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2018 (4) TMI 704

ainst the income from other sources, unless it is wholly and exclusively incurred for the purposes of making or earning of such income. As in the present case, no such nexus could be established in respect of the expenditure incurred by the assessee. Further to claim of set off u/s 70(1) against interest income, there has to be a loss under the head income from other sources or any other head of income except capital gain which is not the case of the assessee - Decided against assessee. - Deduction claimed u/s 54F - denial of claim by CIT-A as assessee was holding two residential houses in his name, so he is not entitled for the deduction under section 54F - Held that:- The action of the CIT(A) cannot be justified in holding both these properties as residential houses merely on the basis of their location in Jaipur House residential colony, Agra without appreciating the material facts regarding the purpose for which the properties were used; the house no. 273 in particular which was used for business purpose as it was let out by the assessee to M/s Client Technology Ltd. Agra for godown purpose. It is clear that although on the day of transfer of original asset, assessee had in .....

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rest receipts of ₹ 5,77,279/- from M/s Cilent Technologies Pvt. Ltd and set off the same against interest paid of ₹ 11,90,415/- to City Finance Ltd. The AO required the assessee to prove that how the said deduction u/s 57(iii) can be allowed in absence of any nexus between the interest paid and interest received. The AO observed from the copy loan account and the bank statement of the assessee that he has received a loan of ₹ 70,36,559/- from City Finance Ltd. on 23.03.2009 and out of the said loan, an amount of ₹ 6.00 and ₹ 4.00 lakh has been advanced on 26.3.2009 and 13.04.2009 to M/s Cilent Technology Pvt. Ltd. and that balance amount has been utilized by the assessee for making various other payments as evident from the extract of the bank book as follows: Date Particulars Debit Credit 20.03.2009 Bank charges 80 23.03.2009 Bank charges 120 To Citi finance Ltd. 7036559 26.03.2009 Bank charges 325 Client Tech.P.Ltd. 600000 ResLHouse198,J.H.Agra 4064000 30.03.2009 Cash 800000 31.03.2009 Citi Finance Ltd. 1036559 Citi Finance Ltd. 1036559 By Closing Bal. 1645464 Total 8598290 8598290 01.04.2009 Opening Balance 1645464 02.04.2009 National Oils 500000 Ca .....

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Ltd. It is requested that in the light of section 70(1) of the income tax act 1961 the adjustment made to extent of ₹ 5,77,279/- out of total interest paid to City Finance at ₹ 11,90,4I5/- may kindly be allowed to be set off with the interest Income at ₹ 5,77,279/- earned from M/s Client Technologies Pvt. Ltd. 5.2 During the course of appellate proceedings assessee submitted as the following: - That the 1st ground taken in respect of the addition made by not allowing of the set off of (he income under the head interest at ₹ 5,77,729/- which has been adjusted with the negative income earned under the head interest. During the rear under consideration the assessee has shown the interest income at ₹ 5,77,279 earned from the firm M/s Client Technology' Pvt. Ltd. which the assessee has set off against the payment of interest paid to City Finance Ltd, at ₹ 11,90,415/-, the assessee has set off the amount of interest received at Rs. -5,77,279/- with the payment of interest at ₹ 11,90,415/- paid to City Finance Ltd., during the course of assessment proceedings, it was submitted before the AO that the assessee has taken the loan from City Finan .....

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of ₹ 5,77,279/-received from M/s Client Technologies Pvt. Ltd. But the AO has restricted the interest claim amounting to ₹ 1,20,000/- on the basis of transfer entries (to Client Technologies) shown in the bank statement of the assessee and on account of nexus between the two loans only to the extent of ₹ 10 Lakhs. The assessee has claimed that he has taken loan from M/s City Finance on which he has paid interest amounting ₹ 11,90,415/- and has transferred the amount to Client Technologies Pvt. Ltd. Further he has received interest of ₹ 5,77,279/- from M/s Client Technologies Pvt. Ltd., which he has adjusted against the interest paid. It is observed by the AO that the assessee has taken loan of ₹ 70,36,559/- from City Finance Pvt. Ltd. on which he has paid interest amounting to ₹ 11,90,415/- and out of the financed amount he has only advanced ₹ 10,00,000/- to M/s Client Technologies Pvt. Ltd., as per the transaction shown in the bank statement provided by the assessee. As per section 57fiii) of the Income Tax Act 1961, the expenditure which are incurred wholly and exclusively for the purpose of earning or making such income can only b .....

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not apply in the case of the assessee. The written reply filed by the assessee reads as under: The first ground related with the sustaining of the addition for ₹ 4,57,279/-made by the AO by not allowing of the set off of interest income with the expenses under the head 'interest'. In this connection, it is respectfully submitted that during the year under consideration, the assessee has earned income under the head 'interest' at ₹ 5,77.279/- which is against the loan financed to Cilent Technologies Pvt. Ltd. At the same time, the assessee has also paid interest against the loan taken from City Finance Ltd. at ₹ 11,90,415/-. In short, the assessee has earned income under the head 'interest' at ₹ 5,77,279/- and also has paid expenses under the head 'interest7 at ₹ 11,90,415/-. The assessee has set off the amount of expenses under the head 'interest' at ₹ 11,90,415/- with the income earned under the head 'interest' at ₹ 5,77,279/- and no income from the interest has been shown being the same is set off with the expenses on account of payment of interest at ₹ 11,90,415/-. The AO and the learned .....

