Mohitbhai Laxmanbhai Gajjar Vs DCIT (ITAT Ahmedabad)
Housing Loan Interest Can Be Business Deduction If Funds Are Actually Deployed for Earning Income: ITAT Ahmedabad Remands Matter
The Ahmedabad Bench of the ITAT allowed the assessee’s appeal for AY 2020-21 for statistical purposes and set aside the disallowance of ₹18.25 lakh being interest on an Axis Bank loan, holding that the actual utilisation of borrowed funds is decisive, not merely the purpose stated in the bank’s sanction letter.
The Assessing Officer had restricted deduction of interest to ₹2 lakh under section 24(b) on the footing that the loan was a housing loan. However, the Tribunal noted that the AO failed to examine how the funds were actually used. The assessee demonstrated, through bank statements and ledgers, that pending construction, the loan funds were temporarily deployed in his proprietary concern and partnership firm, and interest income earned therefrom was offered to tax.
The ITAT held that if, on verification, the loan funds are found to have been utilised for earning taxable income, the corresponding interest expenditure is allowable as a deduction (business/other income), notwithstanding the original housing purpose. The matter was remanded to the AO to verify the nexus between borrowed funds and interest income, after granting due opportunity to the assessee.
