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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
Instant appeal by the assessee is directed against the order dated 21st March 2012, passed by the learned Commissioner (Appeals)–22, Mumbai, for the assessment year 2009–10.
In grounds no.2 and 3, the assessee had challenged the determination of rental income at ` 80,05,334 and further
2 Rajesh Gopaldas Ahuja disallowance of deduction claimed on account of property tax at ` 8,94,282, and interest payment of ` 4,78,821.
Brief facts are, the assessee is an individual. For the assessment year under consideration, he filed his return of income on 4th August 2009, declaring total income of ` 83,21,623. During the assessment proceedings, the Assessing Officer while examining the details submitted by the assessee in respect of rental income earned by him, noticed that as per registered leave and license agreement dated 13th November 2007, the property has been let–out to Aramesh India Pvt. Ltd., for a monthly rent of 5 lakh for the period up to 19th November 2008 and from 20th November 2011 onwards at the monthly rent of ` 5,35,000. However, the assessee produced a second agreement with the said licensee which provided for payment of monthly rent of ` 1.50 lakh per month up to 31st November 2008 and from 1st November 2008, onwards, the payment of rent at ` 1,60,500 per month. The Assessing Officer considered the quantum of rent provided in both the agreements found that they aggregated to ` 80,05,334, whereas, the assessee in the return of income has shown rent received of ` 61,40,000 only. Alleging that the assessee has not reconciled the difference in rent between the agreement and return of income, determined the annual value of the property at ` 80,05,334. Further, the Assessing Officer disallowed deduction claimed towards property
3 Rajesh Gopaldas Ahuja tax and interest payment alleging non–furnishing of supporting evidence by the assessee. Being aggrieved of determination of rental income as aforesaid, assessee preferred appeal before the first appellate authority.
In the course of hearing before the first appellate authority, it was submitted by the assessee that assessee had executed registered agreement with the tenant for letting out the property with a monthly rent of ` 1.50 lakh up to October 2008 and thereafter at the monthly rent of ` 1,60,5000. It was submitted, this registered agreement was not acted upon by the parties and on the very same date, the assessee had entered into another agreement with the same tenant as per which the assessee received monthly rent of ` 5 lakh up to 19th November 2008 and thereafter at ` 5,35,000 per month. He submitted, the assessee had shown rent received as per the second agreement which is the actual rent received from the tenant. In support of such claim, the assessee also submitted confirmation letter from the tenant. The learned Commissioner (Appeals), however, refused to entertain the confirmation letter submitted by the assessee by observing that the same being additional evidence cannot be admitted at appellate stage as it was not produced before the Assessing Officer and the assessee had not shown sufficient cause for admitting the same. Accordingly, he upheld the rental income
4 Rajesh Gopaldas Ahuja determined by the Assessing Officer. As far as deduction claimed on account of property tax and interest payment, though, the assessee produced supporting evidence before the appellate authority in support of such claim, however, the learned Commissioner (Appeals) noticing that the assessee had filed an application under section 154 before the Assessing Officer furnishing the supporting evidence, directed the Assessing Officer to dispose of the same.
Learned Authorised Representative submitted, assessee though had entered into two agreements on the very same day with the tenant, however, the first agreement was not acted upon by both the parties and as per the second agreement, the assessee received rent of ` 5 lakh till 19th October 2008 and thereafter @ ` 5,35,000 per month. He submitted, the assessee has shown the actual rent received by him as per the second agreement at ` 61,40,000. He submitted, the Assessing Officer has determined the rental income by aggregating the rent mentioned in both the agreements which is not correct. In this context, learned Authorised Representative relied upon the confirmation letter dated 7th March 2012 of the tenant which was submitted before the first appellate authority but rejected by him. Learned Authorised Representative sought admission of the confirmation letter as additional evidence by filing an application in terms of rule 29 of the IT(AT) Rules, 1963. As far as the deduction
5 Rajesh Gopaldas Ahuja claimed on account of property tax and interest payment, learned Authorised Representative submitted, though, in response to the query raised by the Assessing Officer, the assessee had submitted the details but supporting evidence could not be produced as they were not immediately available. He submitted, now the assessee has the supporting evidence in respect of property tax as well as interest payments.
Learned Departmental Representative, though, relied upon observations of the Assessing Officer / learned Commissioner (Appeals), however, she submitted the Assessing Officer may be directed to verify assessee’s claim in the light of the additional evidence produced.
