2023 (3) TMI 1050 - AT - Income Tax

Income from house property - interest expenses claimed by the assessee u/s 24(b) against income earned from renting out its property shown under the head income from house property - CIT(A) allowed the same noting that the borrowing had been utilized for repaying liability pertaining to construction of Mall and not for repaying loan taken for construction - Whether loan could be said to be utilized for constructing house property? - HELD THAT - Considering the fact that even the AO noted the OCD being utilized for payment of outstanding liability of JPIPL which the assessee demonstrated as pertained to construction expenses, we find no infirmity in the findings of the CIT(A) that the loan was utilised not for repayment of an earlier loan but for a liability for construction of property. DR has been unable to controvert this fact before us. We therefore agree with the CIT(A) that the loan can be said to be utilized for construction of property and interest thereon accordingly is allowable u/s 24(b) of the Act. Basis for disallowing interest expenses by the AO does not survive. Therefore, for this reason alone, the allowance of claim of deduction under section 24(b) of the Act of the interest paid by the assessee is held to be sustainable in law. No reason to deal with the arguments of the DR which are in the context of different set of facts which are not present in the case before us. The entire arguments of the ld.DR are raised on the fact that the interest has been paid by the assessee on a fresh loan taken to repay the original loan. Since the facts in the present case are not so, dealing with the same is only an academic exercise, and we see no reasons therefore to deal with the same. Decided against revenue.

Summary

Issues Involved:
1. Disallowance of interest expenses claimed under section 24(b) of the Income Tax Act, 1961.

Judgment Summary:

Issue: Disallowance of Interest Expenses under Section 24(b) of the Income Tax Act, 1961

The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals)-1, Rajkot, which allowed the assessee's claim of interest expenses amounting to Rs. 7,28,00,166/- under section 24(b) of the Income Tax Act, 1961. The assessee, a closely held company engaged in leasing out shops and malls, claimed interest expenses on borrowings used for acquiring/constructing properties. The Assessing Officer (AO) disallowed the claim, arguing that the funds were used for repaying an outstanding liability to a party, not directly for construction.

The CIT(A) allowed the claim, noting that the borrowing was used to repay a liability related to the construction of a mall, thus qualifying for deduction under section 24(b). The Revenue contended that the interest was paid on a loan used to repay another loan, which is not allowable under section 24(b). The assessee countered by citing various judicial decisions supporting the claim that section 24(b) does not exclude interest on loans taken to repay original construction loans.

The Tribunal examined the facts and found that the loan was indeed used to repay a liability for construction, not another loan. The Tribunal upheld the CIT(A)'s decision, stating that the interest paid on such a loan is allowable under section 24(b). The Tribunal dismissed the Revenue's appeal, affirming that the interest expenses claimed by the assessee are sustainable in law.

Conclusion:
The appeal of the Revenue was dismissed, and the interest expenses claimed by the assessee under section 24(b) of the Income Tax Act, 1961, were held to be allowable.