I refinanced. I took a fresh loan from another bank and used it to close my original house construction loan. The officer says the new loan was not taken for construction, so no s.24(b) interest. Is there authority against him?
Yes. Where the second borrowing has really been used merely to repay the original loan taken for the house, interest on the second loan is deductible, and the Tribunal applied CBDT Circular No.28 dated 20 August 1969 to allow it. The deduction is confined to the part of the fresh loan actually traced to repayment of the original housing loan, worked out proportionately.
Decided by the ITAT (I.P. Bansal, Judicial Member and Shamim Yahya, Accountant Member) on 2010-04-30, reported as ITA No.3458/Del/2009 and C.O. No.323/Del/2009 (ITAT Delhi, 'F' Bench); order pronounced 30 April 2010. It bears on section 24, section 24(b), section 69 of the Income Tax Act 1961, in House Property, Deductions & Disallowances and Evidence & Burden of Proof matters.
Refinancing is routine and the objection is routine with it, because on the face of the sanction letter the second loan is a fresh borrowing and not a construction loan. The circular disposes of the objection, and this order shows a Tribunal acting on it. The practical sting is in the second half of the holding: the Tribunal did not allow the whole of the interest on the new loan. The Citi Bank disbursement of Rs 40,23,260 had gone two ways, Rs 19,98,691 to close the Bank of India house loan and Rs 20,24,569 to close a cash credit facility of the assessee's husband's proprietary concern, and only the first tranche carried the character of the original housing borrowing. The interest was therefore apportioned by reference to the sanctioned loan of Rs 49,99,000, and the Tribunal corrected the CIT(A) for using the wrong numerator. The lesson is that a refinancing claim survives only to the extent the money can be traced, so a top-up taken along with the refinance must be kept separate in the working.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For AY 2006-07 the assessee had borrowed Rs 20,00,000 from Bank of India, Ballabhgarh to construct a house at Plot No.1409, Sector 14, Faridabad, construction of which was certified complete by the Municipal Corporation on 27 September 2004. On 9 April 2005 she applied to Citi Bank for a housing loan of Rs 49,99,000 and Rs 40,23,260 was disbursed. Of that, Rs 19,98,691 went to discharge the Bank of India house loan and Rs 20,24,569 went to discharge a cash credit facility standing in the name of M/s Progressive Machines, the proprietary concern of her husband. Before the Assessing Officer she could not explain the source of the Rs 20,24,569 and it was added as an unexplained amount; the whole of the interest of Rs 4,53,576 on the new loan was also disallowed on the footing that the funds had not been shown to be used for construction or purchase of the house. Before the CIT(A) she filed a Bank of India certificate dated 8 April 2005 showing both outstandings and the Citi Bank statement, under Rule 46A. The CIT(A) admitted the evidence, deleted the Rs 20,24,569 addition, and held the fresh loan taken to repay the earlier construction loan eligible for deduction, allowing Rs 2,69,880 of the interest and retaining a disallowance of Rs 1,83,696 worked out by applying the fraction Rs 20,24,569 over Rs 49,99,000. The Revenue appealed against both deletions; the assessee filed a cross objection against the retained disallowance.
The Revenue's appeal was dismissed and the assessee's cross objection was partly allowed. The source of the Rs 20,24,569 having been explained by the bank certificate and the Citi Bank statement, the deletion of that addition was upheld and the admission of the additional evidence was justified because the assessee had not had a real opportunity to produce it before the Assessing Officer. On the interest, the assessee's case was supported by CBDT Circular No.28 dated 20 August 1969, but the CIT(A) had used the wrong figure in the apportionment; substituting Rs 19,98,691, the amount actually applied to repay the earlier housing loan, for Rs 20,24,569 in the numerator gave Rs 1,81,348, and the addition was confirmed only to that extent, the deletion becoming Rs 2,72,228.
On the unexplained investment ground, the Tribunal examined the Bank of India certificate and the Citi Bank loan statement and found that the Rs 40,23,260 disbursed by Citi Bank had gone to discharge both the construction loan and the cash credit facility, so the source of the payment made to satisfy the loan of the husband's proprietary concern stood explained; the Department's grievance about admission of additional evidence was rejected because the material had been called for only shortly before the assessment was finalised on 24 December 2008, and in a genuine case where the amount is explicable the door should not be shut. On the interest ground, the Tribunal accepted the assessee's reliance on CBDT Circular No.28 dated 20 August 1969, to the effect that if the second borrowing has really been used merely to repay the original loan and that fact is proved to the satisfaction of the Income Tax Officer, interest paid on the second loan is also allowable as a deduction; the only error was in the CIT(A)'s formula, which had used the amount applied to the husband's cash credit rather than the amount applied to the original house loan, and the calculation was revised accordingly.
