2018 (8) TMI 1627 - AT - Income Tax

Allowance of interest u/s 24(b) - rental income from house property - nexus between loan taken and purchase of house property - Held that - AO has declined the claim of the assessee on account of this fact that no purpose has been written in the application while seeking the loan from M/s. India Bulls Financial Service Ltd. however, the AO nowhere examined the other relevant documents. CIT(A) has gone through the each and other aspects of the case and also gone through the loan agreement which speaks about the purpose in which the loan was taken. The loan was found to be taken for purchase of property. Therefore, the deduction u/s 24 of the Act was allowed. The facts are not distinguishable at this stage. Nothing came into notice that the loan was not taken by the assessee for the purpose to purchase the property at Pune. It is only factual issue and according to the facts of the case, the claim of assessee u/s 24 of the Act has been allowed. CIT(A) has passed the order judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee Disallowance u/s 14A - assessee has argued that the claim of the assessee be restricted to the extent of exempt income - Held that - In view of the submission made by the assessee and in view of the law settled in case of Joint Investment Private Limited 2015 (3) TMI 155 - DELHI HIGH COURT we restricted the expenses incurred to earn the exempt income to the extent of dividend income i.e. to the tune of ₹ 1,12,500/-. Accordingly, the issue has decided in favour of the assessee against the revenue.

Summary

Issues Involved:
1. Deletion of disallowance made under Section 24 towards interest paid on a loan.
2. Reopening of assessment under Section 147 of the Income Tax Act.
3. Allowance of interest under Section 24(b) of the Income Tax Act.
4. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.

Detailed Analysis:

Issue 1: Deletion of Disallowance Made Under Section 24 Towards Interest Paid on a Loan

The Revenue challenged the CIT(A)'s deletion of the addition made under Section 24 of the Income Tax Act towards interest of ?33,27,470/- paid on a loan taken from M/s. India Bulls Financial Services Ltd. The Revenue argued that the assessee did not furnish a fund flow statement or specific evidence to substantiate the direct utilization of the loan for repayment of earlier loans taken for the purchase of property at Pune. The Tribunal noted that the tax effect in the appeal filed by the Revenue was below ?20 lakhs, which is the threshold limit as per CBDT Circular No. 3/2018 dated 11/07/2018. Consequently, the appeal was dismissed as not maintainable.

Issue 2: Reopening of Assessment Under Section 147 of the Income Tax Act

The assessee filed a cross-objection in the Revenue's appeal, challenging the reopening of assessment under Section 147 of the Income Tax Act. However, during the argument, the assessee did not press this ground. Therefore, the Tribunal dismissed the cross-objection as not pressed, deciding the issue in favor of the Revenue.

Issue 3: Allowance of Interest Under Section 24(b) of the Income Tax Act

The Revenue contested the CIT(A)’s decision to allow the interest deduction of ?31,84,764/- under Section 24(b) of the Income Tax Act for a loan taken from M/s. India Bulls Financial Services Ltd. The CIT(A) found that the assessee purchased the property at Pune in 2005 and took unsecured loans amounting to ?2,62,29,088/- for the purchase. In 2008, the assessee received a loan from M/s. India Bulls Financial Services Ltd., which was used to reimburse the unsecured loans. The Tribunal upheld the CIT(A)’s decision, noting that the loan agreement specified the loan was for the purchase of the Pune property and that the unsecured loans were repaid using the loan from M/s. India Bulls Financial Services Ltd. Thus, the deduction under Section 24(b) was deemed allowable, and the Revenue's appeal was dismissed.

Issue 4: Disallowance Under Section 14A Read with Rule 8D of the Income Tax Rules

The assessee challenged the disallowance of ?3,28,374/- under Section 14A of the Income Tax Act. The assessee argued that the disallowance should be restricted to the extent of the exempt income, i.e., ?1,12,500/-. The Tribunal referred to the Delhi High Court’s decision in the case of Joint Investment Private Limited, which supports restricting the disallowance to the exempt income earned. Consequently, the Tribunal restricted the disallowance to ?1,12,500/-, thereby partly allowing the assessee's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeals due to the tax effect being below the prescribed limit and upheld the CIT(A)'s decisions on the allowance of interest under Section 24(b). The cross-objection by the assessee regarding the reopening of assessment was dismissed as not pressed. The Tribunal also partly allowed the assessee's appeal by restricting the disallowance under Section 14A to the extent of the exempt income.