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Facts
The assessee claimed a deduction of Rs. 20,25,351/- for interest paid on an Axis Bank housing loan for A.Y. 2020-21. The Assessing Officer allowed only Rs. 2,00,000/- under Section 24 of the Income Tax Act and disallowed the balance, a decision upheld by the CIT(A). The assessee argued that the loan, pending its utilization for housing, was temporarily transferred to their proprietary concern and partnership firm, earning interest which was duly offered to tax.
Held
The Tribunal held that the Assessing Officer failed to examine the actual utilization of the loan, relying solely on the bank's sanction letter. It directed the AO to verify the actual utilization of the loan and establish the nexus between the loan and the earning of interest income. If the loan was indeed used for business purposes and the interest earned was taxed, the interest deduction should be allowed.
Key Issues
Whether the interest paid on a housing loan, temporarily utilized for business purposes yielding taxable income, is fully deductible, and whether the Assessing Officer must verify the actual utilization of the loan instead of relying solely on the loan's sanctioned purpose.
Sections Cited
Section 144, Section 24
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI TR SENTHIL KUMAR & SHRI NARENDRA PRASAD SINHA
PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
1. This appeal is filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’], dated 11.07.2025 for the Assessment Year (A.Y) 2020-21 in the proceeding u/s 144 of the Income Tax Act.
The brief facts of the case are that the assessee had filed his return of income for A.Y. 2020-21 on 31.10.2020, declaring total income of Rs. 64,76,730/-. The case was selected for scrutiny under CASS.In the course of assessment the Assessing Officer noticed that the assessee had claimed deduction for interest expense or Rs.20,25,351/- Mohitbhai Laxmanbhai Gajjar Vs. DCIT, AY- 2020-21 2 on Axis Bank loan. It transpired that the loan was obtained for purchase of land and construction thereon. According the A.O., the assessee was eligible to claim the deduction for interest on this housing loan under the provision of Section 24 of the Act only. Accordingly, the A.O. allowed deduction for interest to the extent of Rs. 2,00,000/- under that section and the balance interest expense of Rs.18,25,351/- was disallowed. The assessment was completed u/s 144 of the Act on 21.09.2022 at total income of Rs. 1,05,30,301/-.
3. Aggrieved with the order of the A.O., the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:
The order of the learned CIT(A) is erroneous and bad in law and on the facts of the case.
2. The Learned CIT(A) has erred in confirming the addition made by AO of Rs. 18,25,351 considering bank interest expense as non-business expense without passing a speaking order.
The appellant craves to add, amend, alter, delete and/or modify the aforesaid grounds of appeal.
5. Shri. Pankaj Shah, Ld. A.R of the assessee submitted that the assessee has taken loan of Rs.5,10,00,000/- from Axis Bank on 27.09.2019. He explained that though the loan was taken for the housing purpose, it was not immediately utilised for purchase of land and Mohitbhai Laxmanbhai Gajjar Vs. DCIT, AY- 2020-21 3 construction of house thereon. He submitted that the amount of loan was transferred to proprietary concern of the assessee and also to assessee’s capital account in the partnership firm, on which interest was received by the assessee, which was duly offered to tax. The Ld. A.R explained that since the amount of loan was utilised for earning interest income, the deduction for interest paid on the loan taken from Axis Bank was rightly claimed as deduction. He submitted that the A.O disallowed the claim only on the basis of sanction letter of the bank and without examining the actual utilisation of the loan taken by the assessee.
Per contra, Shri. Uday Kakne, Ld. Sr. D.R relied upon the order of the Assessing Officer.
We have considered the rival submissions. The limited issue involved in this case is allowability of interest on loan taken from Axis Bank for housing purpose. The fact that the assessee had obtained the loan from Axis bank and paid interest thereon is not under dispute. The A.O. disallowed the claim of the assessee for the reason that the deduction for interest on housing loan was allowable under the provision of Section 24 of the Income Tax Act. However, the A.O. did not examine the actual utilisation of the loan obtained by the assessee from Axis bank. If there was delay in construction of house for which the loan was obtained, the amount of loan could not have been kept idle. According to the assessee the amount of loan was utilised for the business purpose in the interim and the interest thereon was also offered to tax. Accordingly, the claim for interest on the loan taken from Axis Bank was rightly claimed as deduction. From the copy of bank statement and the ledger Mohitbhai Laxmanbhai Gajjar Vs. DCIT, AY- 2020-21 4 accounts brought on record in the paper book, it is found that that the loan taken from Axis Bank was transferred to proprietary concern and also to the partnership firm, in which the assessee was a partner. In view of these facts, we deem it proper to set aside the matter to the file of the jurisdictional A.O. with a direction to verify the actual utilisation of the loan of Rs.5,10,00,000/- taken from Axis Bank. If it is found that the loan amount was transferred to the partnership firm on which interest was received by the assessee, then the claim for deduction of interest on loan should be allowed to the assessee in the current year. The assessee is also directed to furnish evidences in this regard before the AO and establish the nexus between the loan obtained from Axis Bank and utilisation thereof for earning of interest income.
In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced in the Court on 09/01/2026 at Ahmedabad.