M/s. Shah Construction Co. Vs ITO (ITAT Mumbai)
Conclusion –
Deduction of interest u/s 24B allowable when loan borrowed to repay previous loan taken for the construction of residential unit.
Facts –
Assessee has constructed a building namely Sumer Heights comprising two blocks A & B. Block-A comprised of residential units and Block-B was a commercial building.
The assessee let out Block B to Axis Bank Ltd. on a monthly rental of Rs.15 lakhs and also borrowed a sum of Rs.8,45,00,000/- which was utilised by the assessee to repay the loan creditors which were standing in the balance sheet
Assessee showed loss of INR 2,33,636 from house property which was arrived at after claiming interest of INR 1,08,73,636 u/s 24 (INR 1,02,37,297 paid to Axis Bank and INR 636700 paid to Ramesh Trust). According to AO there is no nexus between borrowing and repayment of the previous loan and therefore no deduction is admissible under section 24B of the Act
Assessee submitted that loan was taken from Axis Bank to repay the existing creditors from whom the money was borrowed for the construction of property.
Held –
Loan from the Axis Bank was used to pay the money to the partners and to the lenders. There was a nexus between borrowing and repayment of earlier loan creditors. Interest needs to be apportioned between two buildings i.e. Block-A and B in the ratio of investment. Accordingly, proportionate deduction allowed u/s 24B
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal has been preferred by the assessee against the order dated 07.11.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.
2. In the various grounds of appeal, the assessee has raised two issues. The main issue raised by the assessee is against the upholding the disallowance of interest of Rs.1,02,37,297/-paid to Axis Bank Ltd by Ld. CIT(A) as made by the AO on the ground that the assessee could not establish the nexus between the borrowing funds from Axis Bank and repayments to the previous lenders whereas another ground without prejudice raised by the assessee is to direct the AO to allow the deduction of interest as business expenditure to be set off against the business income of the assessee.
3. The facts in brief are that the assessee is a partnership carrying on the business of real estate developer during the year the assessee has shown a loss of Rs.2,33,636/- from house property which was arrived at after claiming interest of Rs.1,08,73,636/- under section 24 of the Act comprising Rs.1,02,37,297/- paid to Axis Bank Ltd. and Rs.6,36,700/-paid to Ramesh S. Shah Family Trust. The assessee has developed property known as Sumer Chambers along with M/s. R.K. Builders and project was completed in A.Y. 2005-06. After completion of the project, the assessee received its share in A-wing which is residential area and B-wing which is a commercial area and same were shown as closing stock in the balance sheet of the assessee. Thereafter, assessee sold part of the total area shown in closing stock during A.Y. 2005-06 and 2007-08 and income was offered for taxation under the head “Income from business and profession”. The unsold area was converted from stock in trade to investment and was shown as under:
Investment in Sumer Heights – Building “A” Rs.2,78,76,708/-
Investment in Sumer Heights – Building “B” Rs.6,80,07,882/-
Rs.9,58,84,590/-
