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Facts
The assessee, an individual engaged in retail business, declared income from business and house property for AY 2018-19. The assessee owned three properties, two deemed let out and one self-occupied, and claimed a significant interest deduction on housing loans, resulting in a loss from house property. The AO disallowed this interest claim due to lack of supporting evidence like tenant details and interest certificates.
Held
The Tribunal noted that the assessee failed to provide necessary details of rental income and interest payments to both the AO and the CIT(A). Consequently, the Tribunal set aside the order of the CIT(A) and remitted the issue back to the jurisdictional AO for verification of rental income and interest on housing loans claimed as deduction.
Key Issues
Whether the disallowance of interest deduction on housing loans for deemed let-out properties is justified without proper verification of rental income and interest payment details by the lower authorities.
Sections Cited
24, 23(1)(a), 234A, 234B, 234C, 143(3)
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM :
This appeal by the assessee is filed against the order of the learned Commissioner of Income Tax (Appeal), NFAC, Delhi, (in short Ld.CIT(A)) for the assessment year 2018-19, vide order dated 26.02.2025.
At the outset, we find that there is a delay of 29 days in appeal filed by the assessee, for which petition for condonation of delay along with reasons. The assessee submitted an affidavit for the delay stating that the delay is due to genuine confusion arising from the contradictory conclusions recorded in the appellate order. While, one part of the order states that the appeal is “dismissed”, another part appears to suggest that the order has been “set aside”. This contradiction caused uncertainty and led the assessee to believe
:-2-: ITA. No:1504/Chny/2025 that the further appeal was not necessary resulting in delay and prayed that the delay be condoned. After considering the petition filed by the assessee and also hearing both the parties, we find that there is a reasonable cause for the assessee in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the assessee for adjudication.
The grounds raised by the assessee are as follows: 1) The learned CIT(A) erred in confirming the disallowance of interest deduction of Rs. 18,22,375/- under Section 24(b) of the Income Tax Act, 1961. 2) The learned CIT(A) failed to appreciate that the Appellant had provided sufficient documentary evidence, including bank statements and EMI payments, to substantiate the interest deduction claim. 3) The CIT(A) erred in disregarding the fact that the interest certificates were submitted at a later stage, and the same should have been considered in light of natural justice. 4) The CIT(A) failed to acknowledge that for deemed let-out properties, tenant details and rental agreements are not mandatory, as per the provisions of Section 23(1)(a) of the Income Tax Act. 5) The disallowance of interest on the ground of non-submissions of rent receipts is contrary to law; as deemed rental income is taxable irrespective of actual tenancy. 6) The CIT(A) erred in confirming the levy of interest under Sections 234A, 234B, and 234C, which was consequential to the erroneous disallowance of interest. 7) The Appellant craves leave to add, alter, or modify any ground at the time of hearing.
Brief facts of the case are that the assessee is an individual engaged in retail business and filed her return of income for the A.Y. 2018-19 by declaring income from business and also from house property. The assessee owns three immovable properties and shown two properties as let out and one is as SOP. However, the assessee in her return of income has offered rent income of Rs.1,44,000/- against only one property. The assessee has claimed huge interest of Rs.18,22,375/- and shown a loss of :-3-: ITA. No:1504/Chny/2025 Rs.17,37,347/- against house property income. The case was selected for limited scrutiny and statutory notices were issued to the assessee. The assessee submitted that the interest has been paid to various financial institutions for the loans obtained on property is allowable u/s.24 of the Act. With respect to supporting the assessee filed the evidence of bank payments made each month and prayed for accepting the return of income filed. However, the AO was not convinced with the reply filed by the assessee and disallowed the interest on loans claimed by passing an order dated 19.02.2021 u/s.143(3) of the Act holding as under:
The reply of the assessee is not acceptable as the assessee has misled the facts. The assessee has shown her property as let out, but not shown any name of any tenants. Further the assessee has also not furnished the interest certificate, which is necessary documents to claim the interest expenses against house property under the provision of the Income Tax Act, 1961. The provision of the Income Tax which are as under: Section 24 (a) …….. (b) …….. 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 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. Considering the above facts and discussion, the total interest of Rs.18,22,375/- claimed by the assessee is here by disallowed.
Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A), NFAC on 18.03.2021.
:-4-: ITA. No:1504/Chny/2025 6. The assessee submitted interest certificates issued by the three financial institutions and the reconciliation thereof before the ld.CIT(A). Further, the assessee stated that the interest is claimed as per Section 24(b) of the Act against the deemed let out properties and the AO has erred in rejecting the same. On perusal of the submissions of the assessee, theld.CIT(A) has directed to AO to verify the actual payment of interest along with the quantum of rent declared for deemed let out properties in Para No.4.9 of his order as detailed below:
Based on these facts and circumstances, the appeal of the appellant is dismissed. The Assessing Officer is also directed to verify the bank statements of the assessee for the relevant financial year to ascertain the actual payment of interest against House Building Loans. The Assessing Officer is further directed to ascertain the exact quantum of income from the two properties of the appellant other than the one in which she had been living during the relevant financial year. However, in the subsequent para of the order, the ld.CIT(A) states that the disallowance made by the AO is confirmed and consequently appeal of the assessee is dismissed.
Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us.
The ld.AR submitted that the ld.CIT(A) has erroneously dismissed the appeal, though the issue has been remitted back to the AO for verification of both rent received and interest paid to financial institutions claimed under the head ‘income from house property’. Hence, prayed for directing the AO with the similar direction by setting aside the impugned order.
:-5-: ITA. No:1504/Chny/2025
Per contra, the ld.DR submitted that the assessee has not filed any details of rent of deemed let out properties along with the details of interest before the AO during the assessment proceedings and hence, prayed for dismissing the appeal of the assessee.
We have heard the rival parties and perused the material available on record and gone through the orders of the lower authorities. It is undisputed fact that the assessee has declared income from three house properties under the head ‘income from house property’. We note that the assessee has claimed one property as self occupied property and other two properties as deemed let out properties. During the impugned assessment year the assessee has shown rent of Rs.1,44,000/- and claimed interest paid on borrowings from financial institutions to the tune of Rs.18,22,375/- u/s.24(b) of the Act. Consequently, shown a loss from house property of Rs.17,37,347/- As observed by the AO, the assessee has not submitted the details of tenants or rent agreements in support of the rent declared. We also find that the assessee has not submitted same even before the ld.CIT(A). Since, the details and evidence were not available before the AO, we are inclined to set aside the order of the ld.CIT(A) and remit the issue back to the files of Jurisdictional Assessing Officer for limited purpose of verification of details of rental income and interest on housing loan claimed as deduction. Accordingly, we direct the JAO to examine the rent income and interest on loan paid to financial institutions claimed by the assessee and pass the order in accordance with law. Needless to say, the assessee to be diligent and file the relevant details and documents as and when called for without taking unnecessary adjournments.
:-6-: ITA. No:1504/Chny/2025
In the result, appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the court on 04th September, 2025 at Chennai.