2019 (11) TMI 509 - AT - Income Tax

Disallowance of interest u/s 24(b) - A.O. has denied the claim on the ground that the assessee has not utilized the borrowed fund in respect of which the interest was paid for the purpose of acquiring or constructing of the property in question - HELD THAT - A.O. has noted the fact that the borrowed fund was utilized for repayment of the earlier loan. However, there is no finding on the part of the A.O. that whether the earlier loan was taken for the purpose of acquisition/construction of the property in question, therefore, until and unless, this fact is verified that the earlier loan was taken and utilized by the assessee for acquisition/construction of property in question, the claim of the assessee that the borrowed fund was utilized for repayment of the earlier loan taken for the purpose of construction of the property cannot be accepted. Therefore, this issue requires a proper verification of facts regarding the funds utilized by the assessee for the purpose of acquisition/construction of the property in question and in case, the earlier loan was utilized by the assessee for the construction/acquisition of the property then to the extent of such loan utilized for the purpose of construction of the property and repayment of the same by the subsequent loan would be eligible for claim u/s 24(b) of the Act. In absence of the verification of the relevant facts by the authorities below, this issue is set aside to the record of the A.O. for proper verification and readjudication. Alternative plea of deduction u/s 36(1)(iii) - A.O. has denied the claim of the assessee on the ground that this claim was not made in the return of income or in the revised return of income, therefore, the same cannot be entertained - HELD THAT -There is no embargo for considering the said claim by the appellate authority if all the relevant facts for adjudication of such issue are available on record. CIT(A) ought to have considered and adjudicated this claim. Since, this issue has not been decided by the ld. CIT(A) and the A.O. refused to entertain the same, therefore, the same is set aside to the record of the A.O. for consideration and adjudication. Needless to say, the assessee be given proper and reasonable opportunity of hearing.

Summary

Issues:
1. Disallowance of interest paid under section 24(b) on borrowed funds for property let out.
2. Allowance of interest under section 36(1)(iii) and setoff of business losses against other income.

Analysis:

Issue 1: Disallowance of interest under section 24(b) on borrowed funds for property let out:
The assessee claimed a deduction of ?11,91,668 under section 24(b) of the Income Tax Act, 1961 for interest paid on borrowed funds related to a property let out to a company. The Assessing Officer (A.O.) disallowed this claim as the borrowed funds were not utilized for the acquisition or construction of the property generating rental income. The assessee contended that part of the borrowed funds was used to repay an earlier loan taken for the property's construction, making the interest expenditure allowable. The Tribunal found that the A.O. did not verify if the earlier loan was indeed used for the property's acquisition/construction. Consequently, the issue was remanded to the A.O. for proper verification and readjudication.

Issue 2: Allowance of interest under section 36(1)(iii) and setoff of business losses:
The assessee raised an additional ground seeking allowance of interest under section 36(1)(iii) and setoff of business losses against other income. The A.O. rejected this claim as it was not raised in the original or revised income tax return. However, the Tribunal held that the appellate authority could consider the claim if all relevant facts were on record. Since the claim was not addressed by the A.O. or the Commissioner of Income Tax (Appeals), it was remanded to the A.O. for proper consideration and adjudication, ensuring the assessee is given a fair opportunity of hearing.

In conclusion, the Tribunal allowed the assessee's appeal for statistical purposes only, directing a reevaluation of both the disallowed interest deduction under section 24(b) and the unaddressed claim under section 36(1)(iii) for setoff of business losses against other income.