2025 (1) TMI 1234 - AT - Income Tax

Assessee wins on Section 69 investment addition but faces partial interest disallowance under Section 24

ITAT Delhi ruled in favor of the assessee regarding investment taxability under Section 69. The tribunal found that since the ACIT had accepted the ... Taxability of investment u/s 69 - claimed to be sourced as a loan from the assessee's mother - HELD THAT:- We find force in the argument of Revenue was required to assess the unexplained investments made directly or indirectly in the said property in the hands of the respective co-owners if their creditworthiness was doubtful. We are of the considered view that the ACIT, Circle 2(1)(1), Ghaziabad, by accepting the version of assessee's mother/Smt. Sudha Goyal in reopened assessment proceedings has held that she has the creditworthiness for making investments/advances in the relevant year. Thus, the creditworthiness of Smt. Sudha Goyal does not remain questionable thereafter. Hence, we reversed the finding of the CIT(A) in this regard and delete the addition Disallowance of interest u/s 24 - Appellant/ assessee is required to make investment to the extent of his share. Thus, we hereby direct the AO to verify from the record that whether the investment made by the assessee to the extent of his share from the borrowed fund on interest. The initial investment has to be treated as assessee’s share. In case, the bank account of the assessee after taking borrowed fund is found utilized for the acquiring the property to the extent of initial investment (as any prudent man will invest to the extent of his share only and thereafter the surplus investment), then the interest on that fund should be allowed after proper investigation. The subsequent investment; i.e. after even sourced from borrowed fund will not be eligible for the interest deduction u/s 24 of the Act. ISSUES PRESENTED and CONSIDEREDThe appeal raised two primary issues for consideration:(i) The taxability of an investment amounting to Rs. 33,92,975 under Section 69 of the Income Tax Act, 1961, which was claimed to be sourced as a loan from the assessee's mother, Smt. Sudha Goyal.(ii) The disallowance of an interest deduction of Rs. 3,96,500 claimed under Section 24 of the Income Tax Act, 1961, on the grounds that the interest was not actually paid and the investment was not sourced from borrowed funds.ISSUE-WISE DETAILED ANALYSISIssue (i): Taxability of Investment under Section 69Relevant Legal Framework and Precedents: Section 69 of the Income Tax Act deals with unexplained investments, where if an assessee fails to provide a satisfactory explanation about the nature and source of investments, such amounts may be deemed as the income of the assessee.Court's Interpretation and Reasoning: The Tribunal considered the argument that the investment should be assessed in the hands of the respective co-owners if their creditworthiness was questionable. The Tribunal noted that the Assistant Commissioner of Income Tax had accepted the version of Smt. Sudha Goyal in her reopened assessment proceedings, thus affirming her creditworthiness.Key Evidence and Findings: The Tribunal found that the reopened assessment of Smt. Sudha Goyal was completed with her returned income being accepted, which indicated that her creditworthiness was not in doubt.Application of Law to Facts: Given the acceptance of Smt. Sudha Goyal's creditworthiness in her tax assessment, the Tribunal concluded that the investment of Rs. 33,92,975 should not be taxed as unexplained in the hands of the assessee.Treatment of Competing Arguments: The Tribunal acknowledged the Departmental Representative's argument regarding unexplained deposits in Smt. Sudha Goyal's bank account but found it insufficient to contradict the acceptance of her creditworthiness in her own tax assessment.Conclusions: The Tribunal reversed the CIT(A)'s finding, deleting the addition of Rs. 33,92,975 from the assessee's taxable income.Issue (ii): Disallowance of Interest Deduction under Section 24Relevant Legal Framework and Precedents: Section 24 of the Income Tax Act allows a deduction for interest on borrowed capital used for acquiring, constructing, repairing, renewing, or reconstructing a property.Court's Interpretation and Reasoning: The Tribunal considered whether the investment of Rs. 55,91,977, representing the assessee's share, was made from borrowed funds, which would justify the interest deduction under Section 24.Key Evidence and Findings: The Tribunal directed the Assessing Officer to verify if the borrowed funds were utilized for the initial investment of Rs. 55,91,977, as this would determine the eligibility for interest deduction.Application of Law to Facts: The Tribunal emphasized that only the portion of the investment up to the assessee's share, if sourced from borrowed funds, would qualify for the interest deduction. Any surplus investment would not be eligible.Treatment of Competing Arguments: The Tribunal acknowledged the Departmental Representative's argument that the investment was not proportionate among co-owners, but focused on verifying the source of funds for the assessee's share.Conclusions: The Tribunal restored the issue back to the Assessing Officer for verification and allowed the interest deduction subject to confirmation of the source of funds.SIGNIFICANT HOLDINGSCore Principles Established: The Tribunal held that the creditworthiness of a co-owner, once accepted in their tax assessment, cannot be questioned in another co-owner's assessment for the same investment. Additionally, the eligibility for interest deduction under Section 24 depends on whether the investment was made from borrowed funds up to the assessee's share.Final Determinations on Each Issue: The Tribunal allowed the appeal concerning the taxability of the investment under Section 69, deleting the addition. For the disallowance of interest under Section 24, the Tribunal remanded the matter to the Assessing Officer for verification, allowing the deduction subject to confirmation of the source of funds.