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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI ASHWANI TANEJA
Date of hearing : 10-01-2017 Date of order : 13 -01-2017
O R D E R
Per ASHWANI TANEJA, AM:
1. This appeal has been filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-28, Mumbai [hereinafter called CIT(A)] dated 13-11-2014 passed against the assessment order of the AO u/s 143(3) dated 16-01-20-14 for A.Y 2010-11 on the following grounds:- “On the facts, and in circumstances of the case, and in law, 1. learned Commissioner of Income-tax (Appeal) erred in upholding order of the Assessing Officer in treating the Ashriwad property owned by the Appellant as deemed to be let out property without appreciating that the Gitanjali property was under repair and October 2011, i.e., after end of the relevant previous year, and in view of that, the Gitanjali property could not be treated as 'house property" within the meaning of section 22 and 23 of the Income-tax Act 1961.
2. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding order of the Assessing Officer in not adopting municipal ratable value of RS. 9,548 per annum as annual value of the Ashirwad Property within the meaning of section 23 of the Income-tax Act 1961, and adopting RS. 35 per square feet as rent as annual value under section 23.
3. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding order of the Assessing Officer in not appreciating that the loan given by the Appellant to his wife Mrs. Aparana Manish Popat was not an "assets transferred" within the meaning of section 64 of the Income-tax Act 1961; and even otherwise, the loan was predominantly used for acquiring a residential house and not for making investment to earn income capable of being clubbed under section 64 of the Income-tax Act 1961.”
2. Grounds 1 & 2 raise the common issue wherein assessee is aggrieved with the action of lower authorities that AO brought to tax deemed annual value u/s 23 of the Act of the residential flat purchased by the assessee at Gitanjali Building.
3. The brief background as culled out from the orders of the lower authorities is that during the course of assessment proceedings, the AO noted that assessee owned two house properties. In the return of income, assessee did not offer any income from the house property. The AO confronted the assessee that deemed rateable value of one of the residential flats should be brought to tax. In response, it was submitted by the assessee that one of the houses was self-occupied and the other one, located at Gitanjali Building (Sion, Mumbai) was newly acquired and the same was put through renovation and repairs and was not inhabitable during the year, therefore, it should not be treated as deemed to be let out. However, the AO was of the view that the assessee had acquired flat ready for possession. Therefore, it was in inhabitable condition and thus it’s deemed rental value is to be brought to tax u/s 23 of the Act. Accordingly, he computed income from house property at Rs.1,13,268/- as per details given in the assessment order. In appeal before Ld. CIT(A), the assessee reiterated his submissions in detail and also brought to attention of the CIT(A) a certificate issued from its Interior Consultant to the fact that the flat was under repairs and renovation and was not in inhabitable condition during the year under consideration. But Ld. CIT(A) did not agree with the submissions of the assessee on the ground that incomplete evidence have been brought on record in support of the argument of the assessee and thus, he confirmed the addition made by the AO. During the course of hearing before us, Ld. Counsel of the assessee drew our attention upon the certificate of the consultant and also produced before us copy of the sale deed of the flat.
Per contra, the Ld. DR submitted that proper facts and evidences have not been brought by the assessee before the lower authorities. The Ld. Counsel is not able to clarify whether the certificate of the Interior Consultant dated 18-12-2013 was submitted to the AO also. Under these
AO for proper examination of facts and evidences.
We have gone through the submissions made by both sides. Though, Ld. Counsel was able to show us that pleading of renovation and un-inhabitable condition of the house was taken before the AO but he was not able to show if any documentary evidence in support of this argument was submitted before the AO. With the assistance of the parties, we have gone through the sale deed of the said flat, but nothing is coming out from the said document. Ld. Counsel was not able to even confirm this fact that the certificate of Interior Consultant was placed before the AO. Thus, complete facts and evidences are not on record with regard to the real condition of the flat existing at the time when it was acquired by the assessee. Nonetheless, Ld. Counsel relied upon the following decisions before us:
Shri Rajkumar Manchanda vs DCIT (ITA No.4919/Mum/2014) 2. S.M. Chandrashekar vs Income Tax Officer 76 Taxmann.com 278 (Bang) Shakuntaladevi vs DCIT dt 20th 3. December, 2011 (Bang ITAT) 5.1. We have gone through these judgements also and find that these judgements have been delivered in accordance with facts of these cases. In the case before us, the crucial facts are not clear and crystallised, as discussed above. Therefore, we find it appropriate to send this issue back to the file of the AO where adequate opportunity of hearing shall be given to the assessee to furnish the requisite details and documentary evidences to bring on record facts and evidences about the condition of the flat
when it was acquired by the assessee. The AO shall decide this issue after taking into account all these facts and circumstances of the case. The AO shall also keep in mind the aforesaid judgements relied upon by the assessee and other judgements as may be brought before him in support of his contention of the assessee that in case the residential house property is not in inhabitable condition, then, its deemed annual rateable value cannot be brought to tax by applying provisions of section 23 of the Act. Thus, with these directions, this issue is sent back to the file of the AO for fresh adjudication. These grounds may be treated as allowed for statistical purposes.
