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2015 (6) TMI 645 - AT - Income TaxIncome from house property - Disallowance of interest on borrowed capital u/s 24(b) - CIT(A) allowed partial relief - Held that:- In financial year 2003-04, out of repayment of ₹ 2.08 crores, ₹ 2 crores was borrowed as a short term loan from ERHL (a group company of assessee). This short term loan of ₹ 2 crores was repaid to ERHL in financial year 2004-05 by again borrowing ₹ 2 crores from D. S. Construction Company. These facts are verifiable from paper book page 8, where these entries are recorded. There is one more entry of ₹ 12.96 lacs as received from D. S. Construction Company and further, there is another entry of ₹ 9,500/-, which was paid to D S Construction Company. Therefore, in all, the balance due to D S Construction Company was ₹ 3,77,52,230/- out of which ₹ 3,76,00,000/- was paid after borrowing from Lord Krishna Bank. The above facts are verifiable form the balance sheet of assessee for the year ending 31.03.2005 where an amount outstanding from bank loan is reflected at ₹ 3.76 crores and unsecured loan from D.S. Construction Company has reduced from ₹ 1,64,56,230/- to ₹ 57,230/-. Therefore, in fact, the entire loan of ₹ 3.76 crores has been utilized to repay the debts raised by assessee for construction of property the income of which was offered under the head ‘income from house property’. Ld. CIT (A) while granting partial relief to the assessee only considered the amount of outstanding as on 31.03.2004 of ₹ 1.64 crores due to M/s. D. S. Construction Company. However, he misdirected himself in not considering the amount of ₹ 2 crores which was raised by assessee as a short term liability to reduce the loan component of M/s. D.S. Construction Company and also ignored the other transactions entered during financial year 2004- 05. The transactions entered into by assessee in 2004-05 also relate to acquisition of property. Therefore in all, the entire interest on the term loan from bank should have been considered by Ld. CIT(A) for allowing relief to the assessee. Circular 28 as relied upon by Ld. A.R. and as noted by Ld. CIT(A), clearly state that if the interest free loan is repaid by interest bearing loan funds, the interest on such loan is allowable for deduction u/s 24(b) of the Act. - Decided in favour of assessee. Value of building (gross block) as per the depreciation chart up to FY 02-03 was ₹ 1.11 Crores only - Held that:- Revenue has challenged that as on 31.03.2003, only an amount of 1.11 crores was invested in building therefore, interest on entire loan of ₹ 3.76 crores cannot be considered. However, we find that besides building, there is an investment in land also which is at ₹ 7,97,88,679/- and investment in property always includes investment in land also. - Decided in favour of assessee.
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