Let-out property claim rejected; self-occupied treatment triggered restricted interest deduction under the Income-tax Act.

A residential property was not accepted as let out because the claim was unsupported by credible evidence: the assessee had originally reported nil annual value, later changed the stand during assessment, and the alleged cash rent left no verifiable trail. The supporting affidavit was treated as self-serving, so the property was held not to be actually let out within Section 23(3) and remained within Section 23(2) of the Income-tax Act, 1961. As a result, the restriction on interest deduction under Section 24 applied, and full deduction of interest on borrowed capital was denied.

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Issues: Whether the assessee was entitled to claim full deduction of interest on borrowed capital by treating the residential property as let out to his mother, or whether the property was to be treated as self-occupied and the interest deduction restricted.

Analysis: The claim of let out was found unsupported by credible evidence. The assessee had originally shown nil annual value in the return and later changed the stand in the assessment proceedings. The alleged rent was stated to have been received in cash, leaving no verifiable trail, and the affidavit filed in support was treated as self-serving. On the facts, the property was not accepted as actually let out within the meaning of Section 23(3) of the Income-tax Act, 1961, and the case continued to fall within Section 23(2) of the Income-tax Act, 1961. Consequently, the statutory restriction on interest deduction under Section 24 of the Income-tax Act, 1961 applied.

Conclusion: The assessee was not entitled to full deduction of interest on borrowed capital; the property was treated as self-occupied and the restricted allowance was upheld.

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