Interest on Borrowed Capital Paid by Co. Engaged Construction & Leasing of Property is Deduction u/s 24(b) | ITAT

Case Details: Manjri Stud Farm (P.) Ltd. v. ACIT - [2023] 155 taxmann.com 142 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Aby T Varkey, Judicial Member & S. Rifaur Rahman, Accountant Member
  • Ketan Ved for the Appellant.
  • Smt Riddhi Mishra for the Respondent.

Facts of the Case

Assessee-company engaged in commercial leasing, including IT Park, an IT/ITES SEZ, and construction of residential flats. The assessee had claimed interest expenditure under section 24(b) on capital borrowed for the acquisition or construction of property. The Assessing Officer passed an assessment order under section 143(3) accepting the assessee’s claim.

The Principal Commissioner initiated revision proceedings by invoking 3rd Proviso to section 24(b). He contended that the assessee had not submitted an Interest Certificate from the bank during the assessment proceedings. Further, the assessee had furnished loan agreements for term loans and overdraft facilities and nowhere in their documents was it stated that these loans were for the acquisition or construction of properties in connection with which rental income was received.

Aggrieved-assessee filed an appeal to the Mumbai Tribunal.

ITAT Held

The Tribunal held that the Proviso of section 24(b) stated, “where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital”. This Proviso is directly linked to the 1st and 2nd Proviso.

The first Proviso stated that with respect to the property referred to in section 23(2), which is the property consisting of a house or part of the house which is in the occupation of the owner for his own residence or it cannot be occupied by the owner because of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him. In such a situation, the house’s annual value shall be considered NIL. The first Proviso relates explicitly to the situation discussed in section 23(2), where the individual can claim a deduction not exceeding Rs. 30,000.

The second Proviso limits the deduction amount to Rs. 2 lakhs wherein the assessee has acquired or constructed with the borrowed capital after 1st April 1999.

The third Proviso is also closely linked to Proviso 1 and 2 and gives certain contingencies to claim the deduction mentioned in Proviso 1 and 2. Therefore, all the Proviso discussed in section 24(b) are related to an individual who intends to claim a deduction under section 23(2).

Consequently, the interpretation of the third Proviso to section 24(b) in isolation is not proper, and the findings of the PCIT under section 263 could not be agreed with.

Moreover, even if it were assumed that the Assessing Officer did not validate the claim put forth by the taxpayer, the assessment order could be considered as erroneous. Still, it could not be said to be prejudicial to the interest of revenue. Accordingly, both criteria outlined in section 263 were not met and as a result, revision under section 263 should be nullified.