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Issues Involved:
1. Disallowance of interest under section 36(1)(iii) and its alternative claim under section 24(b). 2. Deletion of addition on account of capital gains on sale of plots. Issue-wise Detailed Analysis: 1. Disallowance of Interest under Section 36(1)(iii) and Alternative Claim under Section 24(b): The assessee claimed a deduction of interest expenditure under section 36(1)(iii) of the Income-tax Act, 1961, for the purchase of a second residential property. The Assessing Officer (AO) disallowed this claim, stating that the borrowed funds were not utilized for business purposes but for purchasing a residential property. The assessee alternatively claimed the deduction under section 24(b), which was also denied by the AO as the property did not generate any rental income and was not self-occupied. The Tribunal examined the provisions of sections 22, 23, and 24 of the Act. It was noted that section 24(b) allows a deduction for interest on borrowed capital for acquiring, constructing, repairing, renewing, or reconstructing property. However, the property must be either self-occupied or let out. The Tribunal found that the property in question was neither self-occupied nor let out, thus not qualifying for the deduction under section 24(b). The Tribunal further clarified that the deeming provisions of section 23(4)(b) apply only to properties deemed to be let out and not actually let out. Since the property was vacant throughout the year, its annual value could not be computed under section 23(1)(b) or section 23(1)(c). The Tribunal concluded that the assessee's claim under section 24(b) was not maintainable and upheld the disallowance of interest under section 36(1)(iii). 2. Deletion of Addition on Account of Capital Gains on Sale of Plots: The revenue appealed against the deletion of an addition made by the AO on account of capital gains from the sale of plots. The AO had treated the plots as capital assets and applied section 50C, which deems the value assessed by the state authority for stamp duty purposes as the consideration received. The Tribunal observed that the assessee had purchased the plots using borrowed funds and claimed the interest as a business expenditure. The properties were sold within a short period, indicating an intention to realize profits. The Tribunal agreed with the Commissioner of Income-tax (Appeals) [CIT(A)] that the nature of the transaction should be determined based on the facts and circumstances. The Tribunal found that the assessee's intention, as evidenced by the use of borrowed funds and the short holding period, was to treat the plots as business assets rather than capital assets. The Tribunal upheld the CIT(A)'s decision to treat the income from the sale of plots as business income, thus dismissing the revenue's appeal. Conclusion: Both the assessee's and the revenue's appeals were dismissed. The Tribunal upheld the disallowance of interest under section 36(1)(iii) and denied the alternative claim under section 24(b). It also confirmed the CIT(A)'s decision to treat the income from the sale of plots as business income rather than capital gains.
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