Accordingly, the deletion would be an amount of Rs.2,72,228/- in place of Rs.2,69,888/-. Thus, the addition is confirmed only to the tune of Rs.1,81,348/-.
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Handle my notice → Ask a CA on WhatsAppYes. Where the second borrowing has really been used merely to repay the original loan taken for the house, interest on the second loan is deductible, and the Tribunal applied CBDT Circular No.28 dated 20 August 1969 to allow it. The deduction is confined to the part of the fresh loan actually traced to repayment of the original housing loan, worked out proportionately. This was decided by the ITAT (I.P. Bansal, Judicial Member and Shamim Yahya, Accountant Member) and bears on section 24, section 24(b), section 69 of the Income Tax Act 1961. It is reported as ITA No.3458/Del/2009 and C.O. No.323/Del/2009 (ITAT Delhi, 'F' Bench); order pronounced 30 April 2010. Refinancing is routine and the objection is routine with it, because on the face of the sanction letter the second loan is a fresh borrowing and not a construction loan. The circular disposes of the objection, and this order shows a Tribunal acting on it. The practical sting is in the second half of the holding: the Tribunal did not allow the whole of the interest on the new loan. The Citi Bank disbursement of Rs 40,23,260 had gone two ways, Rs 19,98,691 to close the Bank of India house loan and Rs 20,24,569 to close a cash credit facility of the assessee's husband's proprietary concern, and only the first tranche carried the character of the original housing borrowing. The interest was therefore apportioned by reference to the sanctioned loan of Rs 49,99,000, and the Tribunal corrected the CIT(A) for using the wrong numerator. The lesson is that a refinancing claim survives only to the extent the money can be traced, so a top-up taken along with the refinance must be kept separate in the working. If it applies to you, the first step is this: Build the trace before the officer asks: original sanction letter and disbursement statement for the house loan, the lender's foreclosure or no-dues statement showing the exact amount outstanding on the day of takeover, and the new lender's disbursement advice showing payment of that amount.
For AY 2006-07 the assessee had borrowed Rs 20,00,000 from Bank of India, Ballabhgarh to construct a house at Plot No.1409, Sector 14, Faridabad, construction of which was certified complete by the Municipal Corporation on 27 September 2004. On 9 April 2005 she applied to Citi Bank for a housing loan of Rs 49,99,000 and Rs 40,23,260 was disbursed. Of that, Rs 19,98,691 went to discharge the Bank of India house loan and Rs 20,24,569 went to discharge a cash credit facility standing in the name of M/s Progressive Machines, the proprietary concern of her husband. Before the Assessing Officer she could not explain the source of the Rs 20,24,569 and it was added as an unexplained amount; the whole of the interest of Rs 4,53,576 on the new loan was also disallowed on the footing that the funds had not been shown to be used for construction or purchase of the house. Before the CIT(A) she filed a Bank of India certificate dated 8 April 2005 showing both outstandings and the Citi Bank statement, under Rule 46A. The CIT(A) admitted the evidence, deleted the Rs 20,24,569 addition, and held the fresh loan taken to repay the earlier construction loan eligible for deduction, allowing Rs 2,69,880 of the interest and retaining a disallowance of Rs 1,83,696 worked out by applying the fraction Rs 20,24,569 over Rs 49,99,000. The Revenue appealed against both deletions; the assessee filed a cross objection against the retained disallowance. The matter was decided on 2010-04-30 by the ITAT (I.P. Bansal, Judicial Member and Shamim Yahya, Accountant Member). On those facts the ITAT held as follows. The Revenue's appeal was dismissed and the assessee's cross objection was partly allowed. The source of the Rs 20,24,569 having been explained by the bank certificate and the Citi Bank statement, the deletion of that addition was upheld and the admission of the additional evidence was justified because the assessee had not had a real opportunity to produce it before the Assessing Officer. On the interest, the assessee's case was supported by CBDT Circular No.28 dated 20 August 1969, but the CIT(A) had used the wrong figure in the apportionment; substituting Rs 19,98,691, the amount actually applied to repay the earlier housing loan, for Rs 20,24,569 in the numerator gave Rs 1,81,348, and the addition was confirmed only to that extent, the deletion becoming Rs 2,72,228.
