PERSONAL TAX: Tax deduction benefit allowed during assessment

The Income Tax Act, 1961 ('the Act') allows many deductions for taxpayers to save taxes and almost each of such provisions are worded to say that the deduction needs to be claimed by the taxpayer in order to be granted the benefit. This week's case elaborates if the taxpayer misses to claim any deduction in his return of income, is it possible to get the benefit of this deduction at the assessment stage?

In a recent case that came up before the Mumbai Tax Tribunal, the taxpayer had filed his return of income on July 30, 2012 declaring taxable income of Rs 4.61 lakh. During the course of his scrutiny proceedings, he filed a letter along with a revised computation of income declaring loss of Rs 9.73 lakhs. In his revised computation of income, the taxpayer claimed deduction towards interest on housing loan and the related losses under the head house property was set off against the income from salary and other sources.

The tax officer did not find any merit with the taxpayer's revised computation. The officer was of the view that unless the taxpayer files a revised return making his claim, the claim made in the course of assessment proceedings by way of a letter and revised computation of income cannot be entertained. In view of the fact that in the original return, the taxpayer has not offered any income from house property and no claim for interest was made, the tax officer rejected the claim of the taxpayer and completed the assessment.

On an appeal, the first appellate authority agreed with the taxpayer's arguments and ruled in his favor. The appellate authority observed that the deduction can be disallowed only if the tax officer had found out that the conditions prescribed in the Act are not met or if the property itself has not been acquired with borrowed capital or no interest is payable on such capital. As no such finding is given by the tax officer, he was not justified in not accepting the claim made by the taxpayer. Further, the taxpayer had also submitted the certificate from the bank in respect of the interest paid on the housing loan; in the absence of any contrary material brought on record by the tax officer, the appellate authority accepted the claim of the taxpayer. The tax officer preferred an appeal against this order with the tax tribunal.

The tribunal relied upon a preceeding Mumbai High Court decision where this question was answered in favor of the taxpayer. Based on the same, the tribunal agreed that the taxpayer was eligible to claim the deduction for the loss under the head house property.

Further, relying on the order passed by the first appellate authority, the tribunal observed that the tax officer has not examined the claim made by the taxpayer at all. Since the tax officer has not verified the claim, the tribunal directed that the tax officer should verify the details of the property acquired, rental income shown, loan borrowed for acquisition of property, interest paid on such loans, etc, to check if the conditions laid down under the Act for allowing deduction on account of interest for house property. Accordingly, the tribunal held that while taxpayer is eligible to claim the deduction of interest paid in the revised statement of income, the same will be subject to the tax officer's verification of data.

The writer is a Sebi-registered investment advisor