JNG Builders (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 3311/DEL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7024 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 31-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 28-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DAM KANUNJNA
• Keywords: Business expenditure; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER M AND SHRI CHANDRA MOHAN GARG, JUDICIAL M EMBER ITA NO. 3311/DEL./2012 : ASSTT. YEAR : 2007-08 JNG BUILDERS (P) LTD. C/O. ARUN AHUJA & ASSOCIATES, C.A. C-4/273, SECTOR-6, ROHINI NEW DELHI VS ACIT CENTRAL CIRCLE-8 NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACJ0598B ASSESSEE BY : SH RAJ KUMAR GUPTA, CA REVENUE BY : SH. DAM KANUN JNA, SR. DR DATE OF HEARING : 31.12.2015 DATE OF PRONOUNCEMENT : 17.02.2016 ORDER PER C.M.GARG, J.M. THIS APPEAL BY THE ASSESSEE HAS BEEN FILED AGAINST THE ORDER OF THE CIT(A)- XXXII, DELHI DATED 24/4/2012 PASSED IN FIRS T APPEAL NO. 464/2009- 10/218(A) 32 FOR AY 2007-08. 2. THE SOLE GROUND RAISED BY THE ASSESSEE- APPELLA NT READS AS FOLLOWS : THAT UNDER THE FACTS AND CIRCUMSTANCES, THE LOW ER AUTHORITIES ERRED IN LAW AND ON MERITS IN NOT ALLOWING THE DEDUCTION OF INTE REST EXPENSES OF RS. 20,64,347/- OUT OF RENTAL INCOME AND ALTERNATIVELY PARTLY OUT OF RENTAL INCOME AND PARTLY UNDER THE HEAD, INCOME FROM BUSINESS AN D PROFESSION AND / OR ANY OTHER APPROPRIATE HEAD OF INCOME. ITA NO. 3311/DEL/2012 JNG BUILDERS (P) LTD. 2 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS AP PEAL ARE THAT FOR THE RELEVANT FINANCIAL PERIOD RELEVANT TO AY 2007-08, T HE ASSESSEE DECLARED RENTAL INCOME OF RS. 60 LACS FROM PROPERTY BEARING NO. 53, ISHWAR NAGAR, MATHURA ROAD, NEW DELHI. THE AO DISALLOWED THE CLAIM OF ASS ESSEE U/S 24(B) OF THE INCOME TAX ACT, 1961(FOR SHORT AS ACT) ABOUT INTERE ST OF RS. 20,64,347/- PAID BY THE ASSESSEE TO STATE BANK OF INDIA ON LOAN OF RS. 2 CRORES TAKEN IN AY 2006-07. THE AO DISALLOWED SAME ON THE GROUND THAT PROPERTY HAS NOT BEEN CONSTRUCTED/ ACQUIRED REPAIRED FROM THE BORROWED FUNDS FROM SBI, AND THE PROPERTY WAS ALREADY IN EXISTENCE SINCE EARLIER YEAR AND THE LOA N AMOUNT FROM SBI WAS INVESTED IN THE SHARES. THEREFORE, THE CLAIM OF TH E ASSESSEE U/S 24(B) OF THE ACT WAS DISALLOWED BY THE AO FINALLY HOLDING THAT THE INTEREST IS NEITHER ALLOWABLE AS BUSINESS EXPENSES NOR ALLOWABLE FROM RENTAL INCO ME FROM HOUSE PROPERTY. THE ASSESSEE CARRIED THE MATTER BEFORE CIT(A) BUT R EMAINED EMPTY HANDED AS THE DISALLOWANCE WAS UPHELD BY THE FIRST APPELLATE AUTHORITY. NOW THE AGGRIEVED ASSESSEE IS BEFORE THIS TRIBUNAL WITH THE SOLE GROU ND AS REPRODUCED ABOVE. 4. