ITAT held that Section 24(b) and Section 48 are covered under different heads and neither of the sections exclude operation of the other

Ashok Kumar Shahi, New Delhi vs Acit, Circle-61(1), New Delhi on 30 October, 2019

    IN THE INCOME TAX APPELATE TRIBUNAL

    DELHI BENCH “SMC”: NEW DELHI

    BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER

    ITA No. 5155/DEL/2018

    A.Y.: 2014-15

Ashok Kumar Shahi,                          VS.   ACIT, CIRCLE 61(1),

522, Green Heavens Sail CGHS,                     New Delhi

Plot No. 35, Sector-4, Dwarka,

New Delhi – 110 078

(PAN: AIDPS1318L)

(Appellant)                                                 (Respondent)

    Assessee by           :        Sh. Gaurav Singhal, CA

    Department by     :            Ms. Ekta Vishnoi, Sr. DR.

         ORDER

This appeal filed by the Assessee is directed against the Order dated 31.5.2018 of the Ld. CIT(A)-20, New Delhi pertaining to assessment year 2014-15 on the following grounds:-

“1. That both Learned Assistant Commissioner of Income-tax (“Ld. AO”) and Learned Commissioner of Income-tax (Appeals) [Ld. CIT{A)) have erred in law, in not appreciating the scheme of the computation of income under the Income-tax Act, 1961 (“the Act”) that computation of capital gains under sec. 48(ii) of the Act i.e. “Income from Capital gains” and deduction provided under sec. 24(b) of the Act i.e. “Income from house property” are altogether covered by different heads of income and are independent of each other.

2. That both Ld. AD and Ld. CIT(A) have erred in law, in mixing two modes of computation and taking into consideration the deduction under sec. 24(b) of the Act under the head “Income from house property” while computing income of the Appellant under the head “Capital gains” under sec. 48(ii) of the Act, without there being any stipulation in express terms to such an effect, in sec. 48 of the Act.
3. That both Ld. AD and Ld. CIT(A) have erred in law, by disregarding the provisions of sec. 48(ii) of the Act which clearly specify that while computing the capital gains, cost of acquisition of an asset shall be deducted from full value of sale consideration .
4. That Ld. CIT(A) has erred in facts and in law, in not appreciating that where a loan is obtained for the sale purpose of acquiring an asset, then interest thereon also constitutes an element of cost of acquisition of such asset, and not just the principal amount of such borrowing.
5. That Ld. CIT(A) has erred in facts and in law, in not appreciating that interest paid in respect of a home loan, is indeed an expenditure incurred for the purpose of acquiring the house property, and therefore, there cannot be any other purpose for payment of such interest by the borrower.
6. That Ld. CIT(A) has erred in facts and in law, in not appreciating that where an asset is acquired by availing a loan, payment of interest in respect of such loan can only be made subsequent to the purchase, and not at the time of or before the purchase.
7. That Ld. CIT(A) has erred in facts and in law, in not appreciating that as the payment of sale consideration by the Appellant (at the time of acquisition of the asset) was admittedly made out of the borrowed funds, such borrowing directly related to the acquisition, and therefore, interest paid thereon would naturally form part of the cost of acquisition.
8. That Ld. CIT(A) has erred in law, in not appreciating that sec. 48 of the Act is exclusively for the purpose of computation of capital gains which alone prescribes and should govern the mode of computation of capital gains, and not sec. 24(b) of the Act which is not for computation of capital gains.
9. That both Ld. AO and Ld. CIT(A) have erred law, in failing to understand the mode of computation of capital gains in its true spirit, which is that in determining the income under the head ‘capital gain’, one shall remain focused upon and confined to the provisions pertaining to computation of income under such head of income, being sec. 48 of the Act, and shall not be distracted by or draw inferences from provisions under other heads of income.
10. That both Ld. AO and Ld. CIT(A) have erred in law, in not appreciating the scheme of the Act where mode of computation of income under each head of income is provided separately (with exclusion of mode of computation under other heads of income), and in the absence of any express provision to the contrary, Ld. CIT(A) ought not have taken upon herself, the role of legislating that which the Parliament has not so far legislated.
11. That both Ld. AO and Ld. CIT(A) have erred in law, in basing their finding on self-perceived notion that if deduction of interest is allowed under sec. 48 it will tantamount to allow double deduction. Had the Legislature so intended, they would have said so in clear terms under sec.48 of the Act that where an assessee has already availed any benefit under sec.24(b) of the Act, interest paid in respect of a loan shall not be deductible under sec. 48 of the Act, either in full or to the extent of benefits so availed under sec.24(b) of the Act. In the absence of any such stipulation in sec.48 of the Act, Ld. AO and Ld. CIT(A) should not have disallowed the interest paid by the Appellant, in respect of the loan obtained for acquisition of the asset in question.
12. That both Ld. AO and Ld. CIT(A) have erred in law, in not admitting that the law is well settled and if there could be two possible meaning or interpretations in a taxing statute, the interpretation which is beneficial to the Assessee shall apply. The Revenue is free to plug any gaps by making suitable legislation and avoid more than one possible meaning.
13. That Ld. CIT(A) has erred in facts and in law, in placing reliance on entirely unrelated judicial precedents i.e. upon cases where investments were made out of borrowed funds, for purchase of shares that were held as stock- in-trade, entirely overlooking the cases cited by the Appellant that were directly relevant to the facts of the instant case and had upheld the deductibility of interest paid on home loans to acquire residential property in computing income under the head ‘Capital Gains’.

