2015 (2) TMI 443 - AT - Income Tax

Deduction u/s. 24(b) - Interest on second loan claimed as deduction from house property income - Held that - As observed that the claim of the assessee for deduction on account of interest under S.24(b) was allowed by the learned CIT(A) relying on the CBDT Circular No.28 dated 20.8.1969, wherein it is clarified by the CBDT that if the second borrowing has really been used merely to repay the original loan taken for the acquisition or construction of the house property, and this fact is proved to the satisfaction of the AO, the interest paid on the second loan would also be allowed as deduction. - Assesse submitted that all the fixed deposits were mobilised by the assessee during the respective earlier years when the construction of the hospital building was carried on and the assessee is in a position to establish that the said deposits were utilized for the construction of hospital building, if opportunity is afforded to him in this regard. - matter remanded back to the file of the Assessing Officer with a direction to decide the same afresh in the light of the CBDT Circular dated 20.8.1969, after giving the assessee proper and sufficient opportunity to establish that the fixed deposits mobilized during the earlier years were utilize for the construction of the hospital building. - Decided in favour of revenue for statistical purposes. Unexplained cash deposit found to be made by the assessee in his bank account - Held that - Before us, the learned counsel for the assessee has submitted that besides pointing out the mistake in the amount of cash deposit taken by the Assessing Officer, explanation as regards to the source of the cash deposit of ₹ 1,56,000 made in the bank account with DCB Bank was also offered by the assessee before the CIT(A). He has contended that the learned CIT(A) however, has failed to consider said explanation and urged that the matter may therefore be restored to the file of the Assessing Officer for verifying the explanation of the assessee as regards the cash deposit of ₹ 1,56,00 made in the bank account. Since the DR has not raised any objection in this regard, we restore this issue also to the file of the Assessing Officer for deciding the same afresh after giving the assessee proper and sufficient opportunity to explain the source of the cash of ₹ 1,56,000 deposited in the bank account on 4.7.2007. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of interest claimed by the assessee as deduction u/s. 24(b) of the Income Tax Act.
2. Disallowance of interest under S.24(b) for assessment year 2008-09.
3. Addition of cash deposit in the bank account treated as unexplained.

Issue 1: Disallowance of Interest under S.24(b) for Assessment Year 2007-08:
The main issue in this case was the disallowance of interest claimed by the assessee as a deduction under S.24(b) of the Income Tax Act. The Assessing Officer disallowed a specific amount claimed by the assessee as interest paid on loans taken from a bank for the construction of a hospital building. The Assessing Officer found no direct nexus between the value addition to the building and the fixed deposits mobilized. The CIT(A), however, deleted this disallowance, citing a CBDT Circular and emphasizing the utilization of loans for repayment of original loans taken for construction. The Tribunal set aside the CIT(A) order and directed the Assessing Officer to allow the deduction if the nexus between fixed deposits and construction is established.

Issue 2: Disallowance of Interest under S.24(b) for Assessment Year 2008-09:
For the assessment year 2008-09, a similar issue arose regarding the disallowance of interest under S.24(b) by the Assessing Officer. The Tribunal, following the decision made for the previous year, set aside the CIT(A) order and directed the Assessing Officer to re-examine the matter considering the CBDT Circular and the nexus between the loans and construction.

Issue 3: Addition of Cash Deposit as Unexplained Income:
Another issue involved an unexplained cash deposit made by the assessee in a bank account. The Assessing Officer treated the deposit as unexplained investment, adding it to the total income of the assessee. The CIT(A) directed the Assessing Officer to verify the exact amount of the deposit. The Tribunal, upon the submission that the deposit amount was incorrect and providing an explanation for the cash deposit, restored the matter to the Assessing Officer for proper verification and consideration of the explanation provided by the assessee.

This judgment highlights the importance of establishing a direct nexus between financial transactions and claimed deductions under the Income Tax Act. It emphasizes the need for proper documentation and evidence to support deductions claimed by taxpayers. The Tribunal's decision to remand the matters to the Assessing Officer for re-examination underscores the significance of thorough verification and consideration of all relevant factors in tax assessments.