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Issues:
- Deduction of interest on borrowed capital under section 24(1)(vi) of the IT Act, 1961. Detailed Analysis: 1. The Department challenged the order of the CIT(A) allowing the deduction of interest on the amount of Rs. 1,31,000 at 12% under section 24(1)(vi) of the IT Act, 1961. The Department's appeals were opposed by the assessee. 2. The assessee purchased a property using borrowed funds and repaid the original loan with subsequent loans. The ITO initially allowed the deduction of interest, but later, following a court case, disallowed it. The matter was remitted back for fresh investigation. The IAC (Assessment) concluded that no interest was allowable under section 24(1)(vi) based on detailed inquiries, leading to disallowance for subsequent assessment years. 3. The CIT(A) held that the conditions of section 24(1)(vi) were satisfied as the borrowings were used to acquire the property, and interest was paid on such borrowings. The CIT(A) accepted the alternative suggestion of calculating interest on the borrowings used in the property. The CIT(A) allowed deduction of interest on the amount claimed by the assessee. 4. The Department contended that the provisions of section 24(1)(vi) apply only to the original loan for purchase of the property and not to subsequent loans. The Department argued that the assessee was not entitled to deduction on the amount of Rs. 1,31,000. 5. The authorised representative for the assessee argued that section 24(1)(vi) extends to all subsequent loans used to repay the original loan for the property. The representative opposed the Department's contentions and supported the CIT(A)'s order. However, there was uncertainty regarding the repayment of a specific loan taken from Shri A.K. Kanoria. 6. The Tribunal found that the language of section 24(1)(vi) limits the benefit to the borrowed capital, i.e., the original loan only, and does not extend to second or subsequent loans. The Tribunal disagreed with the authorised representative's interpretation and clarified that the relief is restricted to the second loan as per the Board's Circular. 7. The Board's Circular specified that the relief under section 24(1)(vi) applies to the second loan used to repay the original loan. The Tribunal emphasized that the extension of relief to the second loan should be strictly construed and cannot be applied to subsequent loans. The Tribunal concluded that the CIT(A)'s interpretation was incorrect, and the interest deduction should be allowed only on the original loan. 8. The Tribunal set aside the CIT(A)'s order and restored that of the ITO for all the assessment years. The appeals by the Department were allowed based on the finding that the deduction of interest should be limited to the original loan for the property purchase. This detailed analysis highlights the interpretation and application of section 24(1)(vi) of the IT Act in the context of deduction of interest on borrowed capital for property acquisition.
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