2023 (10) TMI 842 - AT - Income Tax

Appeal Partly Allowed: Tribunal Upholds Property Valuation, Requires Further Action on Section 68, Dismisses Interest Disallowance

The appellate tribunal partly allowed the appeal, addressing several issues. It upheld the CIT(A)'s determination of the annual value of properties at 7% ... Income from house property - consider the Ambey Valley property as self-occupied property - AO rejected claim as it was not made in the original return of income - CIT(A) denied the claim as the claim was made during the assessment proceedings and not part of the return of income - HELD THAT:- We find that during the course of assessment proceedings the assessee has revised computation of income where by the claim of the assessee was changed by withdrawing the amount offered under the income of house property and claiming Ambey Valley property as self-occupied property. AO held that as there was no claim by filling revised income, it was not entertained. On appeal before ld. CIT (A) the issue arose about allowbility of same claim but CIT(A) has held that the ground no. 1 of the appeal of the assessee is partly allowed. Ground no. 1.1 and 1.2 are with respect to considering Ambey Valley property as self occupied property and ground no. 1.3 is determining deemed annual value of the house property at the rate of 7%. CIT(A) has upheld that the 7% of cost of property as annual value taxable u/s 23, against the assessee and therefore only others ground are which are allowed by him. There is no reason given by him. Therefore, we restore ground back to the file of Ld. CIT(A) to give clear cut reason and finding that whether the claim of the assessee of considering Ambey Valley property as self-occupied property u/s 23(2) of the Act is allowable or not. Addition u/s 68 - claim of the assessee is that in the original return of income sale consideration was wrongly shown of ₹150,40,800/- whereas it is claimed by the assessee that property is sold at ₹ 78 lacs only, the market value of the property was stated to be ₹ 94,43,000/- - HELD THAT:- As the sale agreement produced before us along with the revised computation shows that the sale consideration of the flat as Rs. 78 lacs whereas market value of flat is Rs. 94,43,000/-. We set aside this issue to the file of the Ld. CIT(A) also where the assessee is directed to substantiate that actual sale consideration received in his books of account is only ₹ 78 lacs and there is no credit of ₹ 1,15,00,000/- as mentioned in the computation of total income filed with original return of income and thus there cannot be any addition u/s 68 of the Act as above sum was not mentioned in books of account. Accordingly, the ground no.3 of the appeal is allowed with above direction. Appeal filed by the assessee is partly allowed for statistical purposes 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Ambey Valley property can be treated as self-occupied under section 23(2) where the claim to that effect was made during assessment proceedings and not in the original return of income. 2. Whether annual value of properties may be determined at 7% of cost for provisioning deemed rent under section 23 where occupancy/possession and other facts are in dispute. 3. Whether interest on loans for acquisition/construction of house property is allowable under section 24(b) and, if so, in what proportion where loans are of mixed character. 4. Whether a discrepancy between sale consideration shown in the original return and the actual sale agreement/market value gives rise to addition under section 68 as unexplained credit. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Treating Ambey Valley property as self-occupied where the claim was not in the original return Legal framework: Section 23(2) deals with deemed annual value and conditions for self-occupied status; procedural law requires claims in the return but allows assessment/appeal scrutiny to consider revisions subject to proof and principles of natural justice. Precedent treatment: The Tribunal noted treatment by coordinate bench in earlier assessment years regarding valuation at 7%; no binding precedent cited on procedural restriction of post-return claims beyond assessment proceedings. Interpretation and reasoning: The AO refused to entertain the claim because it was not part of the original return; the CIT(A) allowed the claim without reasons. The Tribunal found procedural deficiency in reasoning and observed the assessee filed a revised computation during assessment proceedings withdrawing earlier income and claiming self-occupied status. The Tribunal directed remand to the CIT(A) to give clear findings and afford opportunity of hearing to both parties to determine allowability under section 23(2). Ratio vs. Obiter: Ratio-An after-filed claim made in assessment proceedings cannot be summarily rejected for want of being in the original return without adjudication on merits and reasoned decision; remand is required where reasons are absent. Obiter-Procedural permissibility of revisions generally. Conclusion: Ground allowed in part by remanding to the CIT(A) for fresh, reasoned determination on whether Ambey Valley is