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Facts
The assessee claimed a large loss from house property due to interest on borrowed capital of Rs.96,01,117/-. The Pr. CIT invoked Section 263, finding that the assessee had not furnished an interest certificate from the lender and had not established a direct nexus between the loan and the property, thus concluding the AO's assessment order was erroneous and prejudicial to revenue.
Held
The ITAT found that while the interest certificate was dated after the AO's order, it was presented to the PCIT along with other loan documents establishing the transfer of a prior loan to the property in question. Despite a minor mismatch in the interest amount, the Tribunal concluded that finding fault for a document not submitted earlier, when it was subsequently available, would be an academic exercise. Therefore, the twin conditions for invoking Section 263 were not met, and there was no reason to sustain the PCIT's order.
Key Issues
Whether the Principal Commissioner of Income Tax was justified in invoking Section 263 to revise the assessment order, contending the AO's allowance of interest deduction under Section 24 was erroneous and prejudicial to the revenue, and whether the twin conditions for Section 263 were satisfied.
Sections Cited
263, 1961, 24, 24(b), 143(3), 270A(9)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “B”NEW DELHI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI SANJAY AWASTHI
सुनवाईक�तारीख/ Date of hearing: 11.12.2025 17.12.2025 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order u/s 263 of the Income Tax Act, 1961(hereinafter referred as “the Act”), dated 26.03.2025, passed by Ld. Pr. CIT, Delhi-15. Briefly, the facts of the case are that the assessee’s case was selected for scrutiny under CASS for verifying “large value of loss claimed under the head income from house property (non-business ITR)”. The Ld. PCIT found that the AO had,allegedly, wrongly accepted the version of the assessee regarding interest payable on borrowed capital (amounting to Rs.96,01,117/-). The Ld. PCIT found that assessee had not furnished a certificate from the person to whom interest was payable on the capital borrowed, as required u/s 24 of the Act, and that the assessee had not established any direct nexus between the loan taken and the acquisition of the specified house property. The Ld. PCIT found that these two facts were in contravention to the provisions of section 24 of the Act, especially 24(b) and the proviso thereon.
Thereafter, the PCIT examined considerable number of documents which were filed by the assessee (the same have also been filed before us in the shape of a paper book) and thereafter, has recorded a finding that the assessment order of the Ld. AO dated 13.09.2022 was erroneous and prejudicial to the interest of Revenue to the extent of the interest on borrowed capital of Rs.96,01,117/- having been allowed at the stage of Ld. AO.
1.1 Aggrieved with this order the assessee has approached the ITAT with the following grounds of appeal:
“1. That on the facts and in the circumstances of the case, learned Principal Commissioner of Income Tax has failed to satisfy the twin conditions for invoking jurisdiction under section 263 of the Act as the order of assessment under section 143(3) of the Act was neither erroneous nor prejudicial to the interest of the revenue and as such order under section 263 is without jurisdiction and deserves to be quashed as such. 1.1 That the conclusion of the learned Principal Commissioner of Income Tax to make addition of Rs.96,01,117/- on account of alleged wrong claim of deduction under section 24 of the Act, is highly vague, contrary to law and has been arrived mechanically without satisfying the statutory provisions of law, thus unsustainable.
2. That the learned Principal Commissioner of Income Tax has erred both in law and on facts in making an addition of a sum of Rs.96,01,117/- on account of alleged wrong claim of deduction under section 24 of the Act and thereby making an addition under the head “Income from House Property”, and while doing so, the learned PCIT has failed to appreciate that requisite documentary evidences along with replies were all furnished by the assessee - appellant before the learned AO during the course of assessment proceedings in response to detailed show cause notice issued by learned AO and as such, addition so made by learned PCIT are contrary to material available on record and also misplaced in law. 2.1 That the adverse findings so recorded by the learned PCIT while making the impugned addition have been recorded with preconceived notions and by arbitrarily brushing aside the detailed submissions/evidences/material placed on record before learned Assessing Officer.
3. That the learned PCIT has grossly erred in framing the impugned order under section 263 of the Act without providing to the assessee, a fair and proper and meaningful opportunity of being heard, thereby violating the principles of natural justice, further, relying on case laws inapplicable on the facts of the case of assessee - appellant and thus, such an order is vitiated both on fact and in law.
4. That the learned PCIT has grossly erred in law and on facts in directing the learned AO to initiate the penalty proceedings under section 270A(9) of the Act.”