In light of the above grounds, your Appellant prays for deletion of disallowance made by Ld. AO and upheld by Ld. CIT(A), of INR 12,86,648, being the interest paid in respect of loan obtained exclusively for acquisition of capital asset.

The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant craves to add, alter, amend and/or modify any of the grounds at or before the hearing of the Appeal.”

2. The facts relating to the case are that the assessee filed return of income on 30.09.2014 declaring a total income of Rs. 28,11,410/-. The case of the assessee was selected for Limited scrutiny. Notice u/s. 143(2) of the Act was issued and served upon the assessee. In response to the notice, the AR of the assessee attended the hearing from time to time and filed the necessary details information / documents etc. as required. Books of accounts and vouchers were produced during the course of assessment proceedings which were examined by the AO. The assessee is an Advocate by profession and derived income from Business or Profession, income from House Property, income from Capital Gain and income from Other sources. During the scrutiny assessment for the year under consideration, assessee has sold a residential house at Flat No. 202, Neelkanth Residency Cooperative Housing Society Ltd. Plot No. 2, Sector-46A, Nerul (Seawoods), Navi Mumbai-400706, vide sale deed executed on 01.11.2013. Assessee’s share in total sale consideration, was Rs. 80,00,000/- (50% of Rs. 1,60,00,000). Assessee has purchased the same property; vide purchase deed executed on 13.10.2006. AR of the assesse has furnished the working of Long Term Capital Gain on the sale of this property, the details thereof in the Tabulated form which is at page no. 1 & 2 of the assessment order. Assessee has claimed interest expense on capital borrowed for the acquisition for the acquisition of the original asset in cost of acquisition.AO asked the assessee’s AR why interest expense as claimed in cost of improvement/acquisition of the transacted property should not be disallowed, as interest expenditure should be claimed u/s. 24 of the I.T. Act, 1961 against house property income. AO was not satisfied with the reply of the AO. AO observed that as section 24(b) of the Act, specifically provides for deduction of interest expense from the income from house property, and assessee had leased for deduction of interest expenses from the income from house property, and assessee had leased out the said house property for rent, therefore, the interest expense should be claimed as deduction from income from house property, hence, interest expense cannot be allowed as cost of acquisition. Also, in the balance sheet, assessee has increased his capital by Rs. 54,87,715/- due to Long Term Capital Gain on sale of the aforesaid property, which shows that the assessee has not taken into account the interest expenses while calculating capital gain, which was capitalized in assessee’s capital account, which clearly shows that the assessee has not capitalized the interest expenses on the capital borrowed for purchase of the property, hence, the same cannot be allowed as deduction, while calculating Long Term Capital Gain on sale of the property. AO further observed that allowing interest expenses on borrowed capital as cost of acquisition while calculating capital gain, and as deduction from income from House Property, will be tantamount to, allow double deduction for the same expense, therefore, interest expense was disallowed from cost of acquisition. The assesse was asked to present bill / vouchers, copy of bank statement to explain the cost of improvement, as claimed by the assessee while calculating the capital gain on sale of property. In reply, the AR furnished confirmation for the cost of improvement, but there was neither any bills/vouchers of construction nor there was any detail of payment. Assessee also has not furnished any bank statement to substantiate the payment for construction, claimed as cost of improvement, hence, 20% of the total cost of improvement was disallowed and addition of Rs. 14,46,832/- on account of Long Term Capital Gain on sale of property was imposed by completing the assessment at Rs. 42,58,240/- vide order dated 16.12.2016 passed u/s. 143(3) of the Act. Against the assessment order dated 16.12.2016, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 31.5.2018 has partly allowed the appeal of the assessee. Aggrieved with the impugned order dated 31.5.2018, assessee is in appeal before the Tribunal.
3. At the time of hearing, Ld. Counsel for the assessee submitted that as per the facts and circumstances of the present case, the issue in dispute is squarely covered by the various decisions of the ITAT Benches. To support his contention he filed a small Paper Book in which he has attached the copy of 08 decisions at page no. 1-43. He especially the draw my attention towards the decisions of the ITAT, Delhi ‘F’ Bench dated 13.08.2010 in the case of Praveen Gupta vs. Assistant Commissioner of Income Tax (2012) 20taxmann.com308 (Delhi) and the ITAT, ‘C’ Bench decision dated 31.10.2012 passed in the case of ACIT vs. C. Ramabrahmam (2012) 27 taxmann.com 104 (Chennai-Trib.) and stated that in view of the various decisions including the aforesaid decisions, the issue in dispute may be decided in favour of the assessee by deleting the addition in dispute and accept the appeal of the assessee.
4. On the contrary, Ld. DR relied upon the orders of the authorities below. In addition to the arguments advanced by the Ld. DR, Ld. DR has also filed the written submissions and cited some judgments to support the impugned order which are reproduced as under:-

