TMI Blog2018 (4) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 his possession two residential houses i.e. 273, Jaipur House and 293, Jaipur House, however, the house no. 273 was let out to M/s Client Technology Ltd. Agra for business purpose and therefore, assessee is legally entitled for deduction under section 54F of the Act. The property was used by the assessee for business purpose by way of lease out to M/s Client Technology Pvt. Ltd. for commercial purpose of stocking of electronic items duly supported with commercial electricity connection for the period relevant. The ld. DR has not brought on record any material evidence in rebuttal to the contention of the assessee. - Decided in favour of assessee. - I.T.A No. 239/Agra/2016 - - - Dated:- 9-4-2018 - Shri A.D. Jain, Judicial Member And Shri Dr. Mitha Lal Meena, Accountant Member For The Appellant : Shri Rajendra Sharma And Shri Mannu Sharma, Advocates For The Respondent : Shri Waseem Arshad, Sr. DR OR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply dt. 28.02.2013 which is as under: - Interest paid at ₹ 11,90,415/- to City Finance Ltd. out of which ₹ 5,77,279 has been adjusted with the interest received from M/s Cilent Technologies Pvt. Ltd. to that extent, in this connection it is respectfully submitted that as explained in my earlier reply that assessee in the preceding year has received loan from M/s City Finance at ₹ 70,36,559/- in personal capacity against which assessee has paid ₹ 11,90,415/- as interest, same interest to the extent of ₹ 5,77,279/- was adjusted with the interest received at ₹ 5,77,279/- from M/s Client Technologies Pvt. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e City Finance Ltd. against the income of ₹ 5,77,279/- earned under the head interest. The entire amount of ₹ 5,77,279/-is liable to be allowed to be set off with the interest at ₹ 11,90,415/- paid by the assessee to the City Finance, no addition no addition on this score is liable to be made, addition made by restricting the set off of the income under the head interest with payment of interest is liable to be deleted. 5.3 I have gone through the assessment order, submissions of the assessee and legal position in this regard. It is seen that the assessee has claimed deduction of ₹ 11,90,415/- as interest paid to M/s City Finance against interest 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 Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compliance to the query of AO, the assessee has filed a written reply as discussed in the assessment order at page 5 in para 4.1 which is reproduced in the order of the ld. CIT(A) at page no. 3, whereby the assessee has claimed that he has taken a loan from M/s City Finance Ltd. on which he has paid interest amounting to ₹ 11,90,415/- and has transferred a part amount to M/s Cilent Technology Pvt. Ltd. He has received an interest of ₹ 5,77,279/- from M/s Cilent Technology Pvt. Ltd. which he adjusted against the interest paid. The counsel for the assessee submitted that the assessee is claiming set off u/s 70(1) whereas there is no loss under the head income from other sources, therefore, the provisions of Section 70(1) do 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;interest', which the AC) has not allowed by recording the reason that the set off under Section 70(1) is not allowable being there is no loss under the head 'income from other sources. The authorities below while not allowing of the set off, have completely ignored that there was a loss under the head 'other sources' being excess amount of interest is paid against the income earned under the head 'interest1. The set off as claimed by the assessee out of the payment of interest i.e. expenses related with the payment of interest with income under the head 'interest' is liable to be set off being the loan taken against which interest is paid and loan given against which interest is received are the part of the assessee'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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; that against the sale consideration of land, he has claimed deduction u/s 54F which has been denied by AO holding that on the date of sale of original assets, the assessee has owned two residential houses and as per the provision of section 54F of the Income Tax Act, 1961, if the assessee has more than once residential houses on the day of transfer of original assets, then deduction u/s 54F of the Act is not allowable. Accordingly, the AO has disallowed the assessee s claim of deduction u/s 54F of the Act. 15. While confirming the addition on disallowance of exemption claimed u/s 54F of the Act, the ld. CIT(A) inter alia observed as follows: 6.3 I have gone through the assessment order, submissions of the assessee and legal position in this regard. It is seen that during the year under consideration 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only be considered as commercial properties not residential properties. Therefore, the exemption should be allowed. 6.3.3 It is observed that the assessee has claimed to have rented both these properties for commercial purposes and the rental income from them are shown under the head house property. Further it is observed in light of Sec 54F of the Income Tax Act, 1961 that if the income from such residential house, other than the one, residential house owned on the date of transfer of the original asset, is chargeable under the head Income from house property then deduction under section 54F is not allowable. 6.3.4 In this context a physical verification of both the properties is made. It is seen that Jaipur House is a residential colony, and hence giving the residential house on rent for the purposes of qodown would not change the basic character of house from residential 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... House, Agra, which the AO has not allowed as per reason recorded in the assessment order at page 2 that, 'the assessee owned more than one residential house other than the new asset, on the date of transfer of original asset. Before the AO, the assessee has submitted that the assessee owned two houses House No. 271 and 293 at Jaipur House, Agra, on the date of transfer of asset at Hodal. The assessee claimed the deduction under Section 54F by making investment towards the purchase of another residential house at 198, Jaipur House, Agra. It was submitted before the AO that both the houses owned by the assessee are rented and used for commercial activity, property No. 271, Jaipur House, Agra, let out to Anand Enterprises and property at 293, Jaipur House, Agra, to Client Technologies Pvt. Ltd. used commercially from where the assessee is getting rent at ₹ 48,000/- and ₹ 1,20,000/- respectively duly shown in the return 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed CIT (Appeals) has sustained. That as stated above, the assessee has sold his asset on the sale of which the capital gain arises, against which the assessee has taken the exemption by showing the investment towards the residential house at No. 198, Jaipur I louse, Agra. The AO has not allowed the exemption on the reason that on the date of sale of asset, the assessee is already owned two residential houses No. 293, Jaipur House, Agra, and 271, Jaipur House, Agra. The assessee has submitted that these houses which he assessee owned on the day of selling of asset are used for commercial activities given to tenant receiving rent duly shown in the income tax return, in support of commercial activities, the assessee has furnished the copy of electricity connection obtained from electricity department for their commercial use. The only issue before the Hon'ble Bench is, whether the houses used by the assessee for commercial activities can be considered that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income from these house properties in its return of income. The ld. CIT (A) further noted that Jaipur House is a residential colony, and hence giving the residential house on rent for the purposes of qodown would not change the basic character of house from residential to commercial. Since both these properties are actually residential houses located in Jaipur House residential colony, Agra 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. 19. The Ld. AR contended before us that the residential houses were used by the lessee for commercial activities, although the assessee own both the residential houses. For the purpose of allowing of deduction under Section 54F, particularly when he has furnished commercial electric connection (APB, Pgs. 4-5), no other evidence in proof of the use of the residential house 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, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra for godown purpose. It is clear that although 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, however, the house no. 273 was let out to M/s Client Technology Ltd. Agra for business purpose and therefore, assessee is legally entitled for deduction under section 54F of the Act. 22. In the case of Sanjeev Puri Vs. Dy. CIT , (Supra), the property was owned by the assessee, in the records of municipality which was being used by himself as his office during the relevant period. Admittedly, in the present case, the property was used by the assessee for business purpose by way of lease out to M/s Client Technology Pvt. Ltd. for commercial purpose of stocking of electronic items duly supported with commercial electricity connection for the period relevant. The ld. DR has not brought on record any material evidence in rebuttal to the contention of the assessee. 23. In view of the above, we accept the grievance of the assessee as genuine on this issue and allow his claim of the exemption of ₹ 21,69,260/- u/s 54F of the Act. Accordingly, Ground No.2 is allowed. 24. The 3rd ground is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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