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ITO, Ward 11 (2) and others Versus M/s. Faith Real Estates P. Ltd. and others

2015 (6) TMI 645 - ITAT DELHI

Income 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, wher .....

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mount 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 .....

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st 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: .....

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POOR,JJ. For the Petitioner: Shri Parwinder Kaur, Sr. DR For the Respondent : Shri Gurmeet Singh Grewal, CA ORDER PER T.S. KAPOOR, AM: These are cross appeals filed by Revenue as well as by Assessee against the order of Ld. CIT(A) dated 21.09.2011. The grounds of appeal taken by Revenue as well as by Assessee are reproduced below: I. I.T.A.No. 5070/Del/2011: Revenue s appeal: 1. On the facts and in the circumstances of the case, the CIT(A) has erred both on facts and in law in reducing the amoun .....

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rt up to FY 02-03 was ₹ 1.11 Crores only. II. I.T.A.No. 5181/Del/2011: (Assessee s cross appeal): The Ld. CIT(A) XIII, New Delhi has erred in not allowing interest u/s 24(b) of the I. T. Act, 1961 of ₹ 22,16,370/- out of ₹ 39,41,374/- being interest on borrowed capital. 2. The brief facts as noted in the assessment order are that the assessee declared a loss from house property at ₹ 20.64 lacs after deduction of interest payment amounting to ₹ 39.40 lacs. The case o .....

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he purpose of construction of building. It was further submitted that during the year 2004-05, the assessee had obtained loan of ₹ 3.76 crores from M/s. Lord Krishna Bank which was used for the purpose of repayment of loan taken by the company. Thus, it was submitted that in fact, new loan was for the purpose of construction of building and obviously, the assessee company had claimed interest on borrowed capital as deduction u/s 24(b) of the I. T. Act, 1961. The A.O., however did not agree .....

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s associated concern and the interest payments so incurred were primarily motivated by the desire to return the investment of funds of the associated concern which were, as mentioned, interest free. As per section 24(b) of I T Act, interest payable for the purpose of borrowing for acquiring the let out property is alone eligible to be set off against the rental receipts. Since, as pointed out above, the assessee had not borrowed funds from the bank for acquiring or constructing the let out premi .....

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est payment amounting to ₹ 39,41,374/- is disallowed under the head "Income from House Property" as well as a business expenses. 3. Aggrieved, the assessee field appeal before Ld. CIT(A). However, Ld. CIT(A), on the basis of submissions of assessee, partly allowed the claim by holding as under: 6.5 From the above factual details it is evident that the out of the loan of ₹ 31695184 taken from MIs. D.S. Construction, which was utilized for constructing the rental property, a .....

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ount as part of the original construction loan. However the sum of ₹ 2 crores received from MIs. D.S. Construction in F.Y. 2004-05 is not the loan utilized in the construction of the building. Neither is it in the nature of loan taken to repay the loan utilized in the construction of the building. Therefore the sum of ₹ 2 crores cannot be added back to the loan amount of ₹ 3,16,95,184/- taken from D.S. Constructions for construction of property. Nor can it be treated as a part .....

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s utilized for returning the remaining construction loan - as only ₹ 1,64,56,2301- pertaining to the original loan remained to be repaid (to MIs. D.S. Construction) during the P. Yr. relevant to A.Y. 2006- 07). No explanation has been provided as to how the loan repaid is being claimed at ₹ 3,76,00,000/-. Appellant's submissions as evidenced by the balance sheet for various years shows the loan amount form M/s. D.S. Constructions for the construction of building to be only ₹ .....

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the outstanding loan used for construction is therefore incorrect. 6.7 . In view of the facts on record as discussed in preceding paras, it is .held that appellant is entitled to interest only on the loan amount of ₹ 1 ,64,56,230/- and not ₹ 3,76,00,000/- . Therefore Assessing Officer is directed to restrict the interest claim to interest payable on the repayment of loan of ₹ 1,64,56,2301-, which works out to be ₹ 17,25,004/-. The balance interest of ₹ 22,16,3701- .....

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ion and not based on commercial expediency. 4. Aggrieved with the order of Ld. CIT(A), both the parties are in appeal before us. The cases were earlier heard on 19.02.2015 however, during dictation, it was observed that certain clarifications were required to dispose of the cases, therefore the cases were fixed for clarification and finally the cases were heard on 05.06.2015. 5. Ld. A.R. first took up the assessee s appeal and submitted that entire loan of ₹ 3.76 crores was obtained by ass .....

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r, amount outstanding to M/s. D. S. Construction Company was ₹ 3,72,56,230/-/- out of which ₹ 2.08 crores was repaid to the above loanee by borrowing an amount of ₹ 2 crores form M/s. ERHL which is the company under the same management and in this respect, he invited our attention to paper book page 53 where the amount of ₹ 2 crores was reflected as current liability. Ld. A.R. also invited our attention to paper book page 12 to demonstrate that as on 01.04.2003, the amoun .....

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r 28 issued by the Department, if an assessee repays the non interest bearing loan by borrowing an interest bearing loan then he is eligible to claim deduction u/s 24(b). Ld. A.R. invited our attention to the fixed asset chart placed at paper book page 54 and submitted that only assets acquired by the assessee was land and building and fire extinguishers and lift fitted in the building and there was no other asset other than a small investment in car. Therefore, it was submitted that the entire .....

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ascertained as to whether the multiple entries by assessee really represent investment in land and building. 7. As regards revenue s appeal, Ld. D.R. heavily relied upon the order of A.O. whereas, Ld. A.R. heavily relied upon the order of Ld. CIT(A) to the extent relief allowed by him. 8. We have heard rival parties and have gone through the material placed on record. We find that up to financial year ending 31.03.2004, there was total investment in fixed assets amounting to ₹ 9,24,08,822/ .....

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12 wherein as on 01.04.2003, the opening balance of M/s. D. S. Construction Company loan account has been reflected. During the year under consideration, an amount of ₹ 2.08 crores was repaid to above said company which is also apparent from paper book page 12. Out of ₹ 2.08 crores repaid by assessee to M/s. D. S. Construction company, ₹ 2 crores was borrowed from M/s. ERHL which has been reflected as a current liability in the balance sheet as on 31.03.2004 which is apparent .....

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id 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 ₹ 3,76,00,0 .....

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