Kindly provide solution for below mentioned case:
Notice received u/s 143(1) in 2013.
Case:
A partnership firm involved in the business of buying property and renting it and having 2 house property (HP) as on 31-03-2011.
HP 1 is let out since 2005 and has no issues in computation having an net income of Rs.3.00 lcs after final computation under house property .
However HP 2 purchased by the firm in Febuary 2010 and lying vacant for almost 12 months in FY -10 -11 i.e 01-04-10 to 31-03-2011, and had paid during the period interest on bank loan for the said HP 2 property amounting to rs.10.00 lacs.
The firm had claimed the entire ineterst as it had the intention to let out the property however the same could not be let out during FY-10-11. (Note - The same is now let out and earning rent in FY -11-12).
However as per the CPC notice they have allowed only Rs.1.5 lacs as deduction and not Rs.10.00 lacs as claimed by the firm.
My query is since HP 2 is a let out property and firm is involved in business of purchasing and letting out of property, the disallowance of 10.00lacs and allowance of 1.5 lacs is it tenable as the act specifies that entire deduction is allowed on interest on borrwowed capital used for purchase of let out property.
Kindly provide your sugestions as the firm had claimed loss for the same yr in ITR- while the notice of CPC has raised demand of tax.
Regards
Nilesh
CAclubindia
