2021 (9) TMI 762 - AT - Income Tax

Disallowing the interest claimed under Section 24(b) - part of the housing loan was utilized for advancing to certain parties from whom the assessee has shown interest receipts - quantum of loan utilised for construction of house property AND Quantum of loan utilised for advancing to certain parties - HELD THAT - The facts which are emerging from records are that the assessee has taken housing loan from ICICI Bank a part of the said loan was utilized towards construction of second floor of the house property and related expenses as well as repayment of earlier loan taken from IDBI Bank for construction of ground and first floor. It is also an admitted fact that a part of the property was self-occupied and a part let out in respect of which rental income has been offered to tax. A part of the housing loan was utilized for advancing to certain parties from whom the assessee has shown interest receipts in her return of income. Therefore, the fact that the loan was taken and utilized for the purposes of construction of house property and for advancing to certain parties and on such borrowing, the assessee has incurred an interest expense during the financial year is clearly emerging from records. Therefore, the interest pertaining to the quantum of loan utilised for construction of house property shall be eligible for deduction against the income shown under the head Income from house property and the remaining interest pertaining to the quantum of loan utilised for advancing to certain parties shall be eligible for deduction against the interest income shown under the head Income from other sources . Addition towards unexplained cash deposit in the bank account - HELD THAT - On perusal of cash flow statement, it is noted that the assessee was having cash in her hands which reasonably explain the source of cash deposit in her bank account. The addition so made is hereby directed to be deleted.

Summary

Issues Involved:
1. Disallowance of interest claimed under Section 24(b) of the Income Tax Act, 1961.
2. Non-allowance of deduction of balance interest on housing loan against income from other sources.
3. Addition of ?40,000/- under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Interest Claimed under Section 24(b):
The assessee claimed interest expenses of ?5,06,678/- for a housing loan taken for constructing the second floor of a house. Initially, only ?3,48,888/- was claimed under Section 24(b), with the balance interest of ?1,57,790/- pertaining to the construction period inadvertently not claimed. The CIT(A) confirmed the AO’s decision to allow only ?1,50,000/- on the grounds that the housing loan was not fully utilized for construction. The assessee argued that the loan was partly used for onward lending, generating interest income of ?2,89,004/-, against which interest expenses of ?2,74,705/- were claimed. The Tribunal concluded that the interest pertaining to the loan used for construction (?2,31,973/-) should be allowed under "Income from house property," and the interest for the loan used for onward lending (?2,74,705/-) should be allowed under "Income from other sources."

2. Non-Allowance of Deduction of Balance Interest on Housing Loan Against Income from Other Sources:
The assessee took a housing loan of ?45,00,000/-, part of which was used for construction and part for lending. The AO allowed only ?1,50,000/- as interest deduction for self-occupied property, disallowing the remaining interest. The Tribunal noted that the loan utilization was for both construction and lending, with interest expenses of ?5,06,678/- incurred. The Tribunal allowed interest deduction of ?2,31,973/- for the construction portion under "Income from house property" and ?2,74,705/- for the lending portion under "Income from other sources."

3. Addition of ?40,000/- Under Section 68:
The AO added ?40,000/- as unexplained cash credits, citing the lack of a cash book or cash flow statement. The assessee provided a cash flow statement showing an opening balance, cash withdrawals, rent received, and household and construction expenses, leaving a cash balance of ?74,886/-, which explained the deposit. The Tribunal found the cash flow statement credible and directed the deletion of the ?40,000/- addition.

Conclusion:
The appeal was allowed, with the Tribunal granting the claimed interest deductions under the appropriate sections and deleting the addition of ?40,000/- for unexplained cash deposits.

Order Pronounced:
The judgment was delivered on 14/09/2021.