The assessee inter alia claimed deduction on interest on borrowed capital at Rs. 8,27,014/- under s.24 of the Act under the head ‘income from house property’.
The lower authorities have rightly questioned the veracity of claim of property being actually let out. The affidavit filed was clearly bald and a self-serving document. No cross examination of the deponent of the affidavit has been offered therein. On a query from the bench about the payment of electricity bill by the licensee of the property, no evidence could be furnished to prove actual occupation by mother on rental basis. It is also difficult to comprehend such a claim of the assessee on the touchstone of societal value prevalent and ethos in Indian society. The case of the assessee towards claim of rent from mother for occupation of his house clearly appears be an eyewash to merely put the property in the bracket of Section 23(3) of the Act with a view to claim deduction of full interest costs without any restriction applicable to self-occupied house.
IN THE ITAT AHMEDABAD BENCH ‘SMC’
Hitesh H Budhbhatti
Income Tax Officer, Ward-5(1)(3), Ahmedabad
AND PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
IT APPEAL NO. 1604 (AHD.) OF 2016
[ASSESSMENT YEAR 2012-13]
MARCH 15, 2019
Pradip Kumar Kedia, Accountant Member. – The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)-5, Ahmedabad (‘CIT(A)’ in short), dated 18.04.2016 arising in the assessment order dated 12.03.2015 passed by the Assessing Officer (AO) under s. 143(3) of the Income-tax Act, 1961 (the Act) concerning AY 2012-13.
2. As per the grounds of appeal, the assessee is aggrieved by the disallowance of interest on borrowed capital to the extent of Rs. 6,77,014/- instead of claim of Rs. 8,27,014/- under s.23(2)(b) of the Act.
3. Briefly stated, the assessee, a salaried employee filed return of income for the AY 2012-13 showing gross salary of Rs. 19,61,077/- from Bennett Coleman & Co. Ltd. The assessee inter alia claimed deduction on interest on borrowed capital at Rs. 8,27,014/- under s.24 of the Act under the head ‘income from house property’. The return filed by the assessee was subjected to scrutiny assessment. The AO observed that the assessee has not derived any income from house property for the purposes of annual value contemplated under s.23 of the Act and accordingly raised query allowability of deduction of interest against the self-occupied house property whose annual value was declared at nil in the return of income by the assessee. In response, the assessee submitted that he owns a residential property at Shilaj Railway Crossing along with his mother as a co-owner. The assessee claims to have let out the co-owned property to her mother at a rent of Rs. 30,000/- per month. The assessee further claimed that he has occupied a property situated at Vastrapur belonging to her mother (Mrs. Daya Budhbhatti) at Rs. 42,000/- per month. The assessee accordingly claimed that he is entitled for deduction of the interest on borrowed funds utilized for purchase of residential house at Shilaj against the rental income so derived from her mother. Consequently, the assessee accordingly claimed a deduction of Rs. 8,27,014/- towards interest on borrowed capital from income reported under the head ‘salary income’ and ‘income from other sources’. The AO however noted that the assessee is employed in Ahmedabad and the property situated at Shilaj is within the municipal limit of the City. Therefore, in terms of Section 23(2) of the Act, gross annual value of the property at Shilaj shall be taken at nil. The AO also noticed that the assessee himself has taken the annual value as ‘nil’ in the return, the computation whereof was revised in the proceedings before AO to contend that the property is given on rent. The AO accordingly held that the property is a self-occupied property and accordingly, the assessee is entitled to claim interest on borrowed capital limited to the extent of specified sum i.e. Rs. 1,50,000/-. The AO further questioned the bona fides of the rent paid to his mother in the absence of any concrete documents such as bank statement etc. The AO accordingly restricted the claim of interest to the extent of Rs. 1,50,000/- entitled to assessee referred under s.23(2) of the Act and disallowed the remaining amount of Rs. 6,77,014/- and added the same in the hands of the assessee while determining the assessed income.
4. Aggrieved, the assessee preferred appeal before the CIT(A) and reiterated its claim. The CIT(A) however found the claim of the assessee to be bereft of any merits. The CIT(A) endorsed the action of the AO that the claim of the assessee that property allegedly given on rent (to mother and also a co-owner) was only a device to avail the full deduction of interest expenses and to exclude himself from the purview of Section 23(2) of the Act. The CIT(A) accordingly declined to interfere with the order of the AO and dismissed the claim of the assessee.
5. Further aggrieved, the assessee knocked the door of the Tribunal.
6. The learned AR for the assessee submitted that the assessee himself has occupied the residence at Vastrapur belonging to her mother on a rental basis. Likewise, her mother has also occupied the residential property belonging to assessee at Shilaj on rental basis and paid rent to the assessee which could be taken as gross annual value for the purposes of Section 23(1) r.w.s. 23(3) of the Act. The learned AR for this purpose referred to the cash vouchers showing receipt of rent in cash from mother. The learned AR also referred to an affidavit dated 25th February, 2015 to support its claim. The learned AR for the assessee also referred to the decision of the co-ordinate bench of Tribunal in the case of Smt. Tupur Chatterji v. Asstt. CIT  51 taxmann.com 240/66 SOT 266 (Mum. – Trib.) for the proposition that interest on borrowed funds is fully deductible against the annual value without any statutory restriction of Rs. 1,50,000/- benchmarked for the purposes of only self-occupied property specified under s.23(2) of the Act.
