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2023 (10) TMI 260 - AT - Income TaxIncome from house property - disallowance of interest paid on housing loan (borrowed capital) referring to the third proviso to section 24 for the reason that the assessee failed to furnish certificate for interest - assessee claimed TDS on the advance rent received but not reflected in the return of income for this assessment year - CIT (A) directed AO to allow 30% of ALV on advance rent as allowance u/s 24(a) having taxed in the current assessment year - HELD THAT:- For the interest on borrowed capital we see no valid reason for disallowing the interest paid on borrowed capital to the banks. The evidences furnished by the assessee in the form of statement of accounts and certificates issued by the banks, sanctioning and disbursing the housing loan to the assessee actually goes to show that the assessee has obtained loans from banks for acquiring the property and the property was let out and the rental income was offered to tax and, therefore, AO should have allowed interest paid on borrowed capital while computing the income under the head income from house property. The observations of the CIT (Appeals) that the interest claimed in the computation has already been allowed by the AO is totally misplaced as AO has not allowed the assessee to carry forward the loss under the head income from house property which is mainly paid on borrowed capital. Thus we direct AO to allow interest on borrowed capital as claimed by the assessee and the same shall be carried forward under the head income from house property. Notional interest on interest free security deposit - As various Courts have held a consistent view that notional interest cannot form part of actual rent. Hence, there is no justification to take a different view that what has been stated in Asian Hotels Limited [2007 (12) TMI 274 - DELHI HIGH COURT] - Ratio of the decisions squarely applies to the facts of the assessee’s case. Thus, we reverse the findings of the ld. CIT (Appeals) on this issue and hold that no notional interest on interest free security deposit can be added to the ALV of the property while computing income from house property. Appeal of assessee allowed.
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