On the unexplained investment ground, the Tribunal examined the Bank of India certificate and the Citi Bank loan statement and found that the Rs 40,23,260 disbursed by Citi Bank had gone to discharge both the construction loan and the cash credit facility, so the source of the payment made to satisfy the loan of the husband's proprietary concern stood explained; the Department's grievance about admission of additional evidence was rejected because the material had been called for only shortly before the assessment was finalised on 24 December 2008, and in a genuine case where the amount is explicable the door should not be shut. On the interest ground, the Tribunal accepted the assessee's reliance on CBDT Circular No.28 dated 20 August 1969, to the effect that if the second borrowing has really been used merely to repay the original loan and that fact is proved to the satisfaction of the Income Tax Officer, interest paid on the second loan is also allowable as a deduction; the only error was in the CIT(A)'s formula, which had used the amount applied to the husband's cash credit rather than the amount applied to the original house loan, and the calculation was revised accordingly. In the words reproduced by the source cited on this page: "Accordingly, the deletion would be an amount of Rs.2,72,228/- in place of Rs.2,69,888/-. Thus, the addition is confirmed only to the tune of Rs.1,81,348/-." The decision followed or applied CBDT Circular No.28 dated 20 August 1969 — relied upon and applied.
It was decided by the ITAT on 2010-04-30 and is reported as ITA No.3458/Del/2009 and C.O. No.323/Del/2009 (ITAT Delhi, 'F' Bench); order pronounced 30 April 2010. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 24, section 24(b), section 69, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed and the assessee's cross objection was partly allowed. The source of the Rs 20,24,569 having been explained by the bank certificate and the Citi Bank statement, the deletion of that addition was upheld and the admission of the additional evidence was justified because the assessee had not had a real opportunity to produce it before the Assessing Officer. On the interest, the assessee's case was supported by CBDT Circular No.28 dated 20 August 1969, but the CIT(A) had used the wrong figure in the apportionment; substituting Rs 19,98,691, the amount actually applied to repay the earlier housing loan, for Rs 20,24,569 in the numerator gave Rs 1,81,348, and the addition was confirmed only to that extent, the deletion becoming Rs 2,72,228. It arises in House Property, Deductions & Disallowances and Evidence & Burden of Proof matters, on section 24, section 24(b), section 69 of the Income Tax Act 1961, and was decided by I.P. Bansal, Judicial Member and Shamim Yahya, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Cite CBDT Circular No.28 dated 20 August 1969, which the department is bound by, and put its text on record rather than merely referring to it. If the fresh loan is larger than the amount repaid, apportion the interest yourself in the return working: interest multiplied by the amount applied to repay the original housing loan, divided by the fresh loan. Do not claim the whole and invite an all-or-nothing disallowance. Keep the third proviso certificate from the new lender specifying the interest payable on the new loan, which s.24(b) requires where the borrowing is a conversion of the earlier capital into a new loan. Where evidence of the trace was not produced before the Assessing Officer because it was called for only at the fag end of the assessment, apply under Rule 46A before the CIT(A); that is how the additional evidence came in here and its admission was upheld.
Validity check could not be completed. Validity check could not be completed; no search for later treatment of this order was run. The underlying proposition is independently corroborated: in M/s C. Venkateswara Rao v. Department of Income Tax, ITA Nos.985/Hyd/13 and 944/Hyd/13, decided 28 August 2014, which was read in full at https://indiankanoon.org/doc/184607294/?type=print, the Hyderabad Bench restored the matter to the Assessing Officer with a direction to decide it afresh in the light of the CBDT Circular dated 20 August 1969, on the same footing that interest on a second borrowing used merely to repay the original loan taken for acquisition or construction is allowable once the nexus is proved. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order and the CIT(A) both refer to the deduction as arising under 's.24(1)(vi)' although for AY 2006-07 the clause had already been renumbered as s.24(b) by the Finance Act 2001 with effect from AY 2002-03; nothing turns on it, but the citation in the report is anachronistic. Rupee figures are printed inconsistently: the retained disallowance appears as both Rs 1,83,696 and Rs 1,83,969, and the CIT(A)'s allowance as both Rs 2,69,880 and Rs 2,69,888. The direction of the final arithmetic is easy to misread; paragraph 12 was retrieved verbatim twice and on both passes reads 'the deletion would be an amount of Rs.2,72,228/-' and 'the addition is confirmed only to the tune of Rs.1,81,348/-', so the assessee ended marginally better off than under the CIT(A)'s order. The indiankanoon listing shows no date for this document; the date below is taken from the order's own pronouncement line. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed and the assessee's cross objection was partly allowed. The source of the Rs 20,24,569 having been explained by the bank certificate and the Citi Bank statement, the deletion of that addition was upheld and the admission of the additional evidence was justified because the assessee had not had a real opportunity to produce it before the Assessing Officer. On the interest, the assessee's case was supported by CBDT Circular No.28 dated 20 August 1969, but the CIT(A) had used the wrong figure in the apportionment; substituting Rs 19,98,691, the amount actually applied to repay the earlier housing loan, for Rs 20,24,569 in the numerator gave Rs 1,81,348, and the addition was confirmed only to that extent, the deletion becoming Rs 2,72,228.
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