The assessee claimed deduction under section 24 on account of interest on the loan which was taken for acquiring/constructing house property – However, details for the same, for example:
✔Amount of loan taken,
✔Date of loan,
✔Rate of interest,
✔Confirmation from creditors, etc., were not filed in support of the claim
Assessing Officer disallowed deduction holding that assessee had not produced material to suggest that amount which was borrowed was utilized for the acquisition of house property
Analysis of section 24
Deductions from income from house property.
24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—
(a) a sum equal to thirty percent of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed, or reconstructed with borrowed capital, the amount of any interest payable on such capital:
Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction 58[or, as the case may be, the aggregate of the amount of deduction] shall not exceed thirty thousand rupees :
Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction 58[or, as the case may be, the aggregate of the amounts of deduction] under this clause shall not exceed two lakh rupees.
Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal installments for the said previous year and for each of the four immediately succeeding previous years:
Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.
Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital:
59[Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.]
Analysis of fact
The deduction of Rs. 94,500 is claimed on account of interest on loans. The assessee submitted details of interest payable to the persons who happened to be relatives of the assessee. However, the details regarding the amount of loan taken, date of the loan, rate of interest, confirmation from creditors, etc. was not filed. The assessee was therefore asked to furnish the necessary evidence in this regard. The show-cause notice was also issued as to why the amount be not disallowed in the absence of any proof for the same and nexus regarding utilization of borrowed funds for the acquisition of the property. The assessee filed the income computation statement of Smt. Kamlesh Kumari and Mrs. Neeraja Ghura to whom interest have been paid.
The Assessing Officer held that deduction under section 24(1)(vi) can be allowed provided, the interest is payable on the amount borrowed and which is utilized for acquiring/constructing/repairing the property, the income from which is assessable under section 23 of the Act. Since the assessee has not produced material to suggest that the amount which was borrowed, was utilized for acquisition/constructing of property, the deduction under section 24(1)(vi) is not allowable.
✔The assessee failed to file any document, which would suggest that the amount borrowed in earlier years was utilized for purchase/acquisition of property, income from which was offered under section 23.
✔He also failed to file any document that such an amount was allowed as a deduction in earlier years.
✔No nexus was established between the borrower of loans and the utilization of the same for the purpose of acquiring/constructing the house property.
Thus, deduction under section 24(1)(vi) was not allowable.