Tribunal remands case for interest deduction dispute, directs reassessment & fair hearing for business losses

The Tribunal remanded the case to the Assessing Officer for proper verification and readjudication regarding the disallowance of interest deduction under section 24(b) on borrowed funds for a property let out. Additionally, the Tribunal directed the Assessing Officer to consider the unaddressed claim for allowance of interest under section 36(1)(iii) and setoff of business losses against other income, ensuring the assessee is given a fair opportunity of hearing. The appeal was allowed for statistical purposes only, with a reevaluation of both issues mandated.

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Issues:
1. Disallowance of interest paid under section 24(b) on borrowed funds for property let out.
2. Allowance of interest under section 36(1)(iii) and setoff of business losses against other income.

Analysis:

Issue 1: Disallowance of interest under section 24(b) on borrowed funds for property let out:
The assessee claimed a deduction of Rs. 11,91,668 under section 24(b) of the Income Tax Act, 1961 for interest paid on borrowed funds related to a property let out to a company. The Assessing Officer (A.O.) disallowed this claim as the borrowed funds were not utilized for the acquisition or construction of the property generating rental income. The assessee contended that part of the borrowed funds was used to repay an earlier loan taken for the property's construction, making the interest expenditure allowable. The Tribunal found that the A.O. did not verify if the earlier loan was indeed used for the property's acquisition/construction. Consequently, the issue was remanded to the A.O. for proper verification and readjudication.

Issue 2: Allowance of interest under section 36(1)(iii) and setoff of business losses:
The assessee raised an additional ground seeking allowance of interest under section 36(1)(iii) and setoff of business losses against other income. The A.O. rejected this claim as it was not raised in the original or revised income tax return. However, the Tribunal held that the appellate authority could consider the claim if all relevant facts were on record. Since the claim was not addressed by the A.O. or the Commissioner of Income Tax (Appeals), it was remanded to the A.O. for proper consideration and adjudication, ensuring the assessee is given a fair opportunity of hearing.

In conclusion, the Tribunal allowed the assessee's appeal for statistical purposes only, directing a reevaluation of both the disallowed interest deduction under section 24(b) and the unaddressed claim under section 36(1)(iii) for setoff of business losses against other income.

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