RUP KUMAR RAMCHANDANI,AJMER vs. INCOME TAX OFFICER, WD-1(2), AJMER, AJMER

The grounds raised by the assessee read as under:-

The ld. CIT(A) disallowances of interest expenses of Rs.6,71,628/- (out of total interest expenses claimed of Rs.11,82,661) considering not for business purposes.

The contention of the learned counsel for the assessee before us was that the assessee had established the fact of the expenditure having been incurred, for the purpose of the business of the assessee by pointing out that the interest expenditure had been incurred on loan taken for acquiring a capital asset, being a commercial property for use in the business of assessee. Alternatively, he argued that, if the commercial asset acquired by the assessee, which fact is not in dispute by the department, is not accepted as used for the purpose of business of the assessee, then the assessee is entitled to claim the interest expenditure as allowable deduction under Section 24(b) of the Act, under the head “Income from the House Property”.

Learned DR per contra, vehemently, opposed the contention of the learned counsel for the assessee as above. His contention was that the assessee had failed to establish the user of the capital asset acquired by it, i.e. the commercial property, in the business of the assessee, therefore, the assessee had no case for claiming any deduction of the interest expenses, as being incurred for the purpose of business of the assessee and the claim, therefore, was rightly disallowed by the AO/ld. CIT(A) . With regards to the alternate contention of the assessee of the interest expenditure being allowable as deduction under Section 24(b) of the Act, he relied on the findings of the ld. CIT(A) to the effect, that the assessee had not earned any income from the said property, nor, had demonstrated the property to be let out and, therefore, the assessee’s claim of deduction of interest under Section 24(b) of the Act was not tenable.

We have heard the rival contentions. The issue for our consideration is the allowance of claim of interest expenses amounting to Rs.6,71,628/-, which the assessee had claimed as business expenses and alternatively, as expenses allowable under the head “Income from House Property”, under Section 24(b) of the Act.

The facts relating to the issue which are not in dispute, and which emanate from the orders of the authorities below, are that the assessee is an individual and is carrying on business in his proprietorship firm “SHE”. During the impugned year, the assessee had claimed deduction on account of interest amounting to Rs.11,82,662/- from his business income . However, the AO disallowed interest expenses to the tune of Rs.6,71,628/-, holding that such interest was not incurred for business purposes but for acquiring a capital asset (property at Miraz Mall, Ajmer). The case of the AO is that the impugned property was not demonstrated to have been used for business purposes and therefore, the assessee was not entitled to claim deduction of interest on account of loans utilized for acquiring such property.

We have noted, that the ld. CIT(A) at para 8.3 of his order has recorded a finding of fact that borrowed funds were utilized by the assessee for acquiring a commercial property situated at Miraz Mall, Ajmer, and prior to the asset being put to business use, the interest paid on the capital borrowed for acquisition of a capital asset does not qualify for deduction under Section 36(1)(iii) of the Act. The learned counsel for the assessee does not dispute the position of law as stated by the ld. CIT(A) that prior to the capital asset being put to use, interest paid on capital borrowed for acquiring the asset is not allowable in terms of Section 36(1)(iii) of the Act. His contention was that the asset was put to use for business purposes. However, the learned counsel for the assessee was unable to establish in any manner the factum of user of the impugned asset for business purposes, during the impugned year. He was unable to demonstrate the establishment of the fact of user of the asset for business purposes before the lower authorities and was unable to do so before us also. During the course of hearing, he referred to an UDYAM Registration Certificate issued by the Government of India, Ministry of Micro, Small and Medium Enterprises, to the assessee pointing out that as per the said Certificate the impugned property was put to use in the business of the assessee. The said document was placed in paper book at page No.1 to 4A . However, it was pointed out at Bar to the learned counsel for the assessee that the impugned Certificate reflected the date of UDYAM Registration as 27.04.2021, which is subsequent to the impugned assessment year before us that is Assessment Year 2019-20. It was therefore, pointed out that the said UDYAM Registration Certificate did not establish the fact of the commercial property acquired by the assessee being put to use in the business of the assessee during the impugned year. Learned counsel for the assessee, thereafter, conceded that he had no case on this aspect of the issue and that he was unable to dislodge the findings of the ld. CIT(A) that the assessee was unable to prove the user of the capital asset acquired from loans in the business of the assessee.

In the light of the above concession made by the learned counsel for the assessee in the open Court, it stands as a matter of fact, that the asset acquired by the assessee during the year being commercial property was not demonstrated and established to have been either acquired and/or used for the purposes of business of the assessee. In view of the same, we find no infirmity in the order of the ld. CIT(A) upholding the disallowance of deduction u/s 36(1)(iii) of the Act amounting to Rs.6,71,628/-.

Taking up the alternate plea of the assessee that the interest expenditure is allowable under Section 24(b) of the Act, we have gone through the provisions of law in this regard. Section 24(b) reads as under:-