Ao allowed interest on Loan on wrong assumption of facts: Exercise of section 263 Jurisdiction Valid 

Michelle Y. Poonawalla Vs PCIT (ITAT Pune)

Admittedly, the assessee availed loan from Reliance Home Finance Limited for Rs.8,68,50,000/- and paid interest thereon @ 12.50%. Admittedly, the said borrowed loan was paid to statutory tenants in pursuance of relinquishing deed dated 05-04-2011. The PCIT held the interest paid on such borrowed amount does not fit into provisions of clause (b) of section 24 of the Act. The PCIT reproduced the said provisions in the impugned order at Para No. 6. On plain reading the said clause (b) of section 24 of the Act explains that the deduction is allowable where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital. In the present case, as discussed above the agreement at Page No. 42 clearly shows that the assessee purchased the said property in the year 2001 and the relinquishment agreement at Page 56 shows that the assessee as “landlord”, therefore, as rightly pointed by the PCIT, the claim of the assessee is not entitled to claim interest as deduction u/s. 24(b) of the Act. On perusal of the assessment order dated 31-12-2015 clearly shows there was no discussion or reference to deduction claimed and how deduction is allowed. Therefore, the AO had wrong assumption of facts and by applying incorrect law without due application of mind allowed claim of interest paid on borrowed capital u/s. 24(b) of the Act. Therefore, in our opinion, the PCIT correctly exercised its jurisdiction in holding the assessment order dated 31-12-2015 is erroneous and prejudicial to the interest of Revenue. Thus, we do not find any infirmity in the order of PCIT and it is justified and the grounds raised by the assessee are dismissed.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal by the assessee against the order dated 28-03-2018 passed by the Pr. Commissioner of Income Tax-4, Pune (‘PCIT”) for assessment year 2013-14 passed u/s. 263 of the Act.

2. The assessee raised three grounds of appeal amongst which the only issue emanates for our consideration is as to whether the PCIT was justified in holding the assessment order dated 31-12-2015 passed by the AO is erroneous and prejudicial to the interest of Revenue.

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