2015 (4) TMI 707 - AT - Income Tax

Dis-allowance of interest paid to partners u/s 24(b) - Allowed the same in immediately preceding year - Held that - Although the learned DR has strongly supported the impugned order of the learned CIT(Appeals) confirming the disallowance made by the AO on account of assessee s claim for deduction u/s 24(b) for interest paid on partners capital account by relying on the various reasons given in the impugned order, the learned counsel for the assessee has filed a written submission to meet satisfactorily each and every point raised by the learned CIT(Appeals) while confirming the disallowance made by the AO on account of assessee s claim for deduction u/s 24(b). A similar issue involved in the immediately preceding year i.e. assessment year 2006-07 was decided by the learned CIT(Appeals) in favour of the assessee in the similar facts and circumstances and the said decision of learned CIT(Appeals)d giving relief to the assessee has been upheld by the Tribunal vide its order dated 20th April, 2010 2010 (4) TMI 1027 - ITAT MUMBAI . As held by the Tribunal in the said order, the entire interest paid on the partners capital was related to the premises which were let out by the assessee and the same, therefore, was allowable as deduction u/s 24(b) while computing income of the assessee under the head Income from house property . Respectfully following the said decision of the Tribunal in assessee s own case for assessment year 2006-07, we direct the AO to allow the claim of the assessee for deduction on account of interest paid on partners capital u/s 24(b). - Decided in favour of assessee.

Summary

Issues: Disallowance of deduction claimed by the assessee for interest paid to partners u/s 24(b).

Analysis:
1. The assessee, a partnership firm engaged in the business as a builder and developer, filed a return of income declaring total income. The firm had constructed commercial complexes and sold part of it, treating the buildings as stock in trade. The unsold part was let out, and rent received was offered as income from house property. The deduction u/s 24(b) was claimed on interest paid to partners' capital deployed for construction. The AO disallowed the deduction, stating partners' capital couldn't be treated as borrowed capital. He held the capital represented accumulated profits, disallowing the claimed interest deduction.

2. The disallowance was challenged before the CIT(Appeals), highlighting a similar deduction allowed in a previous year. However, the CIT(Appeals) upheld the disallowance, ignoring the precedent, and confirming the AO's decision. The assessee appealed to the Tribunal.

3. The Tribunal noted arguments from both sides. The DR supported the CIT(Appeals) order, while the assessee's counsel submitted a written response addressing all points raised. The counsel cited a previous year's decision favoring the assessee, upheld by the Tribunal. The Tribunal, following the precedent, directed the AO to allow the deduction for interest paid on partners' capital u/s 24(b), as it was related to premises let out by the assessee, falling under "Income from house property."

4. Consequently, the Tribunal allowed the appeal of the assessee, pronouncing the order on May 16, 2012.