“Sub: Written Submission in the above case- reg.

In the above case, apart from relying on the order of AO, order of CIT(A) and my oral arguments in the case, it is humbly submitted that the following decisions may kindly be considered:

1. CTR Kar 88,1985 1521TR 247 KAR, 1985 152 ITR 247 Karn, 198418 TAXMAN 75 Kar The interest paid on borrowings for the acquisition of a capital asset must fall for deduction u/s 48. But, if the same sum is already the subject- matter of deduction under other heads like those u/s 57, we cannot understand how it could find place again for the purpose of computation u/s 48. No assessee under the scheme of the I. T. Act could be allowed deduction of the same amount is already allowed under twice over. We are firmly of the opinion that if an amount is already allowed u/s 57 while computing the income of the assessee, the same cannot be allowed as deduction for the purpose of computing the “capital gains” u/s 48.
2. Caption B.L Lingaraju vs ACIT [ITA No. 906/Bang/2014, ITAT Bangalore bench, dated 27.04.2016, in favor of revenue] It was held that in the present case, the taxpayer was not eligible to claim interest paid on housing loan as part of the cost of acquisition in computing capital gains as the said interest was allowed as a deduction from house property
3. ITO vs Smt. Pushpaben Wadhwani,lTAT, Ahmedabad ,16 ITD 704.

In the instant case, from the order of the ITO it is not clear as to when the assessee acquired the flat in question and whether she was allowed deduction of interest payments in computing the income from the said flat under the head ‘Income from house property’ in earlier years. If that be so, then the interest paid on the loan cannot be treated as part of ‘the cost of acquisition’. However, if the assessee has not been allowed such deduction in earlier years, then in view of the decision in the case of Maithreyi Pai (supra), the interest should form part of ‘the cost of acquisition’ of the asset sold by her. Since this aspect of the matter requires investigation, I set aside the orders of the income-tax authorities on this point and restore the case once more to the file of the ITO with a direction to give his decision afresh keeping in mind the. Observations made in this order and after giving an opportunity of being heard to the assessee in this regard.”

5. I have heard both the parties and perused the records especially the orders of the authorities below alongwith the contention of the rival sides as well as the Paper Books filed by the Assessee’s AR containing pages 1-91 & 1-43 enclosing therewith the various documentary evidences and the case laws and the Written submissions filed by the Ld. DR. I find considerable cogency in the contention of the Ld. Counsel for the assessee that the issue in dispute is squarely covered by the various decisions of the ITAT including the ITAT, Delhi ‘F’ Bench dated 13.08.2010 in the case of Praveen Gupta vs.Assistant Commissioner of Income Tax (2012) 20taxmann.com308 (Delhi) and the ITAT, ‘C’ Bench decision dated 31.10.2012 passed in the case of ACIT vs. C. Ramabrahmam (2012) 27 taxmann.com 104 (Chennai-Trib.) For the sake of convenience, I am reproducing the relevant findings/paragraphs of the aforesaid two decisions as under:-
6. A) Praveen Gupta vs.Assistant Commissioner of Income Tax (2012) 20com308 (Delhi) “……23. We have carefully considered the rival submissions in the light of the material placed before us. Sec. 48 prescribes the mode of computation of capital gain. The relevant. portion whereof reads as under:

“48. The income chargeable under the head ‘Capital gains’ shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely-

(i) expenditure incurred wholly and exclusively in connection with such transfer,

(ii) the cost of acquisition of the asset and the cost of any improvement thereto.”

