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
