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TMI Blog2015 (1) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of Rs. 4,63,367/- representing the interest paid on borrowed capital utilized for construction of house property and eligible for deduction under section 24(1)(vi) of the Act. 2.1. That the finding Commissioner of Income Tax (Appeals) that the liability incurred by the appellant on purchase of material for construction of house property does not represent borrowed capital by mechanically applying the decision of the Andhra Pradesh High Court in the case of Doondoo Mohan Rao vs. CIT (1978) Tax Law Reports 394 and Hon'ble Punjab and Haryana High Court in the case of CIT vs. Forefield Private Limited reported in 231 ITR 262 without giving opportunity is misconceived, misplaced and contrary to the facts and statutory provisions of law. 2.2. That the Commissioner of Income Tax (Appeals) has failed to appreciate that one the appellant had provided for interest on the sums borrowed by way of purchase of raw material, it is denominated that there was a relationship of the borrower and lender between the parties who had supplied raw material and the appellant and as such, interest payable on such borrowed capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties aggregating to Rs. 4,63,367/-, which was as under: S.No. Name of parties Amount in Rs. a. Bhatia Constructions 1,22,910/- b. Komal Interiors 1,16,794/- c. Natasha Furnishers, Prop. Renu Dang. 93,732/- d. Sonali Enterprises 42,290/- e. Super Sales (India) 87,641/- 2.2. The AO had issued notice u/s 133(6) to verify the payment of interest as claimed by the assessee. However, notices remained uncomplied. Accordingly, he show caused the assessee as to why this amount should not be disallowed. The assessee in its reply, inter alia, submitted that interest paid on money borrowed for construction of building is an allowable deduction u/s 24 of the I.T. Act. The assessee pointed out that these parties had supplied materials and done some work relating to the construction of building in FY 2002-03 from which the assessee was deriving rental income. The AO again issued notice u/s 133(6), calling for details of transaction made by them with the assessee. However, since there was no compliance from M/s Sonali Enterprises and M/s Super Sales (India), other parties only sought time but no details were filed. The AO denied the assessee's claim, inter alia, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the provisions of sub-section (2), be computed after making the following deductions, namely:- (vi) where the property has been acquired, constructed repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital." 2.4. He denied the assessee's claim of allowing deduction in respect of interest payable to sundry creditors, inter alia, observing that the relationship of a borrower and a lender did not exist. He relied on the decision in the case of Dundoo Madan Mohan Rao Vs. CIT (1978) Tax LR 394 (A) and has pointed out as under in regard to this decision: "In the said case, the assessee was a common partner in two firms, namely (i) Pentagon Firm and (ii) Pentaiah Firm. The assessee had purchased a house property belonging to Pentagon Firm for a sum of Rs. 2,00,000/-. Over and above this, the assessee had also undertaken to pay a sum of Rs. 1,45,000/- to one of the creditors of the said firm. The assessee claimed deduction under section 24(1)(vi) in respect of interest paid by him to the said creditor. It was held that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed before ld. CIT(A) and also to verify whether the payment of interest had been made to parties in subsequent years or not, as claimed by assessee. 5. Apropos ground nos. 3, 3.1 & 3.2, facts in brief, are that AO had disallowed various expenses claimed by the assessee u/s 37(1) of the Act. In appeal, ld. CIT(A), inter alia, observing that assessee had not been able to fully establish the facts necessary to support its claim for deduction u/s 37(1) to the complete extent of 100%, restricted the disallowance to the extent of 10% out of salary claimed to have been paid to the employees. Ld. CIT(A) further restricted disallowance, and on estimate basis, to Rs. 6,500/- as against 11,500/- on account of telephone expenses; Rs. 24,000/- as against 54,000/- on account of security expenses; Rs. 14,610/- as against 24,610/- on account of conveyance expenses; Rs. 14,780/- as against 19,780/- on account of staff welfare expenses; and Rs. 6,670/- as against Rs. 12,670/- on account of office expenses. Having heard both the parties, we see no reason to interfere in the conclusion arrived at by the ld. CIT(A) on these counts. Accordingly, grounds of appeal nos. 3, 3.1 and 3.2 stand dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance, on estimate basis, to Rs. 22,000/- as against 66,000/- on account of security expenses.
9.2. Ld. CIT(A) confirmed the action of AO in disallowing Rs. 10,000/- on account of professional charges by observing that assessee could not be able to prove its claim for deduction u/s 37(1) by adducing supporting evidence.
9.3. Ld. CIT (A) restricted the disallowance to the extent of 50% amounting to Rs. 50,000/- as against Rs. 1,00,000/- disallowed by AO.
9.4. Having heard both the parties, we find that in arriving at its conclusion the ld. CIT(A) has properly taken into consideration the facts and circumstances of the case. We see no reason to interfere in the order of ld. CIT(A) on these counts. Accordingly, grounds of appeal nos. 2, 2.1 and 2.2 stand dismissed.
10. Charging of interest u/s 234B is consequential. The ld. AO shall recalculate the charging of interest u/s 234B, if any, while giving effect to appellate order.
11. In the result, assessee's appeal for A.Y. 2007-08 is dismissed.
12. In the result, ITA no. 1824/Del/2010 is allowed for statistical purposes and ITA no. 3473/Del/2010 stands dismissed.
(Order pronounced in open court on 31.10.2014.) X X X X Extracts X X X X X X X X Extracts X X X X
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