Ground 3 : In this ground, the assessee is aggrieved with the action of the lower authorities in bringing to tax a sum of Rs.5,67,237 being the interest income by applying clubbing provisions contained in section 64(1)(iv) of the Act on the ground that assessee had given interest free loan to his wife.
The brief background of this issue as culled out from the orders of the lower authorities is that during the course of assessment proceedings it was noted by the Assessing Officer that the assessee has earned Savings Bank interest of Rs.4,56.916/- which was not offered to tax in the return. Accordingly, the same was added to the total income returned after the Authorised Representative of the assessee accepted the mistake. The Assessing Officer further noted that the assessee's wife is a house wife and did not have any independent source of income. The assessee transferred funds in the bank account of the assessee's wife at regular intervals and was not charging any interest thereof. The total amount outstanding as on 31-03-2011 was Rs 1,21,95,000/-. The assessee’s spouse had purchased one house in Gltanjali society adjacent to the flat purchased by the assessee and the two flats were combined to form one single dwelling unit. It was also noted that the assessee’s wife has earned interest income of Rs.5,67,237/- on the funds transferred by the assessee to her. Accordingly, the amount of Rs.5,67,237/- was clubbed in the hands of the assessee u/s.64(1)(iv) of the I.T. Act.
During the course of hearing before Ld. CIT(A), detailed submissions were made but the Ld.CIT(A) did not agree with the submissions of the assessee and confirmed the addition by observing as under: “In respect of Grounds of Appeal No.3 & 4 regarding clubbing of interest income of Rs.5,67,237/- earn by assessee's wife, in the hands of the assessee, it is undisputed that a sum of Rs.1,21,95,000/- ha been transferred by the assessee to his wife. The assessee's wife is a house wife and does not have any regular sources of income of her own. The Authorised Representative fairly agreed that it will be very difficult to prove that the income of Rs.5,67,237/- has been earned by assessee's wife .was out of her own funds. The claim that this amount transferred by the assessee was a interest free loan, is a self serving statement not supported by any evidences. The purpose of loan is not specified and the repaying capacity of the assessee's wife is low compared to the amount of alleged loan. Under the facts and circumstances of the case, it is clear that the interest earned by the assessee's wife was out of the funds transferred by the assessee and accordingly the interest income of Rs.5,67,237/- clubbed by the Assessing
Officer in the hands of the assessee u/s 64(1)(iv) is correct and is hereby upheld. Ground of Appeal
No.3 is, therefore, dismissed.”
9. During the course of hearing before us, the Ld. Counsel vehemently assailed the orders passed by the lower authorities. It was submitted that facts have not been properly understood by the lower authorities. The amount of loan given by the assessee to his wife was utilized by her for acquiring the house property adjacent to the house of the assessee and the same was not utilised for keeping deposit in the bank. Thus, she did not earn any interest income. It was also submitted on without prejudice basis that in any case, no asset was transferred by the assessee to his wife since it was a transaction of giving of loan which is not equivalent to transfer of asset. Thus, clubbing provisions of section 64(1)(iv) are not applicable. In support of his argument, he placed reliance upon the judgment of the Mumbai Bench of the Tribunal in the case of Shah Rukh Khan vs DCIT WTA No.9/Mum/2013 dated 10-12-2014 wherein it was held that giving of interest free refundable loan to wife is not equivalent to transferring of asset to wife and thus, no notional income could have been added u/s 64(1)(iv).
10. Per contra, the Ld. DR submitted that the facts of this case are not clear as there are contradictory statements and fairly speaking, there are contradictory findings in the order passed by the AO.
11. We have gone through the orders passed by the lower authorities as well as submissions made before us. It is noted by us that in the assessment order, the AO has firstly written that during the assessment proceedings it was found by the AO that assessee’s spouse had purchased a house property for which funds were transferred by the assessee. But in subsequent paragraphs of the assessment order, it has been mentioned AO that copy of return of wife shows that amounts transferred by the assessee to his wife were invested by her in various bank deposits. Thus, there is a direct contradiction in the findings recorded by the AO. Further, it was stated before us that the said loans were refunded by wife in the subsequent years. But, in support of this argument, no facts / evidences are held on record. Ld. DR was also not able to throw any light on the exact facts. Thus, we find it appropriate to send this issue back to the file of the AO, where assessee shall being on record complete factual details and evidences, as may be required by the AO from time to time as per law. The AO shall thereafter decide this issue after considering the entire material as may be considered by the assessee after taking into account all the judgments relied upon by the assessee before us and that may be relied upon before him. The AO, shall, decide the issue afresh after considering the entire material that may be brought on record by the assessee. This ground may be treated as allowed, for statistical purposes.
In the result, the appeal of the assessee is treated as allowed, for statistical purposes. Order was pronounced in the open court at conclusion of the hearing.