Act and got himself assessed under the head ‘income from house property’ u/s. 23(4)(a) regarding ‘Kshitij’ only. Coming to the relevant previous year, the assessee had continued with the very arrangement upto 23.7.2017 i.e. the day when he sold/transferred ‘Rajul’. He was admittedly left with ‘Kshitij’ only as the sole house property under section 23(2)(a) of the Act. It is in this factual backdrop that the assessee claimed section 24(b) impugned deduction on proportionate basis for the period from 1.4.2017 to 23.7.2017 pertaining to “Kshitij” only.
The Revenue’s vehement contention supporting learned lower authorities action disallowing section 24(b) deduction is that there is no such
concept of pro rata section 24(b) claim on split up basis for the period from 1.4.2017 to 23.7.2017 and 24.7.2017 to 31.3.2018 and therefore, we ought to confirm the impugned disallowance.
We find no merit in the Revenue’s foregoing vehement contentions. We wish to observe here at the cost of repetition that coming to the relevant previous year having accounting period 1.4.2017 to 23.7.2017 and from 24.7.2017 to 31.3.2018, the assessee was having twin residential properties which got reduced to “one” only in the latter block. A combined perusal of section 23 (2)(a) and (4)(a) suggests that the former provision is applicable in an instance wherein the assessee concerned is occupying a single house property for his own residence as per clause (a) whereas the latter one comes into play when there are more than ‘one’ house properties stipulating exercise of a specific option for the purpose computing annual letting value. We are of the considered view that section 23(4)(a) is complete self exhaustive code in itself dealing with the above latter case wherein the legislature has not restricted its scope by any proviso or explanation; whatsoever during the impugned relief of section 24(b) deduction for a part of the year as well. Faced with this situation, we invoke stricter interpretation in light of Commissioner Vs. Dilip Kumar & Co. 2018 (9) SCC/(SC) (FB) to conclude that once section 23(4)(a) does not restrict “splitting-up” of the accounting period, for the purpose of restricting the statutory exempting, both the learned lower authorities have erred in law and on facts in rejecting the impugned loss relief to the assessee u/s. 24(b) of the Act for the period from 1.4.2017 to 23.7.2018. The same stands deleted.
The assessee’s appeal is allowed in above terms.
Order pronounced in the open court on 10th July, 2024.
Sd/- Sd/- (Girish Agrawal) (Satbeer Singh Godara) Accountant Member Judicial Member Mumbai : 10.07.2024
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai. 6. Guard File.
BY ORDER, //True Copy//
(Assistant Registrar) PS ITAT, Mumbai