JYOTI GORDHAN TANWANI,MUMBAI vs. ACIT 19(3), MUMBAI

“The Ld. CIT(Appeals) erred in not allowing proportionate interest paid on overdraft utilized in purchase of flat purchased during the year as claimed before him under the provisions of the Act. 1.1.1 The Ld. CIT(Appeals) did not appreciate that the purchase of flat in question is not disputed as the AO himself assessed the income from flat as if the same was let out. 1.1.2 The Ld. CIT(Appeals) in doing so did not appreciate that his predecessor in office had called for a report from the AO based on the claim made before him having regard to the material placed before him. 1.1.3 The Ld. CIT(Appeals) also erred in holding that interest u/s 24(b) could not be allowed as according to him the appellant was not the owner of the flat against which deduction for proportionate interest could be allowed.

The Ld. CIT(Appeals) in disposing the ground no.2 based on revised claim did not give any opportunity let alone reasonable opportunity to adduce further evidence ignoring the material already on record including the asst. order, grounds on which remand report was called for AO’s remand report and rejoinder thereto. 3. In so doing the ld. CIT (Appeals) did not appreciate that without satisfying the conditions u/s 14A(1) of the Act, Rule 8D of the IT Rules could not have been applied.

The brief facts of the case are that the assessee filed his return of income on 29.09.2009 declaring total income of Rs.35,65,915/-. The assessee had an FDR amounting to Rs.3,91,46,993/- on which the she earned an interest of Rs.38,65,523/-. The assessee during the year had taken a overdraft facility against the above FDR on which an interest on Rs.20,82,858/- was paid. The part of the overdraft facility was used for purchase of flat at Anand Bhuvan. The assessee reduced the interest paid on OD facility from the interest income earned on FDR and offered net interest of Rs.15,86,665/- for taxation.

The case of the assessee was selected for scrutiny and the AO during the course of scrutiny proceedings found the assessee to be owner of two flats out.

Aggrieved by the order of the AO an appeal was preferred before the CIT(A). The ld. CIT(A) deleted the notional addition of Rs.1,00,000/- in respect of the flat at Anand Bhuvan and also held that in consequence no deduction u/s 24 would be allowed by dismissing the appeal of the assessee on this issue. The ld. CIT(A) also rejected the claim of the assesee u/s 57(iii) of the Act in respect of Rs.20,22,878/- being interest on OD facility. The CIT(A) also rejected submission before CIT(A) u/s 250(4) of the Act to entertain the claim of the assessee u/s 24b of the Act of Rs.9,71,245/- being the proportionate interest on OD Facility utilized for the purchase of the flat in Anand Bhuvan by holding that the appellant had not placed any proof on record regarding purchase of flat at Anand Bhuvan and in absence of the same, the assessee has not proved the Mrs. Jyoti Gordhan Tanwani Vs. ACIT ownership of the property and therefore the claim of the assessee for allowance of proportionate deduction u/s 24 (b) cannot be considered and by observing as under.

The ld. AR submitted before us that the CIT(A) has not appreciated the facts of the case in the right perspective by holding that the assessee did not file any proof of ownership of the flat whereas the AO had clearly recorded his findings of the flat having been purchased at Anand Bhavan by the assessee which were Mrs. Jyoti Gordhan Tanwani Vs. ACIT given in para 6 of the assessment order viz. that assessee had 2 flats one at Sona Billa which was self occupied and another house at Anand Bhavan which was bought during the year and brought to tax on the notional basis at Rs.1,00,00/- per annum. The ld. Counsel further submitted that the findings of the CIT(A) were totally wrong and he grossly erred in not allowing the proportionate claim of interest on OD facility which was utilized for the purpose of purchase of flat at Annad Bhavan u/s 24(b) of the Act on the plea that the assessee did not file any proof of ownership of flat at Anand Bhavan. The ld. Counsel placed before the bench the copy of the deed of transfer dated 03.07.2008 qua purchase of flat at Anand Bhuvan and prayed that since the asessee used the part of the OD facility for the purchase of flat at Anand Bhuvan, the proportionate interest of Rs. 9,71,245/- be allowed as deduction u/s 24(b) of the Act . The ld. DR on the other hand relied on the authorities below.

We have considered the rival submissions and perused the material on record. We find from the deed of transfer dated 03.07.2008 that the assessee purchased a flat (2nd Floor of Anand Bhuvan))from Smt Kiran Raghunath Gadre having address at 9, Satyadeep Building, Sambhaji Path, Vishnu Nagar, Naupada, Thane (West) and other co-owners for consideration of 1,50,00,000/-. We also Mrs. Jyoti Gordhan Tanwani Vs. ACIT note from the pg. no.5 of the paper book that the assessee utilized the part of the OD facility for the purchase of flat at Anand Bhavan and the ld AR also filed the computation of proportionate interest paid on OD facility of Rs. 9,71,245/- at page 13 of the paper book which related to purchase of flats at Anand Bhuvan. We note that the ld. CIT(A) also called upon the AO to sent the remand report on the said issue vide letter dated 29.11.12 and the AO sent the remand report dated 12.08.2013 . From the above it is clear that the CIT(A) despite calling a remand report from the AO did not consider the issue of interest on purchase of house property u/s 24 b on the ground that assessee did not file any proof of ownership of the flat at Anand Bhuvan whereas finding of the facts was given by the AO in his assessment order in para 6. In view of these facts we are of the considered view that the assessee deserved to be allowed, the deduction u/s 24b in respect of the property purchased at Anand Bhuvan. We therefore allow the appeal of the assessee by reversing the order of CIT(A) on this point by directing the AO to allowthe deduction u/s 24 b of the Act in respect of the said interest of Rs. 9,71,245/-. The AO is directed accordingly

The issue raised in the ground no.3 is against the confirmation of the disallowance u/s 14 A of the Act without satisfying the condition u/s 14A of the Mrs. Jyoti Gordhan Tanwani Vs. ACIT Act r.w.r. Rule 8D(iii). The brief facts of the case are that the assessee earned exempt dividend amounting to Rs.3,18,415/- and investment in shares as on 31.03.2009 were Rs.2,61,79,938/-. The AO asked the assessee to furnish the working of disallowance u/s 14 A r.w.r Rule 8 D which was replied by the assesse as under.

The AO disallowed Rs.1,27,116/- u/s 14A r.w.s Rule 8 D the calculation of which was incorporated in para 4.13 of the assessment order dated 19.1.11. by rejecting the contention of the assessee. The ld. CIT(A) partly allowed the appeal of the assessee on this issue by directing the AO to compute the disallowance by applying 0.5% on the average investment by taking into account only those investment which yielded exempt income and not the entire investment.

The ld. AR submitted before us by drawing our attention to page no.35 & 36 of the paper book that all the expenses relating to exempt income were debited to the capital account of the assessee and therefore the provisions of section 14A r.w.r. rule 8D had no application . Per contra, the ld. AR relied on the authorities below.

We have considered the rival submissions and perused the material on record. We find from the order of the CIT(A) that the disallowance was restricted to those investments which yielded the exempt income. We do not find any infirmity in the order of the CIT(A) on the issue of disallowance u/s 14A r.w.r rule 8 D as the CIT(A) restricted the disallowance only in respect of those investments which yielded dividend tax free dividend which is fair and reasonable and . We therefore, dismiss the ground of the assessee.