Before us, the Ld. AR pointed out that the facts in this case were that a loan had been taken by the assessee for buying a property bearing no.1001, situated at 10th floor in one “R.G. Trade Tower, Netaji Subhash Place, (Pitampura, Delhi)”. The loan from this property was transferred to a subsequent property [5th floor of R.G. Trade Tower, Netaji Subhash Place, Pitampura, Delhi], rental income from which has been offered in the present year. Thus, it was explained that an earlier existing loan on one property was transferred to another property which is under consideration for this year, since rental income from the same is being 3 shown here. This fact has been pointed out by the Ld. AR from pages 19 to 128 in the paper book, especially pages 117A, B & C. Thereafter, the Ld. AR also pointed out that while the Ld. AO had not specifically insisted on an “interest certificate” from the bank from which the loan had been taken, but the same was duly obtained and placed before the Ld. PCIT (reference page 142-A of the paper book). It was pointed out that this document was obtained on 17.03.2025 and was filed along with other details before the Ld. PCIT. It was submitted further that the Ld. AO had duly considered the aspect of interest payment on the loan as could be seen on page 2 at paras 5 & 6 of the Ld. AO’s order. It was emphasized that after enquiries the Ld. AO was satisfied about the claim of the assessee. Thereafter, the Ld. AR also pointed out that in spite of these documents being submitted, which fulfil the mandate u/s 24 of the Act, the Ld. PCIT has still considered the Ld. AO’s order to be erroneous and prejudicial to the interest of Revenue. The Ld. AR concluded his arguments by saying that while on the one hand the impugned order represented a mere change of opinion where on the same set of facts the Ld. PCIT had taken an adverse view in a matter which was sought out at the Ld. AO’s level, and on the other hand had disregarded the documents placed before him at the time of hearing in the impugned matter.
2.1 The Ld. DR, on the other hand, pointed out the findings on page 4 at paras 6.2 and 6.3 of the impugned order and stated that the assessee had not presented the necessary documents before the Ld. AO to conclusively prove the nexus between the house property in question and the loan taken. It was also pointed out by the Ld. DR that the interest certificate from the loan giver was absolutely essential as per the third proviso to section 24(b) of the Act. The Ld. DR pointed out that this proviso was categorical in directing that in the absence of a certificate from a loan giver there could be no deduction as envisaged u/s 24(b) of the Act. It was pointed out that such a certificate was only provided during the course of proceedings before the Ld. PCIT and not before the Ld. AO. The Ld. DR also pointed out that the assessee had a credit facility with the bank and the exact nexus between the loan for the said property and the house property under consideration is still not clear even after a perusal of the documents filed through the paper book. The Ld. DR thereafter, argued that the Ld. AO’s order was erroneous and prejudicial to the interest of the Revenue.
We have carefully considered the rival submissions and have gone through the case records before us and have also carefully perused the contents of the paper book filed by the assessee. It is evident that before the PCIT theassessee has presented the loan documents (pages 117A, 117B and 117C in the paper book) which clearly show that the earlier loan taken for another building has been transferred for the present property from which house property income has been derived during this year. We also find that the “Counsel for assessee” has submitted a certificate on the paper book that all these documents were before the AO/PCIT”. We may add that the interest certificate at page 142A of the paper book is dated 17.03.2025 only and hence certainly it was not part of the documents which would have been presented before the Ld. AO, whose assessment order is prior to this date. Be that as it may, if we leave aside for a moment the accuracy of the certificate drawn from the paper book, we find that there is no room for doubt regarding the loan and the property under consideration. After this consideration, we are only left to consider the certificate obtained from the loan giving bank regarding the interest collected from the assessee.
It is seen that indeed the Karnataka Bank Limited, Rohini branch has issued a certificate stating that Rs.96,70,018/- has been recovered from the assessee between 30.03.2019 and 31.03.2020. Though there is a slight mismatch between the interest income claimed and the certificate given by the bank to the assessee (Rs.96,01,117/- is shown in the assessment order),it is seen that finding fault with the assessment order for a document not submitted at that stage even when it is now before us, as it was before the Ld. PCIT, would merely be an academic exercise in invoking the third proviso to section 24(b) of the Act against the assessee. Considering the totality of facts and circumstances of the case, it is seen that on the facts of this case alone there is no reason to support any action u/s 263 of the Act.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 17.12.2025