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Income Tax Appellate Tribunal, DELHI BENCH “G” DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
PER PRADIP KUMAR KEDIA, A.M.: The captioned appeal has been filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-VII, New Delhi [‘CIT(A)’ in short] dated 31.05.2019 arising from the assessment order dated 16.12.2018 passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2016-17.
The grounds of appeal raised by the Revenue read as under:
“1. On the facts and under circumstances of the case, ld. CIT(A) erred in deleting the disallowances of Rs.1,82,53,834/- on account of interest paid to the bank into consideration and computed indexed value on the same.
2. On the facts and under circumstances of the case, ld. CIT(A) erred in deleting the disallowances of Rs.1,35,930/- on account of loss of stamp paper and on which indexed cost is included in cost of acquisition.
On the facts and under circumstances of the case, ld. CIT(A) erred in deleting the basic cost of the flat of Rs.2,75,00,000/- restricted by the Assessing Officer and allowed the basic cost of Rs.2,79,96,771/-. 4. On the facts and under circumstances of the case, ld. CIT(A) erred in deleting the allowed interest of Rs.3,95,321/- made by the Assessing Officer and allowed interest of Rs.4,56,744/-.” 3. Ground No.1 concerns disallowance of Rs.1,82,53,834/- towards interest from the cost of acquisition of the capital asset.
3.1 The assessee filed return of income for Assessment Year 2016-17 in question and inter alia claimed Long Term Capital Loss of Rs.5,34,61,155/- in its return. In the course of the assessment, the Assessing Officer noticed that the assessee has sold a penthouse situated at Omaxe the Forest, Noida during the year under consideration. The flat was originally acquired jointly by the husband of the assessee Late Shri Mahesh Aggarwal and the assessee as evidenced by allotments letter dated 21.12.2004 issued by the builder. The husband of the assessee expired and the ownership of the flat was transferred in August, 2010 in the name of survivor assessee. It was further noticed by the Assessing Officer that the assessee had taken housing loan to source the purchase of property at Omaxe the Forest and paid interest to DHFL (NBFC) for the same. As per the allotment letter issued by the builder dated 21.12.2004, the cost of property was shown at Rs.2,75,00,000/-. However, the assessee shown cost of acquisition of penthouse / flat at Rs.2,79,96,770/- while claiming indexation for determination of capital gain. In justification for variance, the assessee claimed that as per the allotment letter, the area of flat was 6500 sq. ft. but when the flat was ready the area stood increased from 6500 sq. ft. to 6610.84 sq. ft. Hence, the assessee was made to incur additional payment for such increase in the area. The assessee further claimed that she has also paid Rs.4,56,744/- to the builder for delayed payment of basic costs. Coupled with this, the assessee also included interest cost paid to bank towards loan taken for acquisition of property. This apart, the assessee also claimed loss on sale of stamp paper amounting to Rs.1,35,930/- as part of its cost of acquisition. To justify the cost of acquisition for the purposes of determination of indexed cost of acquisition and eventual capital gains, the assessee pointed out before the Assessing Officer that there are three types of cost of acquisition in the case of assessee in respect of flat namely; (a) basic cost paid to builder amounting to Rs.27,99,677/- (adjusted cost due to increase in area); (b) interest paid on housing loan and interest paid to builder amounting to Rs.4,56,744/-; (c) stamp duty 3.2 The assessee essentially contended before AO that the increased cost was paid owing to increase in the area of the property finally possessed. The assessee submitted that the enhanced basic cost of Rs.2,79,96,770/- was actually paid to the builder and the builder has also confirmed the same. Likewise, the cost of borrowing made by the assessee also forms part of the cost of acquisition owing to the fact that without the money borrowed, the assessee would not have been in a position to buy the property and the borrowings directly relates to the acquisition and hence the interest paid thereon would form part of the cost of acquisition. As stated before Assessing Officer, the assessee has also paid Rs.4,56,744/- to the builder towards delayed payment which is also confirmed by the builder. The Assessing Officer however denied the enhanced cost and restricted the basic cost at Rs.2,75,00,000/-. The Assessing Officer further restricted the proportionate interest for delayed payments to builder from Rs.4,56,744/- claimed by the assessee to Rs.3,95,321/-.
3.3. The Assessing Officer further inter alia noted that the assessee has claimed Rs.1,35,930/- being loss towards stamp paper purchased in the name of husband who expired resulting in the impugned loss due to return of e- stamp paper. The Assessing Officer however denied the aforesaid amount for the purposes of determination of cost of acquisition.
3.4 As regards the interest on borrowed funds used for the acquisition of property amounting to Rs.1,82,53,834/-, the Assessing Officer contended that the aforesaid interest incurred for the purposes of acquisition or construction of house property needs to be claimed under Section 24 of the Act and does not qualify for deduction under Section 48 of the Act. In the wake of such adjustments to the cost of acquisition, the Long Term Capital Loss claimed by the assessee was restricted to Rs.2,08,46,527/- against the claim of Rs.5,34,61,155/- of the assessee.
Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) took note of the relevant facts and the submissions made on behalf of the assessee and also the judicial pronouncements.
