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Facts
The assessee, a doctor, declared income including a loss from house property which included a significant deduction for interest on borrowed capital. The Assessing Officer (AO) disallowed this deduction, treating the loan as 'loan against property' for business rather than for house construction. The CIT(A) dismissed the appeal due to non-compliance by the assessee.
Held
The Tribunal noted that the assessee failed to establish the nexus between the 'loan against property' and the construction of the house property before the lower authorities. However, considering the assessee's explanation regarding non-representation before the lower authorities due to advocate's email issues, the Tribunal decided to restore the issue to the AO.
Key Issues
Whether the interest on 'loan against property' is eligible for deduction under Section 24(b) when the loan was purportedly for house construction, and whether the assessee was prevented from adequately representing his case before the lower authorities.
Sections Cited
24(a), 24(b), 143(2), 142(1), 144, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC’’BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
1. This appeal at the instance of the assessee is directed against the order of ld.CIT(A)NFAC vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1082989136(1) dated 25.11.2025 passed u/s. 250 of the Income Tax Act, 1961 (in short “the Act”) for the AY 2018-19.
The assessee has raised the following grounds of appeal:
The Brief facts of case are that the assessee is a doctor by a profession and derives income from salary, business or profession and house property. The assessee filed his return of income for AY 2018-19 on 29/03/2019 by declaring total income of Rs. 14,33,900/-. The assessee had computed income from House property by taking annual lettable value (ALV) at Rs. 4,80,000/- and claim deduction u/s. 24(a) of the Act amounting to Rs.1,44,000/- and also deduction in respect of interest on borrowed capital u/s. 24(b) of the Act to the extent of Rs.21,46,636/- and arrived at the loss from house property of Rs. Rs.18,10,636/-. The assessee ultimately restricted the loss from house property amounting to Rs. 2,00,000/- in his return of income and accordingly computed his taxable income as below: -
Income from Salaries Rs. 6,00,000 2. Income from House Property(loss) (-)Rs. 2,00,000 3. Profits and gains of Business or Profession Rs.12,08,900 _______________ Gross Total Income Rs. 16,08,900 Less: Deductions claimed Rs. 1,75,000 _________________ Total Income for Income Tax Rs. 14,33,900 ============== Thereafter, the case of the assessee was selected for limited Scrutiny assessment for the issue “Income from house property”. Accordingly, notices u/s. 143(2) as well as 142(1) of the Act along with the letter dated 09/10/2020 were issued to the assessee calling for the details. As the assessee being a Doctor was preoccupied on account of Covid-19 pandemic and therefore he Sri Suresh Kumar, Bengaluru Page 4 of 7 could not respond to the above notices. Thereafter, the AO issued show cause notice u/s.144 of the Act proposing to disallow the interest on borrowed capital amounting to Rs.21,46,636/-. In response to which the assessee only uploaded the interest certificate towards the loan borrowed from IDFC First Bank. However, the AO disallowed the deduction claimed u/s. 24(b) of the Act amounting to Rs.21,46,636/- on ground that same was not a housing loan but the loan against the property. Further, the AO while concluding the assessment had also observed that the assessee had not given any details of the contact person from whom the loan was obtained, the purpose for which the loan was taken and date of sanction of loan and security provided. The AO also observed that the assessee had not furnished the details relating to the completion of house constructed and the EMI statement from IDFC First Bank. The AO finally computed the income from house property and assessed u/s. 144 of the Act as detailed below: -
Particulars Amount (In Rs.) ALV of the property as per ITR 4,80,000/- Less: (i) Standard deduction u/s. 24(a) 1,44,000/- [30% of 4,80,000/-] Less: (ii) Interest on borrowed capital 0/- u/s. 24(b) as discussed above para no.4.1 & 4.2 Total House Property Income (1-2-3) 3,36,000/-
Aggrieved by the order of AO passed u/s. 144 of the Act dated 22/03/2021, the assessee preferred an appeal before the ld. CIT (A)/NFAC.
Sri Suresh Kumar, Bengaluru Page 5 of 7 5. The ld. CIT (A)/NFAC dismissed the appeal of the assessee on the ground that despite issuing 4 nos. of notices for hearing, the assessee neither responded to any of the notices nor filed any written submissions in support of his claim. The ld.CIT(A)/NFAC thereafter considering all the grounds on merit also held that as there is no material before him to rebut the AO factual findings or to establish that borrowing was for acquisition/ construction of house property and in the absence of proof of nexus between borrowing and house property as well as in view of the documentary description of the loan as “loan against the property” for business, the CIT(A)/NFAC held that the interest claimed u/s. 24(b) of the Act does not qualify for deduction and accordingly dismissed the appeal of the assessee.
Again, aggrieved by the order of ld.CIT(A)/NFAC, the assessee has filed the present appeal before this Tribunal.
Before us, the ld. A.R. of the assessee vehemently submitted that the assessee could not represent his case before the ld.CIT(A)/NFAC since the email –id given in the Form No-35 was of the advocate of the assessee who neither responded to any of the notices nor informed the assessee regarding such notices being issued by ld.CIT(A)/NFAC. Further, ld. A.R. submitted that the AO had also passed an order u/s. 144 of the Act and accordingly prayed that the entire issue may be remitted to the file of AO to decide a fresh after giving reasonable opportunity of being heard. The ld. A.R. also undertakes to file all the documentary evidence before the AO to substantiate his claim.
The ld. D.R. on the other hand supported the order of the Authorities below.
We have heard the rival submissions and perused the material available on record. The only issue in the present case is whether the loan against Property taken by the assessee is utilized for the purposes of the construction of the house or not? The ld. CIT(A)/NFAC rightly held that the assessee has to establish the nexus between the borrowings & House property construction. We observed that the necessary details were not furnished before the AO to establish the same. The assessee only produced interest certificate. Merely by producing the interest certificate, it cannot be established that the Loan against the property were taken for the purposes of the construction of House property. Before us, the contention of the ld. A.R. of the assessee is that the assessee could not represent his case before both the Authorities below and also undertakes to file all the relevant documentary evidence before the AO if the matter is remitted back to the file of AO. On going through the assessment order, we take note of the fact that the AO has passed the order ex-parte u/s. 144 of the Act. Further, ongoing through the order of ld.CIT(A)/NFAC, we also observed that the assessee could not represent his case before the ld.CIT(A)/NFAC. The contention of the ld. A.R. is that the in- Form No-35, the e-mail id was of the advocate of the assessee who neither responded to the notices issued by ld.CIT(A)/NFAC nor informed the assessee. This being so, in the interest of justice, equity and fair play, we deem it fit and proper to remit the entire issue in dispute to the file of AO to decide a fresh in accordance with law. Needless to say, a Sri Suresh Kumar, Bengaluru Page 7 of 7 reasonable opportunity of being heard must be granted to the assessee. The assessee is also directed to co-operate with the proceedings and submit all the necessary documents/ evidence/ information/ certificate in support of his contention or any other documents/ information required by the AO for the completion of assessment proceedings. We make it clear that in case of further default, the assessee shall not be entitled for any leniency. It is ordered accordingly.
In the result, appeal filed by the assessee is partly allowed for statistical purposes.