2017 (8) TMI 1662 - AT - Income Tax

Income from house property - Disallowance on account of interest expenditure paid by the assessee u/s. 24B - subsequent loan to repay earlier / original loan - repayment of housing loan is out of fresh borrowings - whether interest on subsequent loan taken for repayment of housing loan was eligible for deduction u/s. 24 of IT Act against the income from housing property? - HELD THAT - Interest on subsequent loan to repay the earlier housing loan is also allowable subject to the following conditions A. the assessee has to establish that the subsequent loan is to repay the earlier housing loan B. deduction on interest is allowable only to the extent of interest on earlier loan used for acquiring or constructing the housing property and not on the unpaid interest on such earlier housing loan or subsequent housing loan to repay the earlier housing loan. We set aside the order of CIT(A) for all the 5 years and restore the matter to the file of the CIT(A) for fresh decision with the direction that he should examine the claim of the assessee in line with above discussion and deduction on account of interest should be allowed to the extent the assessee is able to establish that the subsequent loan on which interest is being claimed is used for the purpose of repayment of earlier housing loan and such claim of interest should be restricted to the extent of actual amount of earlier/new housing loan used for acquiring / constructing housing property and it should not be for unpaid interest. The ld. CIT(A) should pass necessary order as per law as per above discussion after providing adequate opportunity of hearing to the assessee- Appeals filed by the assessee are allowed for statistical purposes.

Summary

Issues:
Appeals against combined order for Assessment Years 2005-06 to 2009-10 challenging disallowance of interest expenditure u/s. 24B of IT Act.

Analysis:
The assessee contested disallowance of interest expenditure in all 5 years due to the AO's decision under section 24B of the IT Act. The primary contention revolved around the purpose of the loans taken and their utilization for acquiring property. The appellant raised 7 additional grounds consistently across all years, emphasizing the loan documentation, purpose of loans, and repayment schedules. The argument focused on the loan's intended use for property acquisition rather than business expansion, challenging the disallowance based on non-repayment within the loan period and the nature of borrowed capital.

The AR presented loan sanction letters and bank statements to support the claim that subsequent loans were utilized to repay earlier housing loans, justifying the interest deduction under section 24B. The DR, however, relied on judgments such as ITO Vs. Satya Co. Ltd. and Naman Kumar Vs. CIT to counter the appellant's position. The AR referenced the Tribunal order in ACIT Vs. Sunil Kumar Agarwal, highlighting the eligibility of interest deduction on subsequent loans used to repay original housing loans, subject to certain conditions.

The Tribunal analyzed the facts and legal precedents cited by both parties. It differentiated the present case from the judgments referenced by the DR, emphasizing the fresh borrowings for housing loan repayment in the appellant's case. Considering the Tribunal order in ACIT Vs. Sunil Kumar Agarwal and the Punjab & Haryana High Court judgment in Naman Kumar Vs. CIT, the Tribunal concluded that interest on subsequent loans for housing loan repayment is allowable if certain conditions are met.

Consequently, the Tribunal set aside the CIT(A)'s order for all 5 years, directing a fresh examination of the appellant's claim in line with the discussed conditions. The CIT(A) was instructed to allow interest deduction only to the extent that the subsequent loan was used for earlier housing loan repayment, limiting the claim to the actual amount utilized for property acquisition. The appeals were allowed for statistical purposes, providing the appellant with an opportunity for a fresh decision.

This comprehensive analysis of the judgment highlights the intricacies of the legal arguments, the application of relevant case law, and the Tribunal's decision based on the specific facts and conditions presented in the case.