Interest on a mortgage loan used to build a rental property is permitted under section 24 (b)

Fact and issue of the case

The assessee has raised the following grounds of appeal:-

. For that the Ld. CIT (Appeals) erred in not considering the submission on issue of addition of undisclosed commission of Rs. 24,418/-.The Income was already disclosed & offered to tax resulting in double taxation.

. For that the Ld. CIT (Appeals) erred in law as well as in facts to make addition of expenses reimbursed of Rs. 1,63,716/- as receipt of commission. The Ld CIT (Appeals) did not consider the submissions & documents filed on the issue.

. For that the Ld. CIT (Appeals) erred in not considering the submission on issue of addition of undisclosed Interest on Security deposit of Rs. 30,082-.The Income was already disclosed & offered to tax resulting in double taxation.

. For that the Ld. CIT (Appeals) erred in law as well as in facts to make disallowance of Interest paid on loan of Rs 4,62,710/-taken for construction of house property which was given on rent without considering properly the submissions & documents filed on the issue. The loan taken was fully utilised in construction of property given on rent.

. The ‘a’ craves leave to add, alter, amend, delete, substitute any of the grounds/ or take additional ground/s before or at any time of hearing of this appeal.

Brief facts of the case are that the assessee is an individual, carrying on business as C & F agent in the name of M/s. Fresnius Karl India Pvt. Ltd. (M/s. FKIPL). Loss at Rs.97,160/- declared in the return filed for the AY 2009-10 on 27-09-2009. Case selected for scrutiny through CASS followed by serving of notices u/s. 142(1)/143(2) of the Act. The ld. AO examined various transactions along with commission income earned and expenditure claimed during the year. The assessee being C & F agent of M/s. FKIPL information was called for u/s. 133(6). Thereafter, the ld. AO considered the submissions made by the assessee and assessed the income at Rs. 5,83,860/- after making various additions.

Aggrieved, the assessee preferred appeal before the ld. CIT(A) challenging the additions made by the ld. AO and partly succeeded.

Aggrieved, the assessee is now in appeal before this Tribunal.

Observation by the tribunal

The tribunal has heard the rival contentions and perused the material placed before me.

Ground no.1, it relates to addition of undisclosed commission income of Rs.24,418/-. We on perusal of the submissions filed by the assessee find merit that inadvertently there were some mistakes in the accounting of bills. The assessee offered an amount of Rs. 5,98,381/- as C & F commission agent for FY 2008-09. During the course of hearing before the ld. AO the assessee accepted Rs. 3000 in July’08 bill and Rs. 43 in August ’08 bill erroneously not accounted. Further, the assessee has also disclosed Rs. 32,406/- as other commission under miscellaneous income. Thus total commission income has been shown at Rs.6,33,831/-. Therefore, under the given facts there was no further requirement to make addition of Rs. 24,418/- and the same is hereby deleted. The finding of the ld. CIT(A) is reversed. Ground no. 1 is allowed.

Ground no. 2 relates to addition towards unaccounted reimbursement expenses at Rs.1,63,716/-. The assessee claimed expenses of Rs. 1,36,436/- as reimbursable being amount spent on behalf of M/s. FKIPL. These expenses were directly debited in M/s. FKIPL account and not to Profit & Loss A/c. The reimbursement of expenses received from M/s. FKIPL at Rs.1,63,716/- have been treated as unaccounted expenditure by Revenue. We, however, on perusal of the submissions of the assessee made before the ld. CIT(A) find merit and hold that no such addition was called for as these are merely reimbursement of expenses, which the assessee has incurred on behalf of M/s. FKIPL and got it reimbursed but not debited to the P/L account. Thus, finding of ld. CIT(A) is reversed. Ground no.2 raised by the assessee is allowed.

Ground no. 3 it relates to addition for concealed interest of Rs. 30,082/-. We observe that the assessee received Rs.26,984/- net of TDS during FY 2008-09, which was related to FY 2007-08. The assessee filed necessary details before the ld.AO to show that the alleged interest on security of Rs.30,082/- relates to FY 2007-08 and the same was duly disclosed in the P/L account in the preceding year. This submission of the assessee before the ld. CIT(A) stands uncontroverted by the ld. DR. We are, therefore, inclined to hold that the ld.AO erred in making addition of Rs.30,082/-. The finding of the ld. CIT(A) stands reversed. Ground no. 3 is allowed.

Ground no.4 it relates to disallowance of interest of Rs.4,62,710/-. We observe that the said expenditure claimed by the assessee was disallowed by the ld.AO. Further, on perusal of the written submissions before the ld. CIT(A) it is discernible that the assessee had taken housing loan from B.O.I (Bank of India) as well as other credit facilities. This loan was taken for the purpose of construction of house property. The said property has been let out on rent. The assessee has filed documentary evidences before the lower authorities to prove that the loans were utilised for construction of rented property and the same is allowable u/s. 24(b) of the Act. The ld. AO has also accepted the fact that the assessee has taken a house building loan from Bank of India for the property located at Thakurpukuar, Kolkata. Though the assessee has paid total interest on borrowed loans including housing loan at Rs. 6,46,390/- the ld. AO allowed only to the extent at Rs. 1,83,680/-. However looking to the fact that the assessee took a housing loan and interest paid thereon is subject to deduction u/s. 24(b) of the Act against rental income. We are of the considered view that the assessee deserves for deduction u/s. 24(b) of the Act of the interest paid on having loan of Rs. 4,62,710/-. We accordingly reverse the finding of the Id. CIT(A) and delete the addition of Rs.4,62,710/-. Ground no. 4 raised by the assessee is allowed.

Ground no.5 is general in nature, which requires no adjudication.

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