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2020 (1) TMI 1722 - AT - Income TaxIncome from House Property - Denial of deduction of amount paid to Municipal Corporation of Delhi - AO made the disallowance because the receipt issued by South Delhi Municipal Corporation was not available not available and / or misplaced by the assessee and the duplicate receipt could not be received till the completion of assessment proceedings though the assessee furnished the proof of payment by way of bank statement and bank certificate - HELD THAT - As the duplicate receipt was received during the course of appellate proceedings before CIT(A) and the same was furnished before him. As in case of DCIT v Haldiram Products Private Limited 2013 (12) TMI 1151 - ITAT DELHI has held that conversion charges were in the nature of municipal taxes. As per provisions of section 23 of the Income Tax Act 1961 deduction of taxes levied by any local municipality in respect of the let out property is allowable deduction. In the scrutiny assessment made in the case of the assessee for the subsequent assessment year i.e. AY. 2015-16 the AO vide his order has himself allowed the deduction of similar expenses. Hence the addition in dispute is not sustainable in the eyes of law. Accordingly, direct the AO to allow the deduction in dispute by deleting the addition made in the hands of the assessee. Accordingly the ground raised by the assessee are allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Deductibility of the payment to Municipal Corporation as municipal tax under section 23 Relevant legal framework and precedents: Section 23 of the Income Tax Act, 1961, governs the computation of income from house property. The proviso to section 23(1)(a) allows deduction of "any sum paid by the owner in respect of taxes levied by any local authority in respect of the property." The nature of the payment is critical to determine deductibility. The Tribunal referred to the Coordinate Bench decision in DCIT v Haldiram Products Pvt. Ltd. (ITA No. 5158/Del/2012), wherein it was held that conversion charges paid to municipal authorities were in the nature of municipal taxes and thus deductible under section 23. Court's interpretation and reasoning: The Tribunal analyzed the nature of the payment of Rs. 25,98,622/- made to the South Delhi Municipal Corporation. The assessee contended that the payment was not for conversion from leasehold to freehold but represented municipal tax charges levied for renting out the property commercially. The Tribunal agreed with this contention, relying on the principle that deduction under section 23 is not confined to property tax per se but extends to any taxes, rates, charges, or fees levied by local authorities in respect of the property. The Tribunal emphasized that the nomenclature of the tax is immaterial as long as it is levied by a local authority in respect of the property. Key evidence and findings: The assessee submitted a cheque evidencing payment to the Municipal Corporation and later furnished the duplicate receipt during appellate proceedings. The AO initially disallowed the deduction due to non-availability of the receipt at the time of assessment. The Tribunal noted that the duplicate receipt was furnished before the CIT(A) and that the AO had accepted similar deductions in the subsequent assessment year (AY 2015-16), thereby supporting the genuineness of the payment. Application of law to facts: Applying the legal framework, the Tribunal concluded that the payment was indeed a municipal tax levied on the property and hence deductible under the proviso to section 23. The AO's disallowance on the ground of non-availability of the receipt was not sustainable, especially given the subsequent acceptance of similar payments and the furnishing of duplicate receipt during appeal. Treatment of competing arguments: The Revenue did not place any contrary judicial authority or persuasive argument to rebut the assessee's contention. The AO's disallowance was primarily procedural, based on the absence of receipt, which was remedied during appellate proceedings. The Tribunal found no merit in the Revenue's stance. Conclusion: The Tribunal allowed the deduction of Rs. 25,98,622/- as municipal tax under section 23, holding that the payment qualifies as a deductible municipal tax despite the initial procedural lapse in documentation. Issue 2: Validity of addition of Rs. 18,19,035/- under income from house property Relevant legal framework and precedents: The addition was made by the AO after disallowing the deduction of municipal taxes, thereby increasing the taxable income under the head income from house property. The principles governing such additions require that the disallowance be justified on substantive or procedural grounds supported by evidence. Court's interpretation and reasoning: The Tribunal noted that the addition was consequent to the disallowance of the municipal tax deduction. Since the deduction was held allowable, the addition became unsustainable. The Tribunal further observed that the AO had allowed similar deductions in the subsequent year, indicating acceptance of the nature of payment. Key evidence and findings: The duplicate receipt and bank statements furnished by the assessee, along with the AO's own acceptance in the subsequent year, undermined the basis for the addition. Application of law to facts: Given the allowance of deduction under section 23 and the evidence of payment, the addition of Rs. 18,19,035/- was not justified. Treatment of competing arguments: The Revenue did not provide any contrary evidence or legal authority to sustain the addition. Conclusion: The Tribunal deleted the addition of Rs. 18,19,035/- made by the AO. Issue 3: Sufficiency of evidence for deduction claim Relevant legal framework and precedents: Proper documentary evidence is required to substantiate claims for deduction. However, where evidence is misplaced but later furnished, the claim should not be denied solely on procedural grounds. Court's interpretation and reasoning: The Tribunal acknowledged that the original receipt was not available at the time of assessment, but the duplicate receipt was furnished during appellate proceedings. The bank statement and certificate corroborated the payment. The Tribunal held that such evidence was sufficient to allow the deduction. Key evidence and findings: Duplicate receipt from South Delhi Municipal Corporation, bank statements, and bank certificate. Application of law to facts: The Tribunal applied the principle that procedural lapses should not defeat substantive rights when evidence is subsequently furnished. Treatment of competing arguments: The Revenue did not dispute the genuineness of the payment once the duplicate receipt was submitted. Conclusion: The evidence was sufficient to substantiate the deduction claim. 3. SIGNIFICANT HOLDINGS "As per provisions of section 23 of the Income Tax Act, 1961, deduction of taxes levied by any local municipality in respect of the let out property is allowable deduction." "The deduction is not confined to property tax. The deduction is available in respect of taxes levied in respect of the property. The taxes levied may be called by whatever name be it house tax or property tax or municipal tax or rates or charges or fees." "The addition in dispute is not sustainable in the eyes of law." The Tribunal established the principle that payments made to municipal authorities, even if described as conversion charges or other municipal levies, qualify as deductible municipal taxes under section 23, provided they relate to the property let out and are supported by adequate evidence. The final determination was to allow the deduction of Rs. 25,98,622/- paid to the Municipal Corporation, delete the addition of Rs. 18,19,035/-, and consequently allow the appeal of the assessee.
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