2015 (11) TMI 1452 - AT - Income Tax

Tribunal ruling: Deduction allowed for second property, first property deduction disallowed due to claim discrepancies.

Seema Singh Beniwal, M/s Oriental Autotech Pvt. Ltd. Versus Deputy Commissioner of Income-Tax, Circle-6, Jaipur.

Seema Singh Beniwal, M/s Oriental Autotech Pvt. Ltd. Versus Deputy Commissioner of Income-Tax, Circle-6, Jaipur. - [2016] 45 ITR (Trib) 664 Issues Involved:1. Jurisdiction and validity of additions and disallowances made under Section 143(3) of the Income Tax Act.2. Disallowance of deduction claimed under Section 54 of the Income Tax Act amounting to Rs. 38,30,114.3. Charging of interest under Sections 234A and 234B of the Income Tax Act.Issue-wise Detailed Analysis:1. Jurisdiction and Validity of Additions and Disallowances:The appellant did not press this ground, and therefore, it was dismissed as not pressed.2. Disallowance of Deduction under Section 54 of the Income Tax Act:The appellant, a director in two companies, declared income from various sources including remuneration, interest, and income under Section 44AF. The return for A.Y. 2008-09 was filed on 31/3/2009 and revised on 31/3/2010. The case was scrutinized under Section 143(3). The original return did not include long-term capital gains from the sale of two flats, which were later claimed as exempt under Section 54 in the revised return. The Assessing Officer (AO) found discrepancies in the original and revised returns and disallowed the deduction claimed under Section 54.The AO observed that the residential house at 64/108, Pratap Nagar, Jaipur was originally allotted to the appellant's mother-in-law, and the payments were made from a bank loan. The AO concluded that the appellant added her name as a co-owner to claim the deduction under Section 54. The AO also found that the construction claimed by the appellant was not substantiated with proper evidence and was not a finished house.Regarding the second property at C-114, Hanuman Nagar, Jaipur, the AO noted that the construction was minimal and not suitable for residential purposes. The AO concluded that the construction was an attempt to misuse the provisions of Section 54.The CIT(A) confirmed the AO's findings, stating that the appellant could claim deduction under Section 54 only for one house and that the payments for the first property were made before the sale of the flats. The CIT(A) also found that the construction on the second property was not sufficient to qualify as a residential house.3. Charging of Interest under Sections 234A and 234B:The appellant denied liability for interest under Sections 234A and 234B. The decision on this issue is consequential to the findings on the other grounds.Tribunal's Findings:First Property (Pratap Nagar):The Tribunal upheld the CIT(A)'s decision, agreeing that the payments for the first property were made before the sale of the flats and that the appellant's name was added to claim the deduction. The Tribunal noted that the purchase of a constructed house in a self-financing scheme is treated as construction, not purchase, and therefore, the appellant was not entitled to the deduction under Section 54 for this property.Second Property (Hanuman Nagar):The Tribunal found that the appellant had deposited the sale proceeds in a capital gain account and used it to purchase a plot and construct a room. The Tribunal noted that the construction was minimal but habitable and fulfilled the requirements of a residential house. The Tribunal reversed the CIT(A)'s decision and allowed the deduction under Section 54 for the second property.Interest under Sections 234A and 234B:The Tribunal directed the AO to take a decision on the charging of interest as per law, based on the findings on the other grounds.Conclusion:The appeal was partly allowed, with the Tribunal upholding the disallowance for the first property and allowing the deduction for the second property. The issue of interest was left to the AO to decide as per law.