self-occupied under section 23(2), with opportunity to parties. Issue 2: Determination of annual value at 7% of cost under section 23 Legal framework: Section 23 prescribes computation of annual value of house property; where actual rent/occupancy is not declared or possession facts are unclear, the authority may adopt objective bases subject to judicial guidance. Precedent treatment: The CIT(A) and the AO applied a 7% of cost approach, following a coordinate-bench decision in the assessee's own earlier years; the Tribunal recorded that the CIT(A) upheld 7% determination. Interpretation and reasoning: The Tribunal accepted that the 7% approach has been consistently applied by coordinate benches and by the CIT(A) for similar facts; the Tribunal did not disturb the 7% determination except to remit issues linked to self-occupied character and factual proof (e.g., occupancy certificate for another flat which CIT(A) deleted). Ratio vs. Obiter: Ratio-Where facts and preceding consistent judicial treatment justify application of a percentage of cost as deemed annual value, the authority may apply that rate; remand limited to fact-specific issues. Obiter-The propriety of 7% as universal benchmark. Conclusion: The 7% annual value determination was sustained insofar as applied consistently; remand does not disturb that approach but requires factual adjudication where claim of self-occupation or non-availability of occupancy certificate affects application. Issue 3: Allowability and apportionment of interest under section 24(b) for mixed loans Legal framework: Section 24(b) permits deduction of interest on borrowed capital for acquisition/construction of property; where loans are mixed (home loan and loan against property), apportionment principles apply and deduction may be limited. Precedent treatment: The AO applied apportionment consistent with treatment in the immediately preceding assessment year; CIT(A) did not disturb AO's apportionment and disallowance to the extent recorded. Interpretation and reasoning: The CIT(A) dismissed the assessee's ground challenging the AO's apportionment, effectively upholding the AO's approach that part of the interest related to non-qualifying borrowings must be disallowed. The assessee did not press this ground before the Tribunal, leading to dismissal of that ground. Ratio vs. Obiter: Ratio-Interest deduction under section 24(b) must be apportioned where borrowing is of mixed character, and assessment-year consistent apportionment may be upheld absent cogent contrary proof. Obiter-Methodology for apportionment in other factual matrices. Conclusion: Ground not pressed and dismissed; the AO's proportional disallowance of interest was maintained by the CIT(A) and not reconsidered by the Tribunal. Issue 4: Addition under section 68 for discrepancy between sale consideration in return and sale agreement/market value Legal framework: Section 68 applies to unexplained cash credits/credits in books; section 50C and related provisions address valuation for capital gains/transfer price; authorities may invoke section 68 where amounts reflected in return but not substantiated in books or by receipts. Precedent treatment: The AO treated excess of sale consideration shown in return over market value as unexplained credit taxable under section 68; CIT(A) upheld that a claim made during assessment but not by revised return was inadmissible. Tribunal referred to the sale agreement and remanded for factual determination. Interpretation and reasoning: The AO relied on the absence of valuation/report and the discrepancy to make an addition under section 68. The CIT(A) sustained the view that an after-return claim in assessment proceedings could not be accepted. The Tribunal required the assessee to substantiate that the actual consideration received and recorded in books was Rs. 78 lakhs (per sale agreement) and that the larger amount did not appear in books; accordingly the Tribunal set aside the issue to the CIT(A) for fact-finding and directed the assessee to produce books/evidence to rebut section 68 addition. Ratio vs. Obiter: Ratio-Addition under section 68 cannot be sustained where the assessee can demonstrate that the actual consideration received is reflected in books of account and that a higher figure appearing in the return was erroneous and unsupported; such factual disputes must be resolved on evidence. Obiter-Interplay of section 50C and section 68 where market value discrepancies exist. Conclusion: Ground allowed by remand to the CIT(A) with direction to examine books of account and evidence of receipt of Rs. 78 lakhs; if substantiated, addition under section 68 should not be sustained. Cross-references and overall disposition All issues involving factual disputes (self-occupation under section 23(2) and unexplained credit under section 68) were remanded to the CIT(A) for fresh reasoned findings with opportunity of hearing; the 7% annual value approach and apportionment under section 24(b) were largely sustained by prior treatment and were not disturbed except where fact-specific proof could alter application. The appeal was partly allowed for statistical purposes with remands as directed.