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND C AREFULLY PERUSED THE MATERIAL PLACED ON RECORD BEFORE US. THE LD. AR SUB MITTED THAT THE LOAN OF RS. 55 LACS WAS TAKEN FROM STATE BANK OF BIKANER & JAIPUR (SBBJ) ON 29.8.2003 FOR CONSTRUCTION OF SAID PROPERTY AND OUT OF RS. 55 LAC S, LOAN OF RS. 16,17,500/- WAS OUTSTANDING AT THE TIME WHEN THE LOAN WAS SANCTIONE D BY SBI OF RS. 2 CRORES. THE SBI PUT A CONDITION TO LIQUIDATE THE BALANCE LO AN OF RS. 16,17,500/- OF SBBJ AS A PRE CONDITION FOR GIVING LOAN OF RS. 2 CRORES , HENCE, THE ASSESSEE PAID RS. 16,17,500/- ON ACCOUNT OF SWITCHING OVER HOUSING LO AN FROM SBBJ TO SBI WHICH IS INCLUDED IN THE LOAN AMOUNT OF RS. 2 CRORES. THE LD. AR FURTHER CONTENDED ITA NO. 3311/DEL/2012 JNG BUILDERS (P) LTD. 3 THAT PROPORTIONATE INTEREST ON 16,17,500/- WHICH WA S SWITCHED OVER AND PAID TO SBBJ OUT OF LOAN OF 2 CRORES FROM SBI SHOULD BE ALL OWED U/S 24(B) OF THE ACT. 5. THE LD. DR STRONGLY SUPPORTED THE ACTION OF TH E AO AND IMPUGNED ORDER OF CIT(A) AND SUBMITTED THAT WHEN ONLY RS. 16 ,17,500/- ONLY WAS USED FOR MAKING PAYMENT OF OUTSTANDING LOAN OUT OF RS. 2 CRO RES THEN ENTIRE INTEREST PAID ON THIS LOAN CANT BE ALLOWED AS BUSINESS EXPENSE O R OUT OF RENTAL INCOME FROM HOUSE PROPERTY U/S 24(B) OF THE ACT. HOWEVER, THE L D. DR COULD NOT CONTROVERT THIS FACT THAT THE ASSESSEE HAS DECLEARED INCOME FR OM HOUSE PROPERTY AND OUTSTANDING LOAN OF RS. 16,17,500/- FROM SBBJ WAS P AID OUT OF LOAN OF RS. 2 CRORES FROM SBI. 6. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMIS SIONS OF BOTH THE SIDES, AT THE OUTSET, ADMITTEDLY AND UNDISPUTEDLY THE ASSE SSEE PAID OUTSTANDING HOUSING LOAN OF RS. 16,17,500/- PERTAINING TO PROPERTY NO . 53 TO SBBJ OUT OF LOAN OF RS. 2 CRORES TAKEN FROM SBI IN AY 2006-07. FROM COMPUTA TION MADE BY THE AO IN THE OPERATIVE PARA OF THE ASSESSMENT ORDER IT IS VI VID THAT THE RENTAL INCOME FROM SAID PROPERTY HAS BEEN ASSESSED AS INCOME FROM HOU SE PROPERTY HENCE, THE ASSESSEE IS ENTITLED FOR PROPORTIONATE PART INTERES T PAID TO SBI WHICH IS RS. 1,67,006/- AND THIS AMOUNT HAS NOT BEEN SERIOUSLY D ISPUTED BY THE LD. DR. 7. AS PER PREPOSITION LAID DOWN BY ITAT, LUKHNOW A BENCH IN THE CASE OF ACIT VS. SUNIL KUMAR AGARWAL REPORTED AS 13 9 TTJ (LUCK)(UO) 49 INTEREST ON LOAN RAISED FOR REPAYMENT OF ORIGINAL H OUSING LOAN IS ALLOWABLE AS SUBSEQUENT LOAN PARTAKES THE CHARACTER OF ORIGINAL LOAN AS THERE IS A DIRECT NEXUS BETWEEN THE LOAN AND PURCHASE OF HOUSE PROPERTY AND INTEREST PAID ON THE LOAN WAS DEDUCTIABLE U/S 24(B) OF THE ACT FROM THE RENTA L INCOME REALIZED FROM THE ITA NO. 3311/DEL/2012 JNG BUILDERS (P) LTD. 4 HOUSE PROPERTY. THE RELEVANT OPERATIVE PARA 13 OF T HE SAID ORDER OF THE TRIBUNAL (SUPRA) READS AS FOLLOWS : 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND C AREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CA SE IT APPEARS THAT THE ASSESSEE PURCHASED THE HOUSE PROPERTY FOR A SUM OF RS. 1,19, 55,353 AND THE PAYMENT WAS MADE AFTER RAISING