TaxTMI 
TaxTMI 
2026 (10) TMI 261
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....nses of 6,04,13,825/-claimed under section 24(b) of the Income-tax Act, 1961, ii. The Hon'ble CIT(A) erred in confirming the disallowance of interest expenses of 6,04,13,825/- claimed under section 24(b) of the Act, 1961, against the House Property Income, ignoring binding appellate orders passed in the assessee's own case for AY 2010-11 to AY 2012-2013, wherein identical disallowance has been deleted. The Disallowance therefore, is disregard of binding order is neither justified nor valid. 2. The Hon'ble CIT(A) erred in confirming disallowance of Rs. 6,81,077/- under section 14A r.w. rule 8D despite the fact that no exempt income was earned during the year and identical disallowances stood deleted in assessee's own case for earlier assessment years. 3. The Hon'ble CIT(A) erred in confirming the disallowance of expenses of Rs.50,92,740/-incurred wholly and exclusively for earning taxable business income." 3. Brief facts of the case are that the assessee is a company engaged in the business of letting out of properties. On perusal of the return of the assessee, it is observed by the Ld. AO that the assessee had disclosed rental incom....
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....e and noted that expenses incurred under the head repairs to building, insurance, rates and taxes excluding taxes on income and interest on delayed payment of Service Tax are claimed by the assessee. With respect to such expenses, the Ld.AO observed that the assessee has only income from property letting out property apart from interest from FDs and excess provision written back which shows that the assessee is not carrying on any business activity excluding letting out of the properties. 6. After discussions, the Ld.AO disallowed Rs. 50,92,740/- from the expense claimed against business income which includes disallowance under section 30 for Rs. 80,980/-, disallowance of Rs. 1,15,784/- regarding insurance premium treating the same relates to income from house property, disallowance of interest payment of Service Tax under section 36(1)(3) of the Act and disallowance of Rs. 31,75,200/- paid towards Stamp Duty and leave and license agreement. The Ld.AO further made a disallowance under section 14A read with Rule 8D for Rs. 6,81,077/- applying provisions of rule 8D(2)(ii) and 8D(3) of the Income Tax Rules and finally the assessment was completed with determination of assessed inco....
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....of Rs. 47 cr.). Amount of interest paid - Rs. 0.45 cr. Proportionate amount allowable @ 53% - Rs. 23.85 lacs (53% of Rs. 0.45 cr.) Therefore, total amount of interest allowable is Rs. 330.85 lacs (Rs. 3.07 cr. + Rs. 23.85 lacs). The balance amount of interest is towards investment in debentures and bank FD. The same should be allowed to be capitalized/as a deduction based on the verification by the A.O." 9. It was the submission that since the interest which is claimed under section 24(b) of the Act was only towards the funds borrowed from different financial institutions, which were utilized for repayment of the existing housing loans which originally were utilized for the construction of property, therefore, to the extent such loans were utilized for acquisition of property or for repayment of loans through which the property is acquired shall be allowable under section 24(b) of the Act. Ld. Counsel also furnished a chart showing utilization of borrowed funds and its nexus with subsequent loans utilized to repay the earlier loans. The chart is reproduced as under: Details of utilization of borrowing and claim of interest expenditure allow....
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....d repaid Rs. 43.39 cr. to Indiabulls Financial Services Ltd. Year under consideration. 10. Per contra Ld. DR vehemently supported the orders of Revenue Authorities, has referred to para 4.4.1 of the CIT(A)'s order who categorically noted that as per the finding of Ld. AO, the funds were utilized for general corporate purposes of the group, therefore, there was no direct nexus which is required under section 24(b). Mere repayment of loan with another does not automatically transmit the character of construction capital if the original utilization is in doubt, the principle of res judicata does not apply to Income Tax proceedings. 11. We have considered the rival submissions, perused the material available on record and examined the explanations furnished by the assessee regarding the nexus between the loan availed by the assessee and its utilization towards construction or acquisition of the underlying property. Admittedly, we find substance in the submissions of the assessee. The property was constructed by the assessee and the first loan was availed from HDFC Bank in AY 2009-10 for an amount of Rs. 38.00 crores, out of which Rs. 31.50 crores were utilized by the assessee ....
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.... the assessee u/s. 24(b) of the Act. 14. In this factual backdrop, once the assessee has demonstrated the nexus between the borrowed funds and their utilisation towards construction of the property, and the Ld. AO himself had, in the preceding assessment years, allowed the interest expenditure to the extent attributable to the funds utilised for construction of the property u/s. 24(b) of the Act, the departure from the consistently adopted position in the year under consideration would require examination with reference to the facts and material available on record. In the absence of any material brought on record to establish a change in the nature or utilisation of the borrowed funds, the Revenue, having consistently accepted the aforesaid basis of allocation in the preceding years, could not, without demonstrating any distinguishing feature or change in facts, adopt a contrary position in the year under consideration. Accordingly, the disallowance of interest expenditure u/s. 24(b) of the Act, on the facts as emanating from the record, was not warranted. 15. We, prima facie, find substance in the submissions of the assessee and agree with the same, which is also borne out ....
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....ed before the Ld. AO that the assessee had not earned any exempt income during the year under consideration. Therefore, disallowance under Section 14A is not applicable in the case of the assessee. The Ld. AO observed that applicability of Rule 8D read with Section 14A would trigger irrespective of the fact whether any such income has been earned during the financial year or not. It relates only to the capability of the investment to earn exempt income and the actual expenditure incurred for earning of the exempt income during the year under consideration. On this aspect, we are of the considered view that the Ld.AO was not right, while contravening the settled principles of law as laid down by Hon'ble Courts including the Hon'ble Bombay High Court in the case of Pr. CIT Vs Kohinoor Project Pvt Ltd (121 taxmann.com 177) following the judgement of Hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT [2015] 378 ITR 33has held that in absence of exempt income, no disallowance is warranted u/s. 14A of the Actis called for. We accordingly direct the Ld.AO to delete the addition under section 14A. ground of appeal no 2 is thus allowed. 18. Ground No.3is not pressed by th....