2022 (3) TMI 662 - AT - Income Tax

Rectification u/s 154 - Treatment to interest incurred by the assessee - i nterest incurred by the assessee on loan borrowed for the purpose of construction of commercial building - claim of the assessee is that building construction has been completed and it was ready to let out and assessee always had the intention to let out the property, however due to market conditions the assessee failed to let out and failure to let out cannot be attributable to the assessee, hence, interest incurred by the assessee towards loan availed for construction of building has to be allowed - HELD THAT - Unless and until the building is ready to let out, the interest incurred by the assessee on loan borrowed for construction of building has to be capitalised. Since in the present case, there is no evidence to suggest that the commercial building was ready in all respects by getting the power connection, water connection, occupation certificate, clearance from fire fighting department, etc., it cannot be presumed that building was ready to let out and assessee taken any steps to let out. The whole plea of the assessee to let out the property is only on presumption basis without any specific evidence on record to suggest that assessee has taken steps to let out the property. In such circumstances, the lower authorities are justified in disallowing the claim of assessee with regard to interest borrowed on loan used for construction of building. In other words, this interest incurred by the assessee is to be capitalised to the cost of building, rather than the claim of deduction u/s. 24 of the Act. It is well settled that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions. In the present case, the Departmental authorities have categorically denied the that the construction of commercial building was completed and it was ready to let out and that assessee had taken steps to let out the property. These findings of the revenue authorities cannot be sought to be rectified in the rectification proceedings. Entertaining such a plea of the assessee would only mean review of the order for which the revenue authorities have no power. In the present case, the assessee has not enclosed any evidence along with the return suggesting completion of construction of commercial building and its readiness to let out, as such the ACIT(CPC) denied the interest claimed by the assessee by way of intimation sent to the assessee. The assessee thereafter sought to rectify the same vide proceedings u/s. 154 of the Act which is not permissible. Had there been any evidence furnished along with the return of income with regard to completion of construction of the building and its readiness to let out, then the claim of the assessee could have been entertained in the rectification proceedings u/s. 154 of the Act by the revenue authorities. In the absence of any such evidence furnished, the CIT(Appeals) was justified in rejecting the claim of assessee. The issue raised by the assessee is a debatable issue which cannot be rectified in the proceedings u/s. 154 - Assessee appeal dismissed.

Summary

Issues:
1. Denial of claim for carrying forward losses.
2. Disallowance of interest deduction.
3. Interpretation of provisions of law.
4. Rejection of submissions made by the assessee.

Issue 1: Denial of claim for carrying forward losses:
The appellant filed a revised return declaring a loss and claimed interest paid on a loan for constructing a commercial property as a deduction. However, the ACIT determined a lower amount to be carried forward as a loss. The appellant argued that interest should be allowed regardless of rental income, citing a Delhi Tribunal case. The revenue authorities contended that since the property was not ready for letting out, the interest incurred should be capitalized, not deducted. The tribunal found no evidence that the property was ready for letting out, leading to the denial of the claim for carrying forward losses.

Issue 2: Disallowance of interest deduction:
The appellant claimed interest deduction on a loan for building construction, asserting the property was ready for letting out. However, the lack of evidence supporting the property's readiness for letting out led to the disallowance of the deduction. The tribunal emphasized the importance of concrete evidence to support such claims, stating that without proof of readiness for letting out, the interest incurred should be capitalized, not deducted.

Issue 3: Interpretation of provisions of law:
The appellant disputed the interpretation of provisions of law regarding interest deduction for building construction. The appellant argued that interest should be allowed even without rental income, while the revenue authorities contended that readiness for letting out was a prerequisite for deduction. The tribunal upheld the revenue authorities' interpretation, emphasizing the necessity of evidence to support claims for deductions under the law.

Issue 4: Rejection of submissions made by the assessee:
The appellant raised various grounds challenging the orders of the revenue authorities, including the denial of interest deduction and the claim for carrying forward losses. Despite the appellant's arguments, the tribunal found no infirmity in the lower authorities' decisions and dismissed all grounds raised by the appellant. The lack of evidence supporting the appellant's claims played a crucial role in the rejection of submissions.

In conclusion, the tribunal upheld the lower authorities' decisions, emphasizing the importance of concrete evidence to support claims for deductions and carrying forward losses. The lack of proof regarding the property's readiness for letting out led to the denial of interest deduction and the claim for carrying forward losses. The tribunal highlighted the need for clear and substantiated evidence to support claims under the law, ultimately dismissing the appeal by the appellant.