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TMI Blog2011 (4) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... he borrowed funds have been utilized for construction/re-construction of the property which is not the property being let out - in favour of assessee. - IT APPEAL NO. 1342 (MUM.) 2011 - - - Dated:- 29-4-2011 - RAJENDRA SINGH, VIJAY PAL RAO, JJ. Rajeev Wagale for the Appellant. D. Songate for the Respondent. ORDER Vijay Pal Rao, Judicial Member. This appeal by the assessee is directed against the order dated 24-12-2010 of CIT(A) for the assessment year 2007-08. 2. The only issue raised by the assessee in this appeal for our consideration and adjudication is whether in the facts and circumstances of the case, the CIT(A) is justified in confirming the disallowance of interest claimed by the assessee under section 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer was of the view that there is no nexus between the loan received from the bank and utilized for the construction/reconstruction of the let out premises to the bank. 2.2 On appeal, the CIT(A) by considering the remand report upheld the disallowance made by the Assessing Officer. 2.3 Before us, the learned AR of the assessee has submitted that the trust started the work of constructing the building in year 1990, and constructed building up to the ground floor by spending Rs. 14,50,414 by the end of financial year 1991-92. This amount is also reflected in the balance sheet of the trust as at 31-3-1992. The learned AR submitted that the assessee had to complete the construction of the balance premises which was first and second f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest paid on the funds utilized for the purchase/acquisition of the property in question. 2.5 On the other hand, the learned DR has submitted that the borrowed funds were utilized for construction of the first and second floor which was not with the assessee but with the trust. Therefore, when the funds were not utilized for construction or reconstruction of the premises let out to the bank the claim of interest is not allowable. He has relied upon the orders of the lower authorities. 2.6 We have considered the rival contentions and relevant record. The CIT(A) has reproduced the remand report in paragraphs 2.2 of his order: "On 5-5-1992 M/s. Shivom Enterprises (a firm which was subsequently converted into a private limited com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om house property. At this juncture, your honour's kind attention is invited to para 4 at page 3 of the forwarding letter wherein the assessee submits usage of funds amounting to Rs. 88,54,939 for the construction of the premises." 2.7 In the remand report, the Assessing Officer has not disputed the facts that as per the terms of the agreement for obtaining the lease for the premises in question, the assessee was to construct the first and second floor on its own cost and provide the same to the trust at free of costs. In addition, the assessee agreed to pay an amount of Rs. 14,50,414 being an amount spent by the trust for construction of the ground floor. The authorities below disallowed the claim of the assessee on the ground that the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head "Income from house property" shall be computed after making the following deductions, namely: (a) a sum equal to thirty per cent of the annual value; (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital: Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees : Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within three years from the end of the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the lease hold right of the ground floor. Therefore, when the borrowed funds was used for consideration in the shape of construction, the interest paid on the borrowed funds is liable for deduction under section 24(b). The lower authorities have taken an incorrect view by holding that the borrowed funds have been utilized for construction/re-construction of the property which is not the property being let out. Once, the fact of the assessee's obligation of construction of first and second floor as per the lease agreement have been accepted by the Assessing Officer in the remand report then the disallowance made by the lower authorities is not justified. Accordingly, we allow the claim of the assessee in respect of the interest paid on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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