A LOAN FROM HDFC BANK. THE ASSES SEE RAISED THE LOANS FROM HDFC AGAINST RBI BONDS. THE SAID RBI BONDS WERE MAT URING IN NOVEMBER, 2002 AND TO GET THOSE BONDS REALIZED FROM HDFC BANK, THE ASSESSEE RAISED LOAN FROM THE RELATIVES AND IDBI BANK, THUS, THE SUBSEQUENT L OANS WERE RAISED BY THE ASSESSEE TO REPAY THE ORIGINAL LOAN RAISED TO PURCH ASE THE HOUSE PROPERTY, AS SUCH, THOSE LOANS PARTAKE THE CHARACTER OF ORIGINAL LOAN AS THERE WAS DIRECT NEXUS BETWEEN THE LOAN AND THE PURCHASE OF THE HOUSE PROP ERTY, THEREFORE, THE INTEREST PAID ON THE LOAN WAS DEDUCTIBLE UNDER S. 24 OF THE ACT FROM THE RENTAL INCOME REALIZED FROM THE HOUSE PROPERTY. IN THIS REGARD, T HE CBDT ISSUED A CLARIFICATION IN ITS CIRCULAR NO. 28, DT. 20 TH AUG., 1969 (F.NO. 8/8/69-IT(A-1) THAT IF THE SECON D BORROWING HAS REALLY BEEN USED MERELY TO REPAY THE ORIGINAL LOAN AND THIS FACT IS PROVED TO THE SATISFACTION OF THE ITO, THE INTEREST PAID ON THE SECOND LOAN WOULD ALSO BE ALLOWED AS A DEDUCTION UNDER S. 24(1)(VI) O F THE ACT. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, AS DISCUSSED HEREINABOVE, ARE OF THE VIEW THAT THE LEARNED CIT(A) RIGHTLY DELETED THE ADDITION MAD E BY THE AO. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT ON THIS ISSUE R AISED BY THE DEPARTMENT. 8. IN VIEW OF ABOVE IN THE PRESENT CASE UNDISPU TEDLY THE ASSESSEE PAID OUTSTANDING HOUSING LOAN OF RS. 16,17,500/- OUT OF RS. 2 CRORES WHICH WAS SUBSEQUENTLY TAKEN IN AY 2006-07 AND HENCE, PROPORT IONATE PART OF INTEREST OF RS. 1,67,006/- IS ALLOWABLE U.S 24(1)(VI) OF THE ACT AS PER CBDT CIRCULAR NO. 28 DATED 20.8.1969. WE, THEREFORE, CONSIDERING THE TOT ALITY OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, AS DISCUSSED ABO VE, ARE OF THE OPINION THE LD. AO WAS NOT JUSTIFIED IN DISALLOWING THE ENTIRE CLAI M OF THE ASSESSEE AND THE FIRST APPELLATE AUTHORITY WAS INCORRECT IN UPHOLDING THE SAME IN TOTO. THUS, ORDERS OF THE AUTHORITIES BELOW ARE DEMOLISHED AND THE AO IS DIRECTED TO ALLOW PROPORTIONATE INTEREST OF RS. 1,67,006/- PAID TOWAR DS OUTSTANDING LOAN OF RS. ITA NO. 3311/DEL/2012 JNG BUILDERS (P) LTD. 5 16,17,500/- WHICH WAS SWITCHED OVER TO SBI OUT OF H OUSING LOAN OF RS. 2 CRORES TAKEN IN AY 2006-07. ACCORDINGLY SOLE GROUND OF THE ASSESSEE IS ALLOWED IN THE MANNER AS INDICATED ABOVE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 17/02/2016. SD/- SD/- (J.SUDHAKAR REDDY) (C.M .GARG) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: 17/ 02/2016 *BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ITA NO. 3311/DEL/2012 JNG BUILDERS (P) LTD. 6 DATE INITIAL 1. DRAFT DICTATED ON 11.02.2016 2. DRAFT PLACED BEFORE AUTHOR 11.02.2016 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON 17.02.2016 PS 7. FILE SENT TO THE BENCH CLERK 19.02.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.