The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) while deleting the disallowance made by the assessing officer towards the interest expenses held that interest paid on loans borrowed for real estate and finance business is allowable as deduction.
The present case, the assessee Gurcharan Singh Bhatia, engaged in the business of real estate and Finance business. In the course of assessment proceedings, the Assessing Officer noticed from P & L accounts of the assessee that the assessee had debited Rs.1,65,65,973/- towards interest paid on loan.
Assessee has taken loan for the business purposes from banks and paid interest and, therefore, the interest paid on loans borrowed is an allowable deduction as it was paid in the course of business of real estate,
However the AO without considering the submissions of the assessee disallowed the interest expense incurred for borrowed loan .
Aggrieved by the disallowance the Assesee filed appeal before the CIT(A), who sustained the disallowance therefore the assessee filed the present appeal before the tribunal.
Assesee representative, K. Sampath & V. Rajkumar argued that during assessment years 2007-08 to 2009-10 and in the assessment year 2009-10 the similar issues had come up before the CIT(A). Hence Commissioner of Income-Tax (Appeals) has accepted the position that the assessee is into the real estate and finance business and, therefore, there is no justification in denying deduction of interest payments which are incurred for the purposes of business of the assessee.
Amit Katoch, the Department representative argued that the loans were not used for any business purposes, no agreements were produced and, therefore, the interest expenses are not allowable as deduction.
It was observed by the tribunal that the Assessing Officer while completing the assessment, denied deduction for interest expenses on the ground that the assessee is not into the business of real estates and finance.
Further Commissioner of Income Tax (Appeals) for the assessment year 2009-10 submits that the issue of as to whether the assessee is into real estate and finance business was already decided in the assessment year 2007-08 onwards and in the assessment year 2009-10, it is the finding of the Commissioner of Income-Tax (Appeals) that the assessee is into real estate business and, therefore, the interest expenses have to be allowed as deduction.
Hence simply because the assessee has not shown any business income during the current assessment year, it cannot be held that the assessee is not carrying on the real estate business.
After reviewing the submissions of both parties the two-member bench of Shamim Yahya, (Accountant Member) and Challa Nagendra Prasad, (Judicial Member) Deleted the disallowance made by the assessing officer and held that interest paid on loans borrowed for real estate and finance business is allowable as deduction.
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