INCOME TAX ACT, 1961

Section 24(b)

Income from house property - Deduction under section 24(b) - Interest on borrowed capital - Loan taken from bank being utilized for repayment of earlier loan taken for acquisition of property

Assessee-company filed its return of income for assessment year 2010-2011. AO observed that the assessee acquired house property by utilizing loan taken from its three directors and subsequently, the assessee also took the loan from bank. Further, the AO observed that the loan taken from bank was not fully utilized for repayment of loan but it was utilized for excess payment to some of the directors. Accordingly, the AO made proportionate disallowance of deduction on account of interest under section 24(b). Held: It was found that the AO considered incorrect details of loan and repayment of the loan by assessee to its directors. Further, it was found that the accounts of all the three directors were settled before the end of the financial year 2007-08 by utilizing the loan taken from the bank; thus, no disallowance on account of interest expenditure for the assessment year 2010-11 was called for. Therefore, as the entire loan availed of by the assessee from bank was finally utilized for repayment of loans taken from its directors; no disallowance was called for on account of interest expenditure.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11 & 2012-13

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