Reopening Invalid for Want of Lender Certificate Under Section 24(b)

Case Details: Shantilal Gulabchand Muttha vs. Assistant Commissioner of Income-tax [2026] 183 taxmann.com 328 (Bombay)

Judiciary and Counsel Details

B. P. ColabWalla & Firdosh P. Pooniwalla, JJ.
Percy Pardiwala, Sr. Adv., Ramesh Soni, Ameya Gokhale, Kriti Kalyani & Swarupini Srinath, Advs. for the Petitioner.
Vikas Khanchandani, Adv. for the Respondent.

Facts of the Case

The assessee filed its return of income and offered income from house property for tax. The assessee had claimed a deduction for interest on borrowed capital while computing income from house property. The return was selected for scrutiny, and assessment was completed under section 143(3).

After four years, the Assessing Officer (AO) issued a notice for reassessment. The reason for reopening the assessment was that the deduction under section 24(b) had been allowed without a lender’s certificate. The assessee contended that no such certificate was statutorily required and none had been called for during the original assessment. Unsatisfied with the assessee’s response, the AO issued a notice under section 148 for reopening the assessment. Aggrieved by the order, the assessee filed a writ petition to the Bombay High Court.

High Court Held

The High Court held that the only basis on which the AO formed his belief that income had escaped assessment was that the deduction of interest claimed under section 24(b) was allowed despite there being no certificate from the recipient of the interest on record. It was an undisputed position that the property in respect of which the deduction of interest is claimed is one which is let out throughout the previous year and in respect of which the assessee has received rental income which has been offered for tax under the head “Income from house property”. Thus, it was apparent that the belief formed by the AO was bereft of any legal basis.

A deduction under section 24(b) is allowed in respect of interest paid on capital borrowed, which was utilised for the purpose of acquiring, constructing, repairing, renewing or reconstructing the house property. The deduction is to be allowed in its entirety without any other condition to be fulfilled in terms of clause (b).

The link between the material and the formation of the belief has no rational connection and is so tenuous that one would have no option but to conclude that the first jurisdictional condition, that the AO does not have the requisite material to form a belief that income has escaped assessment, was not satisfied. Hence, the impugned notice must be quashed.

List of Cases Reviewed

Tumkur Minerals (P.) Ltd. v. Jt. CIT [2022] 145 taxmann.com 397/[2023] 291 Taxman 340/456 ITR 286 (Bombay) (para 34)
Sesa Goa Ltd. v. Jt. CIT [2008] 168 Taxman 281/[2007] 294 ITR 101 (Bombay) (para 35)
CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312/320 ITR 561 (SC) (para 36)
Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxman 479/268 ITR 332 (Bombay)
Indian & Eastern Newspaper Society v. CIT [1979] 2 Taxman 197/119 ITR 996 (SC) (para 37) followed
Honda Siel Power Products Ltd. v. Dy. CIT [2011] 10 taxmann.com 2/197 Taxman 415/[2012] 340 ITR 53 (Delhi) (para 38) distinguished

List of Cases Referred to

ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) (para 18)
Sesa Goa Ltd. v. Jt. CIT [2008] 168 Taxman 281/[2007] 294 ITR 101 (Bombay) (para 23)
Ananta Landmark (P.) Ltd. v. Dy. CIT [2021] 131 taxmann.com 52/283 Taxman 462/439 ITR 168 (Bombay) (para 24)
Rakesh Agarwal v. Asstt. CIT [1996] 86 Taxman 37/221 ITR 492 (Delhi) (para 24)
Imperial Chemical Industries Ltd. v. ITO [1978] 111 ITR 614 (Calcutta) (para 24)
3i Infotech Ltd. v. Asstt. CIT [2010] 192 Taxman 137/329 ITR 257 (Bombay) (para 24)
Tumkur Minerals (P.) Ltd. v. Jt. CIT [2022] 145 taxmann.com 397/[2023] 291 Taxman 340/456 ITR 286 (Bombay) (para 25)
ITO v. Calcutta Chromotype (P.) Ltd. [1974] 97 ITR 55 (Calcutta) (para 25)
Kalpataru Ltd. v. Dy. CIT [2021] 132 taxmann.com 212/439 ITR 284 (Bombay) (para 25)
Indian & Eastern Newspaper Society v. CIT [1979] 2 Taxman 197/119 ITR 996 (SC) (para 27)
CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312/320 ITR 561 (SC) (para 28)
Honda Siel Power Products Ltd. v. Dy. CIT [2011] 10 taxmann.com 2/197 Taxman 415/[2012] 340 ITR 53 (Delhi) (para 29)
Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) (para 33)
Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxman 479/268 ITR 332 (Bombay) (para 37).