7. The learned DR for the Revenue, on the other hand, relied upon the orders of the AO and CIT(A) and submitted in furtherance that the conduct of the assessee is self-evident. It was contended that the assessee himself has omitted to declare any rental income from the property at the first place. When confronted about the restriction placed for deduction of interest on self-occupied property, the assessee has attempted to show the property to be actually let out under s.23(3) of the Act to avoid the statutory restriction of allowability of deduction of interest (Rs.1,50,000/-) showing the receipt of rental income in cash from mother. The learned DR submitted that the entire gamut of action on the part of the assessee smacks of mala fideto assert a wrong claim of full deduction of interest against non-existent rental income claimed to be derived from his mother/co-owner in cash which cannot be benefited. The learned DR submitted that the AO has rightly rejected the affidavit of the assessee which is clearly self-serving in nature. The learned DR accordingly submitted that the AO has rightly observed the lack of any credible documentary evidence to support the rental income and consequently, restricted the interest claim associated to the gross annual value as per the scheme of the Act. The learned DR accordingly submitted that no interference with the order of the CIT(A) is called for.
8. We have carefully considered the rival submissions. The allowability of interest expenditure on borrowed capital for purchase of residential house under s.24 of the Act is in question. As per Section 23(2) of the Act, the gross annual value of the residential house shall be taken at ‘nil’ where such house is in the occupation of the owner for his own residence or where the owner of the house is prevented from occupying the house owing to his employment etc. at other place. The annual value of such house shall be taken at nil and consequently, the deduction of interest on borrowed capital in such circumstances is restricted to the extent of Rs. 1,50,000/- under s.24 of the Act for the relevant assessment year. The assessee, in the instant case, has also claimed ‘nil’ annual value on this residential house in the return of income. However, by way of revised computation in the course of assessment proceedings, the assessee has altered his stand and claimed that he was not in actual occupation of the residential house (co-owned by him along with his mother). It was claimed that the residential house at Shilaj was actually occupied by his mother and thus, the residential property was let out to mother at a monthly rental of Rs. 30,000/- per month, which was received in ‘cash’. The assessee accordingly has claimed that the residential house being a let out a property, the statutory restriction for allowability of interest on borrowed capital is not applicable. The assessee thus seeks deduction of the whole of the amount of interest expenditure against the so-called annual value/rent purportedly received from mother.
9. The answer to the controversy thus essentially hinges upon as to whether the house property was actually let out as claimed or not. If the property can be taken to be actually let out during the year in terms of Section 23(3) of the Act, it will automatically get excluded from the sweep of Section 23(2) of the Act which would in turn exclude the restriction of quantum of deduction of interference under s. 24 of the Act.
10. Turning to the facts, the assessee has claimed that the residential house was actually let out during the year to his mother for which he has received rent of Rs. 30,000/- from mother albeit in cash. On the basis of property being let out, the assessee seeks claim of interest deduction to full extent. The assessee has also tried to support his case of let out by an affidavit. When seen in the context, it is very difficult to believe the position taken by the assessee. As noticed earlier, the assessee, at first instance, has not declared rental income while filing the return of income duly verified under s.140 of the Act. The omission to disclose the so-called rent income derived from mother in the return of income is not explained. Needless to say, a person filing the return of income requires to verify the contents of the return to be true and any falsification in such verification has serious consequences under Chapter XXII of the Act. Thus, the income claimed to have been received and not declared in the return cannot be seen in a light-hearted manner. The assessee has conveniently revised the computation to introduce the source of rental income from mother who also happens to be co-owner of the same property. The receipt has been shown to be in cash to shun any possibility of verification. Thus, no trail is available to verify the correctness of the version of the assessee in a reasonable manner. Thus, one has to rely only on the preponderance of probabilities. The version of the assessee is prima facie improbable having regard to the ground realities. The assessee neither satisfies the condition from exclusion from the ambit of Section 23(2) of the Act nor satisfies its case for inclusion under s.23(3) of the Act on facts. The lower authorities have rightly questioned the veracity of claim of property being actually let out. The affidavit filed was clearly bald and a self-serving document. No cross examination of the deponent of the affidavit has been offered therein. On a query from the bench about the payment of electricity bill by the licensee of the property, no evidence could be furnished to prove actual occupation by mother on rental basis. It is also difficult to comprehend such a claim of the assessee on the touchstone of societal value prevalent and ethos in Indian society. The case of the assessee towards claim of rent from mother for occupation of his house clearly appears be an eyewash to merely put the property in the bracket of Section 23(3) of the Act with a view to claim deduction of full interest costs without any restriction applicable to self-occupied house. The assessee has referred to the decision of the co-ordinate bench in Smt. Tupur Chatterji (supra) which does not appear to be any assistance to the case of the assessee in hand in view of altogether different factual matrix. We do not find any force in the plea of the assessee. The CIT(A) in our view has rightly endorsed the action of the AO. We thus decline to interfere.
11. In the result, appeal of the assessee is dismissed.