JEETEN JAYSUKHLAL MEHTA,MUMBAI vs. DCIT 27(1), MUMBAI, MUMBAI

Appearance For the Appellant/Assessee : Shri Siddharth S Mehta For the Respondent/Department : Ms. Rajeshwari Menon Date Conclusion of hearing : 15.04.2024 Pronouncement of order : 26.04.2024

O R D E R Per Rahul Chaudhary, Judicial Member: By way of the present appeal the Assessee has challenged the 1. order, dated 11/09/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2021-22, whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Assessment Order, dated 28/12/2022, passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

(Assessment Year: 2021-22) 2. The Assessee has raised the following grounds of appeal:

“1. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming the order of the Assessing Officer, Assessment Unit, Income-tax Department, in respect of the disallowance of Rs. 9,73,381/- by limiting the claim of deduction of interest paid on housing loan to a sum of Rs. 2,00,000/- instead of the actual interest paid of Rs. 11,83,831/-.”

The relevant facts in brief are that the Appellant is an individual 3. deriving income from house property, business and profession, capital and gains and income from other sources. The Appellant has filed original return of income for the Assessment Year 2021-2022 on 11/02/2021 declaring total income of INR 1,93,75,940/-. In the return of income the Appellant declared Loss of INR 7,45,461/- under the head Income House Property which was computed as under: SNo Address of the Property Type of Property Income (INR) P1 R-503, Indraprasth 6 Self-Occupied Nil P2 Flat No. 1202, Signature Bliss, Deemed Let Out (9,73,381) Near Meghnani Farm P3 C-501, Signature Homes Let Out 63,000 P4 E-501, Signature Homes Let Out 59,920 P5 1301, The Trees Deemed Let Out 1,05,500 Total (7,45,461/-)

The Appellant had treated House Property at serial no. 2 4. [hereinafter referred to as ‘F1202’] as a deemed let out property and had claimed deduction for interest expenses of INR 11,83,381/- from the notional rental income offered to tax and had, thus, claimed loss of INR 9,73,381/- in respect of the same. Whereas, the House Property at serial no. 1 above [hereinafter referred to as ‘R503’] was treated as self-occupied property with ‘Nil’ Annual Letting Value (ALV). (Assessment Year: 2021-22) 5. The return filed by the Appellant was taken up for scrutiny. The Assessing Officer completed the assessment under Section 143(3) read with Section 144B of the Act vide Assessment Order, dated 28/12/2022, at assessed income of INR 1,98,13,860/-. The Assessing Officer treated F1202 as self- occupied instead of deemed let out during the relevant previous year and restricted the deduction for interest paid on housing loan to INR 2,00,000/- instead of the actual interest paid of INR 11,83,831/-thereby making an addition of INR 9,83,381/-.

Being aggrieved, the Appellant carried the issue in appeal before 6. the CIT(A). The CIT(A) dismissed the aforesaid appeal vide order, dated 11/09/2023. Hence the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.

We have heard the rival submissions and perused the material 7. on record. On perusal of the Assessment Order we find that the Assessing Officer had treated F1202 as self-occupied on the ground that it could not be ascertained whether F1202 was actually a let out property or not. Therefore, it was treated by the Assessing Officer as a self-occupied property and claim of deduction for interest expenses was restricted to INR 200,000/- as per Second Proviso to Section 24(b) of the Act. However, in appeal, the CIT(A) arrived at the same conclusion on the ground that the Appellant was not able to substantiate that F1202 was vacant and not-self occupied. In our view, both, the Assessing Officer and the CIT(A) failed to appreciate that the Appellant was actually in occupation of R503 during the relevant previous year. Even though the Appellant had specifically taken this stand in the return of income as well as during the assessment proceedings no inquiry/verification was carried out by the Assessing Officer. The claim of the Appellant that R503 was self- (Assessment Year: 2021-22) occupied property was rejected without bring on record any material. On perusal of the income tax return for the immediately preceding Assessment Year 2020-21, we find that the Appellant was in occupation of R503 while F1202 was actually rented out. However, during the relevant previous year, F1202 could not be rented and the Appellant continued to occupy R503. Accordingly, we hold that R503 was the self occupied property of the Appellant. We note that the Appellant had, in the return of income, taken F1202 as deemed let out property. In our view, the stand taken by the Appellant is supported by the provisions contained in Section 23(4) of the Act. In the present case, the Appellant exercised option to occupy and treat R503 as self-occupied property and therefore, F1202 has been treated as deemed let out.

According to section 24(b) of the Act, where the property is 8. acquired, constructed, repaired or renewed or constructed with the borrowed capital then any interest payable on such borrowed capital would be an allowable deduction. The restriction of INR 2 lakhs on claim for deduction for interest expenses prescribed in Second Proviso to Section 24(b) of the Act applies to a house property referred in Section 23(2) of the Act. Section 23(2) of the Act applies to a self-occupied property being (a) a house or part of the house which either is in the occupation of the owner for the purpose of his residence or the same is not actually occupied by the owner for the reason that owning to his employment, business or provision carried on at any other place and he is to reside at that other place in building not belonging to him and (b) annual letting value of which property is taken as ‘Nil’. In the present case R503 was actually self-occupied during the relevant previous year and its ALV was taken as ‘Nil’ and therefore, R503 was hit by the provisions (Assessment Year: 2021-22) contained in Section 23(2) of the Act and consequently, by the upper threshold of INR 2,00,000/- on deduction for interest expenses as per the provisions contained in Second Proviso to Section 24(b) of the Act. Whereas, F1202 was treated as deemed let out. ALV of F1202 was computed on notional basis and from the same deduction for interest expenses of INR 11,83,381/- was allowable as claimed by the Appellant in terms of Section 24(b) of the Act. Accordingly, we set aside the order, dated 11/09/2023, passed by the CIT(A) and delete the disallowance of interest expenses of INR 9,83,381/- with the directions to Assessing Officer to allow deduction for the same as claimed by the Appellant in the return of income. Accordingly, Ground No. 1 raised by the Appellant is allowed.

In result, the present appeal preferred by the Assessee is 9. allowed.

Order pronounced on 26.04.2024.