Interest on home Loan availed of to repay earlier loan is allowable U/s. 24(b)

Akulu Nagaraj Gupta Subbaraju Vs. ITO (ITAT Bangalore)

Tribunal referred to a CBDT Circular No. 28, date 20-8-1969 wherein it was specified that if the second borrowing has really been used to repay the original loan and this fact is proved to the satisfaction of the assessing officer, the interest paid on the second loan would also be allowed as a deduction under section 24(1)(vi) of the Income Tax Act.

Interest on subsequent loan to repay the earlier housing loan is also allowable subject to the following conditions.

1. the assessee has to establish that the subsequent loan is to repay the earlier housing loan
2. deduction on interest is allowable only to the extent of interest on earlier loan used for acquiring or constructing the housing property and not on the unpaid interest on such earlier housing loan or subsequent housing loan to repay the earlier housing loan.

AO should examine the claim of the assessee in line with above discussion and deduction on account of interest should be allowed to the extent the assessee is able to establish that the subsequent loan on which interest is being claimed is used for the purpose of repayment of earlier housing loan and such claim of interest should be restricted to the extent of actual amount of earlier/new housing loan used for acquiring/constructing housing property and it should not be for unpaid interest.