We have considered the submissions of the parties and perused the material available on record. Undisputedly, the assessee in the course of assessment proceedings, had submitted two agreements with the tenant out of which one is registered and another is unregistered. However, both the agreements were for the same period. While as per the registered agreement, the monthly rental income to be received by the assessee is ` 1.50 lakh up to 31st October 2008 and thereafter at ` 1,60,500, however, as per the second agreement, the assessee was to receive rent of ` 5 lakh per
6 Rajesh Gopaldas Ahuja month up to 19th November 2008 and thereafter ` 5,35,000 per month. It is the assertion of the assessee that while the first agreement was not acted upon, the assessee has received rent in terms of second agreement. In fact, in support of the aforesaid claim, the assessee had submitted a confirmation letter from the tenant before the learned Commissioner (Appeals). On a perusal of the said confirmation letter dated 7th March 2012, we have noted that tenant has confirmed that it has paid to the assessee rent at ` 5 lakh and thereafter ` 5,35,000, as per the second agreement only. Though, the aforesaid confirmation letter was filed before the learned Commissioner (Appeals), he refused to take cognizance of the same by raising technical objection. In our view, assessee’s claim has to be considered by considering the facts and material brought on record, as the whole intent and purpose of Act is to assess the actual income of the assessee. Therefore, if the assessee had not received rental income as per the first agreement and had only received rental income as per the second agreement as confirmed by the tenant also, assessee’s claim should not be rejected on mere technicalities. As the evidence produced by the assessee has not been considered, we are inclined to restore the matter back to the file of the Assessing Officer for deciding afresh after considering all evidences produced by the assessee including additional evidence and after conducting necessary
7 Rajesh Gopaldas Ahuja enquiry as may be deemed proper by the Assessing Officer. Needless to mention, the Assessing Officer must provide adequate opportunity of being heard to the assessee.
Insofar as the deduction claimed towards property tax and interest payments are concerned, we have noted that the assessee has produced supporting evidence to prove its claim by way of an application under section 154 before the Assessing Officer. In fact, the assessee has produced these evidences before us also by way of additional evidence. As these evidences have not been examined by the Assessing Officer, we restore the issue relating to assessee’s claim of deduction on account of payment of property tax and interest to the file of the Assessing Officer for deciding afresh after taking into consideration the additional evidence produced by the assessee and all other materials available on record and only after providing due opportunity of being heard to the assessee. Thus, grounds no.2 and 3 are allowed for statistical purposes.
The only other issue as raised in ground no.4, relates to disallowance of interest on borrowed capital amounting to ` 9,59,600.
Brief facts are, in the course of assessment proceedings, the Assessing Officer while verifying the statements of computation of income of the assessee noticed that though the assessee had shown
8 Rajesh Gopaldas Ahuja interest and other income of ` 11,30,453, but the assessee has also claimed interest and other expenses of ` 10,74,077 as deduction. The Assessing Officer, therefore, called upon the assessee to justify the claim of deduction by proving the nexus of the expenditure claimed with the income earned. In response, it was submitted by the assessee that it has paid interest of ` 9,59,600 to M/s. Accura Finvest Pvt. Ltd. and other expenses included bank charges of ` 2,112 and office expenditure of ` 1,12,365. The Assessing Officer alleging that the assessee failed to furnish necessary details such as rate of interest paid and received and also failed to establish the nexus between the borrowed funds and interest income deduction claimed cannot be allowed. Being aggrieved of such disallowance, the assessee preferred appeal before the learned Commissioner (Appeals).
The learned Commissioner (Appeals), however, sustained the disallowance by observing that the funds of the appellant are mixed one and no separate account is maintained for interest and business income. He also observed that the assessee failed to establish the nexus between the borrowed funds and advancing of loans. He also observed, the assessee failed to provide evidence for office expenses and bank charges were for earning of interest income.
9 Rajesh Gopaldas Ahuja
The learned Authorised Representative submitted, the assessee has no business income. He submitted, during the assessment proceedings, the assessee has submitted the details of interest received and interest paid. He submitted, the borrowal made by the assessee during the year is only for reducing the earlier loan. It was submitted, assessee had borrowed funds from M/s. Accura Finvest Pvt. Ltd. with an interest rate of 8% whereas it has advanced loan by charging interest @ 12% to 15%. He submitted, the interest earned by the assessee is more than the interest paid. It was, therefore, submitted, as the payment of interest has a direct nexus with the earning of interest income, the deduction claimed is to be allowed.
The learned Authorised Representative submitted, neither the Assessing Officer nor the learned Commissioner (Appeals) examined the facts correctly the matter may be restored to the file of the Assessing Officer.
The learned Departmental Representative has not opposed to the aforesaid contention of the assessee.
We have considered the submissions of the parties and perused the material available on record. As could be seen, the deduction claimed by the assessee on account of interest expenditure from the income shown under the head “Income From Other Sources” was disallowed on the reasoning that the assessee has not established
10 Rajesh Gopaldas Ahuja nexus between the interest payment and interest income. However, it is the claim of the assessee that the funds borrowed were for the specific purpose of advancing loan. It is also the claim of the assessee that interest paid on borrowed funds is less than the interest charged by the assessee on loans advanced. Having considered the submissions of the parties and perused the material on record, we are of the view that the Departmental Authorities have neither properly considered the documentary evidence brought on record nor examined the issue in a proper manner. If the funds borrowed by the assessee from M/s.Accura Finvest P. Ltd. was utilised for the purpose of advancing loan, then the assessee would remain entitled to claim deduction towards interest payment on such loan as the assessee has not shown any income under the head “Business”. As the Departmental Authorities have not properly examined the issue, we are inclined to restore the matter back to the file of the Assessing Officer for deciding afresh after due opportunity of being heard to the assessee. Ground no.4, is allowed for statistical purposes.
In the result, appeal stands allowed for statistical purposes. Order pronounced in the open Court on 26.08.2016