The Income Tax Appellate Tribunal (ITAT), Pune bench has held that deduction of interest under section 24(b) based on the wrong assumption of facts and applying incorrect law and upholds review under section 263.
The appellant, Michelle Y. Poonawalla is an individual and engaged in managing the family business. The appellant filed a return of income declaring a total income of Rs.15,65,600/-, u/s. 143(3) of the Assessing Officer accepted the returned income.
The PCIT u/s 263 initiated revision proceedings by alleging that the claim of deduction of interest of Rs.1,11,54,990/- on borrowed capital is not allowable and does not fit into the conditions laid down in section 24(b) of the Act. The aggrieved appellant approached ITAT against the revision order.
The counsel for the appellant submitted that the payment of compensation to the tenant for bettering the title is allowable u/s. 24(b) of the Act and further submitted that the AO conducted inquiries in this regard during assessment proceedings. A statutory tenant who comes to have control over the property is the legal owner fitting into the definition of sub-clause (iiib) of section 27 of the Act.
The counsel for the revenue submitted that the appellant had purchased the said property on 06-09-2001 and since then she has been the legal owner of the property and the provisions u/s. 27(iiib) is not applicable. The appellant availed a loan to pay the same to the statutory tenant which is not the condition laid down in section 24(b) of the Act to claim the deduction.
The Tribunal observed that on a plain reading of clause (b) of section 24 of the Act explains that the deduction is allowable where the property has been acquired, constructed, repaired, renewed, or reconstructed with borrowed capital. The appellant purchased the said property in the year 2001 and the relinquishment agreement shows that the appellant is the “landlord”, therefore, as rightly pointed out by the PCIT, the claim of the assessee is not entitled to claim interest as deduction u/s. 24(b) of the Act.
The Coram of Mr. I S.S. Viswanethra Ravi, Judicial Member, and Dr. Dipak P. Ripote, Accountant Member has held that “the AO had the wrong assumption of facts and by applying incorrect law without due application of mind allowed the claim of interest paid on borrowed capital u/s. 24(b) of the Act. Therefore, in our opinion, the PCIT correctly exercised its jurisdiction in holding the assessment order dated 31-12-2015 is erroneous and prejudicial to the interest of Revenue”.
Mr. Nikhil Pathak and Mr. Anurag Srivastava appeared on behalf of the appellant and respondent respectively.
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