Professional Charges for Processing Loan for Construction of Property from which Assessee Received Rental Income not allowable as Business Expenditure: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) recently held that the professional charges paid by the assessee for processing of loan for the construction of the property cannot be allowable as business expenditure under section 37 of the Income Tax Act as the expense was incurred in connection with the receipt of House Property Income.

In the instant case, assessee-company has derived rental income from the school building constructed at Village Shiltane, Lonvala from M/s. Cathedral Vidya School in which one of the Director is also trustee. Assessee paid a certain amount for processing of loan application for the construction of school property and claimed deduction of the same from the total income treating it as a business expenditure.

However, the Assessing Officer rejected the claim on the ground that the same was incurred for the construction of a property from which assessee received rental income and declared the same under the head ‘House property income.’

The first appellate authority confirmed the order.

While dismissing the contentions of the assessee on second appeal, the Tribunal said that “The assessee submitted that funds raised were utilized for construction of school property/assets and same is allowable as expenditure under section 37 of the Income Tax Act. The A.O. did not accept the contention of assessee because the assessee has accepted that the expenses incurred are related to building, on which, rental income has been declared. Therefore, it was disallowed as business expenditure. The assessee has claimed interest against house property.”

“Learned Counsel for the Assessee submitted that the service fees or other charges falls in the definition of interest under Section 2(28A) of the Income Tax Act. Therefore, it is an allowable deduction under section 24(b) of the Income Tax Act. However, it is a fact that assessee has not filed any evidence to show that professional charges claimed were towards loan which was actually utilized for assets yielding rental income.”