REGINALD PATHROSE,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R

i. The Ld.CIT(A) has erred in sustaining the order of the ld. assessing officer who had made addition amounting to Rs.19,21,165/- being the accumulated balance received from recognized Provident Fund by holding that the assessee does not fall under clause (ii) of Rule-8 of Part-A of Schedule-IV. ii. The Ld.CIT(A) has erred in confirming the disallowance of Rs.8,61,624/- made by the ld. assessing officer towards interest claimed U/s.24(b) of the Act in respect of housing loan.

During the course of assessment proceedings it was observed by the Ld. AO that the assessee has received Rs.41,84,220/- as P.F settlement, out of which the assessee had included Rs.22,63,055/- as his income and he claimed the balance amount of Rs.19,21,165/- as income exempt from tax under sec.10(12) of the Act. The Ld. AO opined that the assessee had not complied with Rule 8 of part-A of Fourth Schedule wherein it was stated that the assessee would be entitled for such deduction if the following conditions are satisfied:- i) The provident fund should be recognized Provident Fund. ii) The assessee should have being in continuous service for a period of 5 years or more. iii) If he has not rendered such continuous service, the service should have been terminated by the reason of his ill-health or any other reasons.

Since the assessee has rendered service less than 3 years, further his service being terminated due to non-performance and not due to the reasons of ill-health etc., the Ld. AO opined that the assessee is not entitled for the benefit of deduction u/s.10(12) of the Act. Accordingly, the Ld. AO denied the benefit of deduction to the assessee for Rs.19,21,165/- and addition was made. On appeal, the Ld. CIT(A) confirmed the order of the Ld. AO by agreeing with his view.

4.1. Before me, the Ld. AR submitted that during the relevant assessment year there was recession in the finance market due to which there were layoffs. The banks were cutting jobs and retrenching their staff. Under that situation the assessee was terminated from his job with compensation. In order to avoid legal complications, flimsy reasons were cited for termination of service which the assessee had not contested because he had agreed for the compensation. Hence, the Ld. AR pleaded that the assessee should not be denied the benefit of the deduction u/s.10(12) of the Act with respect to P.F. settlement.

4.2 The Ld. DR relied on the orders of the Revenue authorities and vehemently argued in support of the same.

4.3 I have heard the rival submissions and perused the materials on record. From the paper book submitted before us by the assessee in page No. 9 to 17, it is obvious from the publications enclosed that the Deutsche Bank had started layoffs in India. Further, Indussind Bank was negotiating to buy Deutsche Bank. Moreover, the New York Times also reported job cuts in Morgan Stanly bank. From these facts, it is obvious that the banking sector was undergoing great turmoil and job cuts were imminent. Similarly in the case of the assessee, the termination was due to the adverse situations prevailing in the banking industry which was beyond the control of the assessee and not due to any other reason inferred by the ld. Revenue Authorities, though the termination letter did mentioned otherwise. Considering the facts and circumstances, I’m of the considered view that the assessee has not violated any of the provisions of the Act and hence he should not be denied the benefit of Sec.10(12) of the Act for non-compliance. Therefore, I hereby, direct the Ld. AO to allow the deduction of Rs.19,21,165/- as claimed by the assessee and accordingly delete the addition made thereon.

During the course of scrutiny assessment proceedings, it was observed by the Ld.AO that the assessee had claimed deduction towards interest paid on housing loan from Indian Bulls to the extent of Rs.8,61,624/-. However, it was revealed that the sanction letter issued by the Indian Bulls stated that the loan was extended for the purpose of the assessee’s business.

It was further revealed that the name of the co-applicant for the loan application was M/s. Fortune Packaging and Ms. S. Mary Ahila. When queried, the assessee replied that he had mortgaged his residential flat for obtaining loan in order to pay the balance amount to M/s. Hiranandani Developers towards the purchase of flat. However, the Ld.AO opined that since the assessee has obtained the loan for business purposes, deduction cannot be claimed with respect to ‘income from house property’ U/s.24 of the Act. On appeal, the Ld.CIT(A) sustained the addition by agreeing with the view of the Ld.AO.

5.1 Before me the Ld.AR submitted that the assessee had deployed the entire loan obtained from Indian Bulls for the purpose of purchasing the flat and not business purposes. The Ld.AR further explained that he had obtained the loan from Indian Bulls by stating business reasons because the processing of the loan was easier on the strength of M/s. Fortune Packaging and Ms. Mary Ahila. The Ld.AR vehemently argued stating that the assessee had not violated any of the provisions of the Act, and there was no finding by the Revenue on that regard. It was therefore pleaded that the assessee may be granted the benefit of deduction U/s.24 of the Act, as the entire loan amount was utilized for purchasing the residential flat. The Ld.DR on the other hand relied on the orders of the Revenue authorities.

5.2 I have heard the rival submissions and carefully perused the materials available on record. The Revenue has not pointed out any violation of the provisions of the Act, or other Act’s with respect to the loan sanctioned/obtained by the assessee. From the facts of the case it appears that the assessee had supplemented his strength by including the commercial concern as the loan applicant M/s. Fortune Packaging in order to obtain

8 the loan. In this situation, if the assessee has utilized the entire loan for the purchase of the residential flat, then as per the provisions of the Act, he is entitled for the benefit of Section 24 of the Act, towards the interest paid on such loan. Therefore, I hereby direct the Ld.AO to verify whether the assessee has utilized the loan obtained from Indian Bulls for the purchase of his residential flat, and if found so, grant the benefit of deduction U/s.24 of the Act, and if found otherwise, reinstate his earlier order.

Order pronounced on the 08th August, 2017 at Chennai.