The Gujarat High Court has upheld the decision of the Income Tax Appellate Tribunal ( ITAT ) to allow income tax deduction for payment made to clear a mortgage, dismissing the appeal filed by the Principal Commissioner of Income Tax ( PCIT ).
The assessee, Rinki Shashikant Gandhi, declaring a total income of Rs. 25,000 for the assessment year 2013-14, sold an immovable property for Rs. 5.5 crore. Gandhi claimed deductions totalling Rs. 4.75 crore, including Rs. 3.25 crore for payments to illegal occupants and Rs. 1.5 crore to Titco Limited for removing a charge on the property.
Initially disallowing the deduction for payments to illegal occupants, the Assessing Officer allowed the Rs. 1.5 crore payment to Titco Limited.
The PCIT initiated proceedings under Section 263 of the Income Tax Act, 1961, challenging the allowance of the Rs. 1.5 crore deduction.
Citing the Supreme Court‘s decision in V.S.M.R. Jagdadishchandran vs. Commissioner of Income Tax, the PCIT contended that since the assessee had not mortgaged the property but merely provided a personal guarantee, the payment could not be considered an improvement cost under Section 48 of the Income Tax law.
The assessee appealed to the ITAT, which noted that the property was never mortgaged by the assessee or any previous owner but was under bank attachment due to Gandhi’s personal guarantee.
The Tribunal found that the Assessing Officer had conducted appropriate inquiries and made a legally plausible decision, differing from the Jagdadishchandran case.
The bench of Justices Bhargav D. Karia and Niral. R. Mehta noted that the findings of the Tribunal indicated that the assessee did not establish a mortgage on the property but instead provided a personal guarantee to Titco Ltd. to discharge the debt. This resulted in a charge over the property, and upon the buyer’s payment directly to Titco Ltd., the mortgage was released based on the assessee’s guarantee.
The Gujarat High Court concluded that no question of law, much less any substantial question of law, arises from the impugned order of the Tribunal. Consequently, the appeal was dismissed and the court upheld the income tax appellate tribunal’s order.
Senior Standing Counsel Nikunt Raval represented the appellant, while Manish J. Shah appeared for the opponent on caveat.
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