2023 (11) TMI 244 - AT - Income Tax

Property purchase with unsecured loans: Interest deduction under section 24(b) remanded for fresh examination

Shyamnarayan Trades Pvt. Ltd. Versus Income Tax Officer Ward–4 (3) (1), Mumbai

ITAT Mumbai remanded the case to AO for fresh adjudication regarding deduction of interest under section 24(b). The assessee purchased property using ... Deduction of interest in respect of the second loan u/s 24(b) - assessee purchased the property by utilising the unsecured loans from directors and shareholders - assessee had taken unsecured loans and the major portion of the same was utilised in repayment of the earlier loans - HELD THAT:- The unsecured loan taken from directors and shareholders was utilised for payment of consideration for the purchase of 2 shops along with 4 open car parking spaces together with equity shares and fully convertible debentures. We find that the lower authorities have not examined whether the term 'property’ u/s 24 also includes equity shares and fully convertible debentures, which were purchased by the assessee along with shops and open car parking spaces. Examination of the aforesaid aspect is necessary before determining whether the assessee is entitled to claim a deduction of interest paid on a loan taken for repayment of the earlier loan. Therefore, we deem it appropriate to remand the issue arising in ground No. 2, raised in assessee’s appeal, to the file of AO for de novo adjudication after examining the aforesaid aspect and thereafter in light of CBDT Circular No. 28 dated 20/08/1969. Ground No. 2 raised in assessee’s appeal is allowed for statistical purposes. Disallowing the interest expense - As argued property can be owned and enjoyed only by virtue of owning the shares and debentures as envisaged in the agreement as well as memorandum of association / article of association - whether cost of shares and debentures was part and parcel of the entire cost of property? - HELD THAT:- Shops no. 1 & 2 and 4 open car parking spaces along with B-class equity shares and fully convertible debentures of Ahura Chemical Products Pvt. Ltd. were sold to the assessee and consideration of Rs. 3,63,72,600 was paid by the assessee. However, before deciding on the validity of proportionate disallowance of the deduction of interest under section 24(b) of the Act, it is pertinent to analyse whether the term 'property’ u/s 24 also includes equity shares and fully convertible debentures, which were purchased by the assessee along with shops and open car parking spaces in the facts of the present case. Therefore, we deem it appropriate to remand the issue. Appeal by the assessee is partly allowed for statistical purposes. Issues involved:The judgment involves challenges to an order passed under section 250 of the Income Tax Act, 1961 for the assessment year 2008-09.Grounds Raised by the Assessee:1. The failure to provide reasons recorded in writing by the Assessing Officer.2. Disallowance of interest expenses on loans taken for acquiring property.3. Disallowance of interest expense on shares and debentures purchased along with the property.Summary of Judgment:Ground No. 2 - Disallowance of Interest Expenses on Loans:The assessee claimed deduction of interest under section 24(b) of the Act for loans taken during the year, mainly for repayment of earlier loans used to acquire the property. The Assessing Officer disallowed a portion of the interest expenses. The Tribunal noted that the lower authorities did not consider whether the term 'property' under section 24 includes equity shares and debentures purchased along with the property. Citing a relevant Tribunal decision and a CBDT Circular, the Tribunal remanded the issue to the AO for further examination, allowing the ground for statistical purposes.Ground No. 3 - Disallowance of Interest Expense on Shares and Debentures:The assessee purchased shops and parking spaces along with equity shares and debentures. The Tribunal found that the term 'property' under section 24 needs to be analyzed to include shares and debentures. Consequently, the issue was remanded to the AO for further adjudication, allowing the ground for statistical purposes.Conclusion:The appeal by the assessee was partly allowed for statistical purposes, with the Tribunal remanding the issues for further examination by the Assessing Officer.This summary highlights the grounds raised by the assessee, the Tribunal's analysis of each issue, and the ultimate decision to remand the matters back to the Assessing Officer for reevaluation.