2022 (5) TMI 42 - AT - Income Tax

Disallowance of interest on loan taken for acquiring few let-out flats - Income from house property - nexus of use of the loan amount for acquiring the house property - assessee claimed interest on loan taken for acquiring few let-out flats for which the assessee borrowed three loans for making re-payment of housing loan taken from India Bulls Housing Finance Ltd. (IBHFL) for acquiring the aforesaid flats - as per AO claimed home loan interest repayment was not justified properly by the assessee - HELD THAT - Provisions of section 24(b) of the Act which state that (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital and in our view the Assessing Officer and the learned CIT(A) ought to have considered the claim of interest in lieu thereof. We further find that the ass has shown income under the head Income From House Property and the assessee is also deriving income from business and we agree with the argument of the learned Counsel that had it been interest on business loan the assessee has right to claim it from business income and computed total income (loss) would have been the same We do not find any justification in learned CIT(A) stating that he has allowed interest claimed under section 24(b) of the Act at ₹ 1,50,000 for the reason that interest certificate does not justify for housing home loan whereas the learned CIT(A) himself has admitted that the assessee was sanctioned loan of ₹ 9.8 crore from India Bull against residential property for the four flats cited supra. It is also evident from the findings of the learned CIT(A) s order that the assessee obtained loan from DCB Bank for repayment of this housing loan and stated that the borrower namely Mrs. Subra Subir Kumar Banerjee, have jointly been granted business loan. In view of the forgoing discussions, we are of the considered opinion that the AO as well as the learned CIT(A) ought to have accepted the claim of interest paid to DCB Bank by the assessee and consequently, we set aside the impugned order passed by the learned CIT(A) and direct the Assessing Officer to allow interest paid to DCB bank by deleting the addition made in lieu thereof and the returned income is hereby directed to be accepted. Accordingly, grounds no.1 to 4, raised by the assessee are allowed.

Summary

Issues Involved:
1. Legality of the order passed by Commissioner of Income Tax (Appeals)-1, Nagpur.
2. Justification of the addition of ?1,12,37,579/- on account of disallowance of interest on loan.
3. Nexus of housing loan within the meaning of Section 24 of the Income Tax Act.
4. Acceptance of loan taken from the bank as a housing loan and interest paid to DCB bank.

Detailed Analysis:

1. Legality of the Order Passed by Commissioner of Income Tax (Appeals)-1, Nagpur:
The assessee challenged the legality of the order passed by the Commissioner of Income Tax (Appeals)-1, Nagpur, dated 23rd January 2017. The order was contested on grounds of being illegal, invalid, and bad in law. The Tribunal examined the procedural and substantive aspects of the order to determine its legality.

2. Justification of the Addition of ?1,12,37,579/- on Account of Disallowance of Interest on Loan:
The primary issue was whether the CIT(A) was justified in confirming the addition of ?1,12,37,579/- made by the Assessing Officer (AO) concerning the disallowance of interest on loan. The AO had disallowed the interest claimed by the assessee on the grounds that the loan certificates from DCB bank were labeled as "Business Loan Interest Certificate" rather than housing loan certificates. The Tribunal found that the assessee had taken loans from DCB Bank to repay a housing loan from India Bulls Housing Finance Ltd. (IBHFL) for acquiring four flats. The Tribunal noted that the nomenclature of the loan should not affect the allowability of interest under section 24(b) of the Act, which allows deductions for interest on borrowed capital used for acquiring property.

3. Nexus of Housing Loan Within the Meaning of Section 24 of the Income Tax Act:
The Tribunal examined whether the nexus of the housing loan was established within the meaning of Section 24 of the Income Tax Act. The assessee had claimed that the loans from DCB Bank were used to repay the housing loan taken from IBHFL. The Tribunal found that the assessee had provided sufficient documentary evidence, including loan sanction letters and repayment certificates, to establish that the loans were indeed used for acquiring the specified flats. The Tribunal concluded that the interest on these loans should be allowed as a deduction under Section 24(b) of the Act.

4. Acceptance of Loan Taken from the Bank as a Housing Loan and Interest Paid to DCB Bank:
The Tribunal addressed whether the loan taken from DCB Bank should be accepted as a housing loan and whether the interest paid on it should be allowed as a deduction. The Tribunal found that the DCB Bank had incorrectly labeled the interest certificates as "Business Loan Interest Certificate." However, the evidence provided by the assessee, including the loan sanction letters and repayment certificates, clearly indicated that the loans were for housing purposes. The Tribunal directed the AO to allow the interest paid to DCB Bank amounting to ?1,12,37,579/- by deleting the addition made in lieu thereof.

Conclusion:
The Tribunal concluded that the AO and CIT(A) had erred in disallowing the interest claimed by the assessee. The Tribunal set aside the impugned order passed by the CIT(A) and directed the AO to allow the interest paid to DCB Bank amounting to ?1,12,37,579/-. The appeal filed by the assessee was allowed, and the returned income was directed to be accepted.