Loan Processing Fees on LAP/LRD Loans Not Deductible Under Section 24(b): ITAT Upholds Disallowance

Salarpuria Developers Pvt Ltd Vs ACIT (ITAT Kolkata)

Loan Processing Fees on LAP/LRD Loans Not Deductible Under Section 24(b): ITAT Upholds Disallowance

The Kolkata ITAT upheld disallowance of ₹11.71 lakh claimed by Salarpuria Developers Pvt. Ltd. towards loan processing charges under Section 24(b), holding that such expenditure was not incurred for acquisition or construction of the property and therefore could not be treated as deductible interest on borrowed capital.

The assessee had claimed deduction of loan processing fees paid to Kotak Mahindra Bank in connection with Lease Rental Discounting (LRD)/Loan Against Property (LAP) facilities. It was argued that the processing fees formed part of “interest” within the meaning of Section 2(28A) and therefore qualified for deduction under Section 24(b).

However, the Tribunal noted that the loans amounting to about ₹29 crore were not taken for acquisition, construction, repair or reconstruction of the property generating house property income. Instead, the property was merely offered as collateral security and the loans were availed for broader business purposes on the strength of rental income arising from the property.

The ITAT observed that Section 24(b) specifically permits deduction only where the borrowed capital is utilized for acquisition, construction, repair, renewal or reconstruction of the property itself. Since the processing fees related to business-purpose LAP/LRD facilities and not acquisition-linked borrowing, the claim fell outside the scope of Section 24(b).

The Tribunal therefore affirmed the findings of the AO and CIT(A) and held that loan processing charges on such business-oriented borrowing cannot be equated with deductible housing loan interest merely by invoking the wider definition of “interest” under Section 2(28A).

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal filed by the assessee is directed against the order dated 24.10.2025 of the National Faceless Appeal Centre (NFAC) passed under Section 143(3) of the Assessment Year 2016-17 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

2. The assessee company is engaged into business of Real Estate Development. For the Asst Year 2016-17 it filed its return of income electronically on 19.09.2016 declaring total income at NIL. The case was selected for scrutiny assessment and the order u/s 143(3) was passed on 31.12.2018 assessing total income at Rs. 3,56,323/-after making addition of Rs. 11,71,200/- u/s 24(b) incurred by the assessee company on account of loan processing fees and the total income as per assessment order is assessed at Rs. 3,56,323/-, however, as per computation sheet for calculation of tax payable on assessed income attached along with assessment order the total income was assessed at RS. 4,96,40,140/- as against the total income actually assessed for RS. 3,56,323/-thereby raising the demand for Rs 1.99.40 988/-, While computing the tax payable as per computation sheet the Profits & Gains from Business or Profession was taken for Rs.4,91,05,167/- as against the assessed loss from business or profession for Rs. 1,78,648/- as per assessment order. Thus, the total income was enhanced by Rs. 4,92,83,817/-Further, credit for TDS was allowed for Rs. 49,79,987/- as against the total claim for RS. 49,95,440/- and thus TDS was short allowed for Rs. 15,453/-.

Aggrieved by the said order assessee preferred appeal before the CIT(A) wherein appeal of the assessee has been dismissed by the CIT(A) by observing thus:-

Under the provisions of Section 24(b) of the Act, there are only two kinds of deductions allowable against the income from house property:

1. Standard deduction of 30% of the annual value of the property.

2. The amount of any interest payable on capital, used for the acquisition, construction, repair, renewal or reconstruction of a property.

Hence, Section 24(b) does not provide for any other kind of deduction which is not explicitly provided under the provisions of the Act. The provisions of Section 24(b) start with the words, where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, which evidently is not the case here. The said LRD or LAP loans have not been taken for acquisition of the said property and rather has been taken for other business purposes details of which has not been divulged by the appellant. The borrowed capital under Lease Rental Discounting Loan is not utilized for acquisition, construction, repair, renewal or reconstruction of the property. Rather it is used for business expansion, working capital needs, debt consolidation or other financial requirements of the property owner. The loan processing charges of the said loan claimed to the extent of Rs. 11,71,200/- is therefore not attributable to the acquisition of the said house property and therefore cannot be claimed as a deductible expense under the provisions of Section 24(b) of the Act.

I therefore see no reasons to interfere with the action of the AO and the disallowance made by the AO is sustained. This ground of appeal is dismissed.

Being aggrieved by and dissatisfied the assessee preferred appeal before us by taking following grounds:-

1. That on the facts and on the circumstances of the case, the order dated 24 October, 2025 passed by the NFAC, Delhi, is bad in law, illegal and abinitio void and the same is liable to be cancelled/quashed set aside.

