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Facts
The assessee declared a business loss, which included significant interest expenses. The Assessing Officer disallowed the entire interest expense, arguing that the loan was not substantiated for business purposes and the property related to the loan was not recorded as a business asset. The CIT(A) upheld this disallowance.
Held
The Tribunal restored the issue to the file of the CIT(A)/NFAC. The assessee was granted an opportunity to furnish requisite details and substantiate the utilization of the loan for business premises construction, allowing for a fresh decision on the matter.
Key Issues
Whether the interest expenses claimed on loans for business premises construction are allowable as a deduction when the loan's utilization and the property's ownership are disputed.
Sections Cited
143(2), 142(1), 36
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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI R. K. PANDA
Assessee by : Shri Sudin Sabnis Department by : Ms. Sailee Dhole, JCIT (through virtual) Date of hearing : 25-09-2025 Date of pronouncement : 07-10-2025 O R D E R PER R. K. PANDA, VP :
This appeal filed by the assessee is directed against the order dated 30.05.2025 of the Ld. CIT(A) / NFAC, Delhi, relating to assessment year 2020-21.
Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 04.01.2021 declaring business loss of Rs.26,93,588/-. The case was selected for limited scrutiny and accordingly statutory notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) were issued and served on the assessee in response to which the assessee filed certain details. During the course of assessment proceedings the Assessing Officer, on verification of the details furnished by the assessee, noticed that the assessee has declared business loss of Rs.40,71,829/- which is mainly attributable to interest 2 expenses of Rs.46,24,948/- debited by the assessee to the Income and Expenditure Account. In support of the said claim of interest, the assessee submitted interest certificates issued by L & T Finance Home Loans. The Assessing Officer observed that L & T Finance Home Loans has issued two certificates mentioning the nature of loan being housing loan and description of property is Plot No.17, National Co-Operative Housing Society Ltd., Aundh, Pune. The details of both the certificates are as under:
The Assessing Officer observed that since the Account No.PUNHL15000324 mentions the name of the borrower as Mr. Vishal Prakash Katariya and the co-borrower as Allison Vishal Katariya, therefore, the assessee is not the borrower in the case of this loan account. He observed that in the second loan account bearing No. PUNHL16001617 the borrower is Mr. Vishak Prakash Katariya and the co-borrowers are Prakash Birbhan Katariya/Allison Vishal Katariya. Thus, at the maximum 1/3rd of Rs.31,81,493/- amounting to Rs.10,60,497/- can be allowed to the assessee. He further noticed from the assets details that as per the Balance Sheet as on 31.03.2020 of the assessee the assets details are mentioning Clinic Premises of Rs.1,20,75,096/- only. The Assessing Officer noted that the property in respect of which interest expenses are claimed is 3 not considered in the assets of the business of the assessee. In absence of any satisfactory explanation furnished by the assessee justifying the business expenses or business exigency, the Assessing Officer disallowed the interest expenses of Rs.46,24,948/- and added the same to the total income of the assessee.
Before the CIT(A) / NFAC it was argued that though both the loans are sanctioned under the ‘home loan’ category but the same were utilized for the purpose of construction of commercial business asset i.e. Clinic. It was submitted that the entire EMI has been paid by the assessee and the premises is being used by the assessee as his clinic.
5. However, the Ld. CIT(A) / NFAC was not satisfied with the arguments advanced by the assessee. He observed that the total value of clinic premises as on 31.03.2020 as per balance sheet uploaded is Rs.1,20,75,096/- only, out of which the Aundh clinic is valued at Rs.70,61,053/-. According to him if the total loan of Rs.4.5 crore is utilized for construction of the clinic which has been completed in the previous year, then it cannot be said that the loan has been utilized for the purpose of assessee’s business. Since the assessee neither before the Assessing Officer nor before him was able to establish that the loan was utilized for the purpose of construction of his business premises by furnishing documentary evidence, therefore, he upheld the action of the Assessing Officer.
6. Aggrieved with such order of Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:
4 1. That in law and in the facts and circumstances of the case, the Ld. AO has erred in making additions of interest paid in respect of capital borrowed for the purposes of Appellant's business amounting to Rs.46,24,948/- as claimed by the Appellant in its return of income for Assessment Year 2020- 21.