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39;s balance sheet and receipt of interest and payment of interest are part of computation of income, same are to be set off with each other. No addition on this score is called for, the addition made by the AO, sustained by the learned CIT (Appeals) is liable to be deleted. 7. The ld. DR placed strong reliance on the impugned order. 8. Having considered the rival contentions and the impugned order, we find that the assessee has taken a loan of ₹ 70,36,559/- from City Finance Pvt. Ltd. on which he has paid interest amounting to ₹ 11,94,15/- and out of this loan amount he has only advanced ₹ 10,000,00/- to M/s Cilent Technology Pvt. Ltd. as per the transaction shown in the bank statement provided by the assessee (Syn., Pg.3). 9. It is seen that the loan raised was mainly used for the purchase of residential property; that out of the loan, the assessee advanced ₹ 10.00 lakhs only to M/s Cilent Technology Pvt. Ltd. and therefore, interest earned of ₹ 5,77,279/- is not from advancing this money to M/s Cilent Technology Pvt. Ltd. and hence the same cannot be allowed u/s 57(iii) of the Act, as per the provisions of the Act and so rightly confirmed by the ld. .....

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tion the assessee has sold a building at Hodal and capital gain has arisen on account of such transaction. He has utilized ₹ 21,69,260/- in the construction of his residential house and has claimed the same as exemption u/s 54F of the Income Tax Act, 1961. The AO has disallowed the exemption claimed u/s 54F on account that the assessee is holding two more residential houses as on the date of expenditure made for construction of residential property for which exemption is claimed, which is not allowable as per the provision of section 54F of the Income Tax Act, 1961. 6.3.1 Relevant part of section 54F is as under- 54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a hind Undivided family, the capital gain arises from the transfer of any long term capital asset. Not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer look place purchased, or has within a period of three years after that date -[constructed, one residential house in India] (thereafter in this section referred to .....

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al to commercial. Since both these properties are actually residential houses located in Jaipur House residential colony, it is clear that on the day of transfer of original asset, assessee had in his possession two residential houses i.e. 273. Jaipur House and 293. Jaipur House, and hence assessee is not entitled for deduction under section 54F. Residential properties cannot be treated as commercial properties merely because they are given on rent for commercial purposes. Moreover, its only in respect of 273, Jaipur House that assessee has taken a commercial electricity connection. The property at 293 is exclusively a residential house with no commercial use. As per the Income Tax Act, it is essential that the individual should not own more than one residential house property other than the new asset on the date of transaction, and since the assessee is holding two residential houses in his name, he is not entitled for this deduction under section 54F of the Income Tax Act, 1961. Since in this case assessee is deriving income from residential house properties through claimed to be commercial by giving these properties on rent, assessee is not eligible for deduction under section 5 .....

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n of income^ Both the properties owned by the assessee on the date of transfer of asset (under consideration for capital gain) are being used for commercial purpose, the deduction which is being claimed under Section 54F by making of investment in the new residential house at 198, Jaipur House, Agra, is qualified for deduction under Section 54F which may kindly be allowed. To substantiate the submissions are being made before the AO, the assessee has also submitted by referring the definition of 'residential house' from Oxford and Collins Dictionaries that, 'structure which is not being used for a purpose of residence is not at all called as residential. If any commercial activities are being operated from very such area it will be called as commercial instead of residential. Further, a house is a home, building or structure that functions as a habitat for humans or other creatures. (Source Wikipedia). It means that the structure which is not functioning as habitat for humans is not at all be called as a house. Firstly Similarities:- 1. Both Structures are covered. 2. Both are comprised of rooms, halls, kitchen and bathroom Secondly differences: - The only difference is .....

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e assessee's own residential houses for the purpose of allowing of deduction under Section 54F, particularly when the assessee has proved by furnishing of evidences that the houses owned by the assessee are used for commercial purposes. The appellant respectfully submitted that as the houses owned on the day of selling of asset were used for commercial activities cannot be said to be the residential houses which the assessee own for the purpose of allowing deduction under Section 54F. Thus, the deduction claimed under Section 54F by making investment towards the residential houses by the assessee is liable to be allowed for deduction, being the houses owned by the assessee are used for commercial activities. No addition on this score is called for, the addition made by the AO by disallowing on the deduction claimed by the assessee under Section 54F by the AO and sustained by the learned CIT (Appeals) is liable to be allowed and addition made on this score is liable to be deleted. For this purpose, he relied on the decision of ITAT, Delhi G - Bench, in the case of Sanjeev Puri Vs. Dy. CIT, ITA No. 5474/ Del/2014. 17. The ld. DR supported the impugned order contending that on the .....

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for commercial purposes is required as per law. In support, he relied on the decision in the case of Sanjeev Puri Vs. Dy. CIT, (Supra), wherein it was held that property owned by the assessee, which was being used by him as his office during the relevant period cannot be treated as residential property simply on the basis of municipal record ignoring the actual user thereof and therefore, the claim of exemption u/s 54F could not be denied on the basis that the assessee was owning more than one residential house (including the said property) on the date of transfer of the original asset. 20. It is seen that the property at 293, Jaipur House, Agra is exclusively a residential house but the property at 273, Jaipur House, is not a residential house property because the assessee has a commercial electricity connection on this property and that this property was let out to M/s Client Technology Ltd. Agra for godown purpose (APB, Pgs. 1 to 5). It is further seen that M/s Client Technology has used the said property for stocking of all kinds of mobiles, handsets, recharge coupons, sim erecharge and other related goods which were duly insured with The Oriental Insurance Company Limited. Th .....

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