2. That on the facts and on the circumstances of the case, the NFAC, Delhi, erred in confirming the addition of Rs. 11,71,200/- made by the AO incurred on account of Loan Processing fees claimed as a part of Interest u’s 24(b) on a misconception of facts and without proper application of mind to the facts and to the circumstances of the case.

3. That on the facts and circumstances of the case, the NFAC, Delhi erred in ignoring the definition of Interest as prescribed u/s 2(28A) of the Income Tax Act, 1961 and the Loan Processing Fees incurred in respect of Loan taken is fully allowable as deduction u/s 24(b) of the Income Tax Act, 1961 and it may be held accordingly.

4. That on the facts and circumstances of the case, the NFAC, Delhi erred in confirming the mistake made by the AO in calculating the assessed income in the Computation Sheet of the Assessment Order u/s 143(3) at Rs. 4,96,40,140/- instead of Rs. 3,56,323/by quashing the 154 order dt 10.01.2019. Incidentally the CIT(A), has passed a consequential order u/s 250 against the appeal filed for the order passed u/s 154 dt 24.10.2025 wherein he has quashed the order passed under section 154 considering the same to be a debatable issue and thus also deleting the rectification made in the order u’s 154 in respect to the assessed income and it may be held accordingly.

5. That on the facts and circumstances of the case, the NFAC, Delhi erred in confirming the mistake made by the AO in not allowing full TDS credit of Rs. 49,95,440/- in the Computation Sheet of the Assessment Order u’s 143(3) by quashing the 154 order dt 10.01.2019. Incidentally the CIT(A), has passed a consequential order u/s 250 against the appeal filed for the order passed u/s 154 dt 24.10.2025 wherein he has quashed the order passed under section 154 considering the same to be a debatable issue and thus also deleting the rectification made in the order u/s 154 in respect to the TDS credit and it may be held accordingly.

3. The Ld. AR in course of argument did not press the ground no. 4 and 5 accordingly, the ground NO. 4 & 5 is hereby dismissed as not pressed. The Ld. AR challenges the very impugned order on the ground No. 2 & 3 and submitted that the Ld. AR as well as CIT(A) are wholly unjustified in disallowing a sum of Rs. 11,71,200/- incurred on account of loan proceeding fees claimedas a part of interest U/s 24(b) alleging the same not in the nature of interest ignoring the definition of interest as prescribed U/s 2 (28A) of the Income Tax Act ignoring the fact that loan processing fees incurred in respect of loan taken is fully allowable as deduction U/s 24(b) read with Section 2(28A) of the Act. The Ld. AR by filing the copy of the bank statement has submitted that assessee company took credit facility from bank for acquisition of property from which house property income is earned and loan approval letter reveals that loan processing fee is for approval of such credit limit so loan processing fee is a part and parcel of overall terms and conditions as stipulated in approval letter,same is allowed as part of interest U/s 24(b) read with Section 2(28A) of the Act.

Contrary to that Ld. Dr supports the impugned order.

4. Upon hearing the submission of the counsel of the respective parties and on perusal of the impugned order, we find that AO disallowed a sum of Rs. 11,71,200/- incurred on account of loan processing fee claimed as a part of interest U/s 24(b) by contending that loan processing fee to the tune of Rs. 11,71,200/- is not in the nature of interest for borrowed capital for house property. On perusal of the document furnished by the assessee, we find that assessee has availed the loans from Kotak Mahindra Bank. The expenditure of loan processing charge has been claimed U/s 24(b) i.e. against income from the house property. In the present case, it is not that such loan of Rs. 29 crores have been availed for acquisition of the said house property rather the loan has been taken for other business purposes by keeping the property as a collateral and on the strength of the rent being received from such property. Section 24(B) states the following:-

Section 24(b) states the following:

Deductions from income from house property.

24. In come chargeable under the head “Income from house property shall be computed after making the following deductions, namely:-

(a) a sum equal to thirty per cent of the annual value:

(b)where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction or, as the case may be, the aggregate of the amount of deduction shall not exceed thirty thousand rupees:

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction or, as the case may be, the aggregate of the amounts of deduction under this clause shall not exceed two lakh rupees.

Explanation-Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation. For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital:

Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.

5. Going over the discussion made above, spirit of the Section 24(b) and considering the order passed by the CIT(A) we do not find any infirmity in the impugned order. Accordingly, the order passed by the CIT(A) hereby affirmed. The judgment cited by assessee passed by Mumbai Bench in ITA No. 1297/2014 is on the different issue so that do not lends any support to the assessee..

As a result the appeal of the assessee is hereby dismissed.

Kolkata, the 15^th May , 2026.