2. That in law and in the facts and circumstances of the case, the CIT(A) has erred in upholding the aforesaid actions of the Ld. AO.
3. That in law and in the facts and circumstances of the case, the CIT(A) has erred in not appreciating the submission of the Appellant that he was the beneficial owner of the loan availed and the interest paid was in substance wholly and exclusively utilised for the purpose of business activities of the Appellant under section 36 of the Income-tax Act, 1961.
4. That in law and in the facts and circumstances of the case, the CIT(A) erred in not addressing or considering the various judicial precedents relied upon by the Appellant and passed the impugned order without application of mind.
That in law and in the facts and circumstances of the case, the Ld. AO has violated the principles of natural justice by not providing sufficient and appropriate opportunity to furnish an appropriate response to the show cause notice, dated 8th September 2022, whereby the Appellant was only afforded three working days to furnish his response.
Without prejudice, the Appellant should be allowed 1/3rd of the interest on Rs.31,81,493/- amounting to Rs.10,60,497/- as accepted by the Ld. AO.
7. The Appellant craves leave to add, alter, amend or delete the above grounds of appeal.
The Ld. Counsel for the assessee submitted that since the assessee was a senior citizen, loan was not sanctioned to him in his name but was sanctioned in the names of the assessee and two of his family members namely Mr. Vishal Katariya and Mrs. Allison Katariya as co-borrowers. He submitted that the entire loan amount was utilized for construction of the business premises and the interest amount was paid by the assessee from his business account. The co-borrowers have not claimed any deduction towards interest in their income tax returns and the income from clinic premises including any rental or professional income has been declared by the assessee in his return.
5 8. Referring to page 356 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the letter issued by L & T Housing Finance Ltd, according to which the loans were sanctioned for construction of the property at Plot No.17, National Co-operative Housing Society, Pune – 411007 and for running business under the trade name ‘Laser Cure’ in the said property. However, this document was obtained after hearing of the appeal before the Ld. CIT(A) / NFAC and therefore it is an additional evidence which goes to the root of the matter. He submitted that in the interest of justice, the additional evidence may be admitted. Relying on various decisions, he submitted that the assessee is entitled for deduction of interest expenditure. He submitted that although the full details were given by the assessee, however, the same were not properly appreciated by the Ld. CIT(A) / NFAC and therefore, he has no objection if the matter is restored to the file of the Ld. CIT(A) / NFAC with a direction to decide the issue afresh.
The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that since the assessee could not substantiate with evidence to the satisfaction of the Assessing Officer as well as the Ld. CIT(A) / NFAC, the Ld. CIT(A) / NFAC was fully justified in sustaining the addition made by the Assessing Officer.
I have heard the rival arguments made by both the sides and perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC. I find the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer in denying the claim of interest expenditure of Rs.46,24,948/- on the ground that the assessee was unable to 6 establish that the loan was utilized for the purpose of construction of his business premises by furnishing documentary evidence. A perusal of the certificate issued by L&T Housing Finance Ltd. dated 11.09.2025 shows that the loan has been sanctioned for the purpose of construction of property at Plot No.17, National Co- Operative Housing Society Ltd., Aundh, Pune and for running the business under the trade name ‘Laser Cure’ in the said property. The contents of the certificate issued by L & T Housing Finance Ltd. read as under:
7 11. Admittedly this certificate was issued by L & T Housing Finance Ltd. after the date of hearing of the appeal by the Ld. CIT(A) / NFAC for which this could not be produced before the Ld. CIT(A) / NFAC. Under these circumstances and considering the request of the assessee that given an opportunity, the assessee is in a position to substantiate that the borrowed amount has been fully utilized by the assessee for construction of the premises in question, I deem it proper to restore the issue to the file of the Ld. CIT(A) / NFAC with a direction to give one opportunity to the assessee to substantiate his case by filing the requisite details and decide the issue as per fact and law. The assessee is also hereby directed to make his submissions, if any, on the appointed date without seeking any adjournment under any pretext failing which the Ld. CIT(A) / NFAC is at liberty to pass appropriate order as per law. I hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.