24. It can be seen from the above provision that the assessee is entitled to deduct the expenditure incurred by it wholly and exclusively in connection with such transfer and also the cost of acquisition of asset and cost of any improvement thereon. Therefore, the section itself permits the assessee to deduct the cost of acquisition as well as cost of any improvement thereon. The assessee has given full details of payments made by him to the developer and these details are given at pp. 15 to 17 of the paper book. The assessee has shown the total cost incurred by him for the relevant property at a sum of Rs. 55,81,062/- which included the base price of the flat, stamp duty paid for having the conveyance deed in his name, interest paid thereon, fire fighting charges, generator charges and processing fee and other miscellaneous charges. The details are provide at p. 16, according to which the payment made as per conveyance deed is a total sum of Rs.

40,45,968/-. The payment made on account of stamp duty is a sum of Rs. 5,05,752/-. The payment made in respect of interest is a total sum of Rs. 8,65,032/-. The payment made for firefighting charges is an aggregate sum of Rs. 34,960/-. The payment made for generator charges is an aggregate sum of Rs. 46,941/- and aggregate sum paid for processing fee and other miscellaneous charges is Rs. 80,437/-. The assessee has also enclosed the receipts issued by the builder in respect of each item at pp 18 to 38 of the paper book. Each of the payments made by the assessee is in respect of flat purchased by him and is issued by DLF Universal Ltd. It is not the case of the Revenue that the assessee did not make any extra payment apart from what was mentioned in the title deed as sale consideration. It is a known fact that the builder and developer of a property would charge from the assessee various charges which are as per the agreement entered into by the assessee for allotment of a particular property.

25. According to the scheme of capital gain, as per 3. 48, while computing the capital gain, the assessee is entitled to get deduction from the sale value of the asset liable for capital gain, the amount of cost of acquisition of asset and the cost of any improvement thereon. Without making the payment of the amounts to the builder the assessee could not have obtained the conveyance deed. Therefore, we are of the opinion that the AO is wrong in taking the cost of acquisition only as stated in the conveyance deed. As against that the assessee has filed evidence on record to contend that what is shown by him as cost of acquisition are the payments made to the builder for getting the right over the property which is sold by him. In our considered opinion such claim of the assessee could not be denied unless proved otherwise. There is no material on record to suggest that the payments which are stated to be made by the assessee were not incurred by him as the cost of the said flat which has been ubject-matter of sale during the year under consideration. It is so with respect to base price, processing fee, preference charges, external development charges, tire fighting charges, generator charges, etc. which all will form cost of acquisition incurred by the assessee for getting the ownership of the asset and, therefore, the assess e is entitled to get deduction thereof under the provisions of s. 48(ii)……”
26. B) ACIT vs. C. Ramabrahmam (2012) 27com104 (Chennai-Trib.)
27. We have considered submissions of both parties at length and also perused the relevant findings of Assessing Officer as well as CIT(A). Regarding the issue of capital gains, it transpires that there is hardly any dispute that the assessee had availed the loan for purchasing the property in question. Since the assessee had shown the income under the head ‘house property’, he preferred to raise the claim of deduction under section 24(b) of the “Act”, which reads as under:

“b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:”

There is no quarrel that since the assessee claim of deduction was under the statutory provisions; therefore, he succeeded in getting the same. However, after the property Was sold, he also chose to include the interest amount while computing capital gains under section 48 of the “Act”, which reads as under:-

“48. The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :-

(i) expenditure incurred wholly and exclusively in connection with such transfer:

1. ii) the cost of acquisition of the asset and the cost of any improvement thereto:”

After perusing the above said provisions, we are of the opinion that deduction under section 24(b) and computation of capital gains under section 48 of the “Act” are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. Further, a perusal of both the provisions makes it unambiguous that none of them excludes operative of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from ‘house property’, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. We do not have even a slightest doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 of the “Act”. Therefore, the CIT(A) has rightly accepted the assessee’s contention and deleted the addition made by the Assessing officer. Hence, qua this ground, we uphold the order of the CIT(A).”

5.1 Keeping in view of the facts and circumstances of the case on the issue in dispute along with documentary evidences, I am of the considered view that the issue in dispute is squarely covered by the aforesaid decisions of the Tribunal i.e. Praveen Gupta vs. Assistant Commissioner of Income Tax (2012) 20 taxmann.com 308 (Delhi)(Supra) and ACIT vs. C Ramabrahmam (2012) 27 taxmann.com 104 (Chennai-Trib.) (Supra) and the revenue authorities have not appreciated these decisions properly, therefore, respectfully following the aforesaid precedents, I delete the addition in dispute and allow the grounds of appeal raised by the assessee by accepting the appeal of the assessee.

6. In the result, the Appeal of the assessee is allowed.

  Order pronounced on 30-10-2019.