TaxTMI 
TaxTMI 
2014 (5) TMI 1129
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....84,706/-- on account of interest paid to M/s Sarovar Hotel in respect of deduction u/s 24(b) of Income -tax Act, 1961. 4 That without prejudice to the above the disallowances sustained are highly excessive. 5 That the Ld. CIT(A) gravely erred in upholding charging of interest u/s 234B and 234C of Income -tax Act, 1961 which in any case is excessive." 3 Grounds No. 1 to 4 - After hearing both the parties we find that during the course of assessment proceedings the Assessing officer noticed that the assessee has claimed deduction u/s 24(b) of the Income -tax Act, 1961 amounting to Rs. 65,94,760/-. It was further noticed that the assessee had paid a sum of Rs. 50,10,055/- as interest on conversion charges (CLU) to the Estate Office, Chandigarh Administration and Rs. 15,84,706/- was paid to Sarovar Hotel, Mumbai. The Assessing officer noted that the assessee has offered income from house property and claimed deduction for payment of interest u/s 24(b) of the Act. The assessee was asked to explain how such interest was allowable. In response it was stated vide letter dated 30.11.2011 as under: "You would further pointed out that why the interest paid to the....
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....epair, renewal or reconstruction u/s 24(b) of the Act. Accordingly the interest paid to the Chandigarh Administration amounting to Rs. 50,10,055/- was disallowed. 4 As far as claim for deduction of Rs. 15,84,706/- u/s 24(b) on account of interest paid to Sarovar Hotel is concerned, it was observed that this payment had no nexus with the interest payment for the property. Moreover the assessee had raised unsecured loans and advanced the same to the partners and the balances in the accounts of the partners were negative, therefore this interest payment was also disallowed. 5 On appeal before the Ld. CIT(A), the submissions made before the Assessing officer were reiterated. The Ld. CIT(A) after examining the submissions referred to the provisions of section 24(b) and observed that deduction was possible in respect of interest expenditure on the capital borrowed for acquisition, construction, repair, renewal or reconstruction of the property. In the instant case the assessee had paid only fees for change of land use from "industrial" to "commercial". Chandigarh Administration had given the option to pay the entire amount of conversion fee or pay a sum by way of installments. According ....
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.... assessee has already acquired this property but the possession of this property was for a limited purpose and utilization of property has been extended after conversion of the same into commercial property also. He contended that Sec 24(b) cannot be restricted only for acquisition of the property and some meaning has to be given for renewal of property also. He also referred to the decision of Hon'ble Punjab and Haryana High Court in case of CIT Vs. Sunil Kumar Sharma (supra) wherein it was held that interest paid on unpaid consideration is allowable deduction u/s 24(i)(vi). Similar view was taken by the Chandigarh Bench in case of Master Sukhwant Singh Vs. ITO, 61 TTJ (Chd) 643 (copy of decision filed) which has later been confirmed by Hon'ble Punjab and Haryana High Court in case of CIT Vs. Master Sukhwant Singh, 196 CTR 122 (PH): 155 Taxman 153 (PH). 7 As far as interest paid to Sarovar Hotel is concerned, it was pointed out that the assessee had taken two types of securities from M/s Sarovar Hotel Pvt. Ltd. In this regard he referred to the Financial Assistance Agreement entered into by the assessee with Sarovar Hotel on 12.3.2007 which has been placed in the paper ....
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....ued a NOC for conversion of assessee's property. Since the assessee opted to pay the conversion charges in installments assessee had to pay interest also on such installments. The installments have been worked out as under vide para 4 of letter dated 26.3.2007 (see page 15 of paper book). "In view of your option to make payment of the fee in ten annual installments, a sum of Rs. 73,28,281 is payment along with application and balance amount of Rs. 1,06,68,014 is payable in nine annual installments with interest @ 8.25% p.a. compounded annually. The schedule of payment of annual equated installment6 is as under: Installment No Amount (In Rs.) Due Date 1st 73,28,281 Alongwith application 2nd 1,06,68,014 14.3.2008 3rd 1,06,68.014 14.3.2009 4th 1,06,68.014 14.3.2010 5th 1,06,68.014 14.3.2011 6th 1,06,68.014 14.3.2012 7th 1,06,68.014 14.3.2013 8th 1,06,68.014 14.3.2014 9th 1,06,68.014 14.3.2015 10th 1,06,68.014 14.3.2016 The interest on the above wor....
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.... on rent for the purpose of running a hotel. This is because of the renewal made by the Chandigarh Administration by changing the usage of the property. 10 Now as far as the contention that where the interest is paid to the Chandigarh Administration for acquisition of property is concerned, the same is no more res-integra because Hon'ble Punjab and Haryana High Court has clearly held in case of CIT Vs. Sunil Kumar Sharma (supra). In that case it was held as under: "It is evident that if a property is acquired by raising a loan, interest paid on such borrowing is an admissible deduction. If that is so, it is not understood as to what difference can it make if a buyer instead of raising a loan from a third person enters into an arrangement with a seller to pay the sale price in installments along with interest due thereon. The moment such an arrangement is entered into the seller becomes the lender qua the unpaid purchase price and the purchaser becomes the borrower. It is because of this reason that the installments carry interest from the date of sale to the date of sale to the date of payment. Sec 24 (1)(vi) providing deduction of interest on borrowed capital is an....
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....ve clearly show that payment of rent was given in advance to the assessee for further payment of conversion charges of land use. The assessee could have reduced this amount from gross rent difference but the same has not been done, therefore the assessee should be entitled to reduce this discount or interest which is again directly used for the purpose of payment of conversion charges. 13. No doubt the assessee has raised further funds, therefore Sarovar Hotel Pvt. Ltd by way of interest bearing securities but the same has not been shown to be paid for payment of conversion charges. In fact we had asked the Ld. Counsel to file the copies of partner's capital account because the Assessing officer has given a finding that there was a negative balance in the partner's capital account. These were filed and perusal of the same clearly show that there is negative balance in the partner's capital account. Even the balance sheet clearly show that partner's capital account had a negative balance. Therefore clearly the further borrowing have gone towards the payment to the partners and same are not related to the conversion charges. To this extent the Assessing officer is ....