The CIT(A) found substantial merit in the plea of the assessee on all counts and thus reversed the action of the Assessing Officer and restore the position taken by the Assessee. The relevant operative paragraph of the order of the CIT(A) dealing with the issues are reproduced herein:
“32. I have carefully considered the assessment order and written submissions furnished by the Ld. AR. The AO had disallowed the interest paid on the housing loan amounting to Rs.1,82,53,834/- stating that such interest needs to be claimed u/s. 24 of the Act and does not qualify as deduction us 48 of the Act. It was submitted by the appellant that they had never claimed any interest paid on the housing loan u/s. 24 of the Act. 3.3. In respect of allowing housing loan interest as the part of the cost of acquisition. It was submitted that the interest was paid directly for the purchase of the flat. Assessee had taken a housing loan and the disbursement of the loan was made directly to the builder. There is a direct nexus of the payment of the housing loan interest and the acquisition of the flat. It was submitted that the cost of the acquisition is the amount paid to the builder and also the cost of the borrowing made by the assessee for the purpose of paying to the builder without the money borrowed, the assessee would not have been in a position to buy the property. Payment of consideration for the purchase of flat is indisputably having been made with borrowed funds and the borrowing directly related to the acquisition and interest paid there on would form part of the cost of acquisition.
3.4. In the case of CIT Vs. Mithilesh Kumari (92ITR 9), the Honourable High Court hasheld as under:- (13) We are in respectful agreement with the observations of the Calcutta and the Bombay High Court in the decisions referred to above. In the present case, we find that the assessed in order to purchase the land had not only to borrow the amount of Rs. 95,000.00 which was the consideration for the purchase of the land but also had to pay interest of Rs. 16, 878.00 on the amount borrowed by her. The amount of Rs. 95,000.00 plus the interest paid by the assessed constitutes the actual cost to the assessed of the land. The fact that the amount of Rs. 95,000.00 was paid by the assessed to the vendor and the amount of interest of Rs. 16,878.00 was paid to a different person, namely her mother-in-law, does not make any difference so far as the assessed is concerned in respect of the actual cost of the land to her It will not also make any difference whether the interest was paid on the date of the purchase or whether it is paid subsequently. To exclude the interest amount from the actual cost of the assets would lead to anomalous results. Supposing she had purchased the land for Rs.1,00,000.00 by raising a loan of that amount and had paid interest of Rs. 20,000.00 on the said loan and had sold the land for Rs. 1,20,000.00. It would be unreasonable to hold under such circumstances by excluding the interest amount from the actual cost of the land that she had made a capital gain of Rs. 20,000.00 when, as a matter of fact, she had not made any profit at all by the transaction. Applying the said observations of the Calcutta and the Bombay High Courts to the present case, we hold that the Tribunal was right in additing the interest amount of Rs. 16,878.00 towards the actual cost of the land. 3.5. Further In the case of CIT Vs. Sri Hariram Hotels (Purchase) Ltd. (2010) 188 Taxman 170 (Kar), the Honourable Karnataka High Court has held as under:- “7. We are unable to agree with the arguments advanced by the learned counsel for the revenue for the simple reason on facts that even the Commissioner of Income Tax (Appeals) has held that interest had accrued as on 31/3/2003 and therefore, the Tribunal is justified in granting the relief to the assessee since the property has been purchased out of the loan borrowed from the Directors and any interest paid thereon is to be included while calculating the cost of acquisition of the asset. Therefore, question No. 1 has to be answered against the revenue. 3.6. In the case of ACIT Vs C. Ramabrahmam, the ITAT Chennai Bench 'C' in has held that the assessee had purchased house property, availing loan. The house property was subsequently sold and assessee included interest paid on housing loan while computing capital gains u/s 48. The Assessing Officer was of opinion that since interest in question on housing loan, had already been claimed as deduction us 24(b), the same could not be taken into consideration for computation u/s 48 and interest amount was added to income of assessee. The CIT(A) reversed the findings of A and held deduction u/s. 24(b) and computation of capital gains us 48 were altogether covered by different heads of income ie., income from 'house property' and 'capital gains'. None of them excludes operative of the other. The interest in question was indeed expenditure in acquiring asset. Since both provisions were altogether different, assessee was entitled to include interest paid on housing loan for computation of capital gains us 48 despite the fact that same had been claimed us 24(b) while computing income from house property. The revenue's appeal was dismissed by the ITAT, Chennai Bench and the order of the ld. CIT(A) was upheld. 3.7. From these judicial pronouncements, it is very much clear that if the property is purchased from borrowed funds then consideration for the purchased amount, the interest on borrowed fund also has to be paid. The amount of interest paid by the assessee constitutes the actual cost to the assessee for that property. To exclude the interest amount from the actual cost of the assets/ property would lead to anomalous result. The interest amount should be definitely added to the actual cost of the property. Respectfully following these legal propositions and on basis of observations as held herein the addition on this account is deleted.
4. Ground No. 3, 4 & 5 are directed against disallowance of basic cost as Rs.2,79,96,771/- and has taken the basic cost as 2,75,00,000/- and disallowance of interest paid to the builder on the late payment. The assessee had claimed interest of Rs.4.56.744/- whereas the AO had allowed interest of Rs. 3,95,321/-. 4.1. On this ground, the AR of the appellant submitted as under: "The Ld AO had reduced the cost of the acquisition from Rs.2,79,96,770/- to Rs.2,75,00,000/-even though the confirmation of builder dated February 2016 was submitted. The ld AO had taken the cost as per allotment letter dated 21.12.2004 which is always a provisional allotment and which is subject to the changes. The assessee was originally allotted flat measuring 6500 sq. ft which was subsequently increased to 6610.84 sq ft. As alleged by the Ld AO there is no area written in the agreement to sell and further no sale deed was executed as alleged by the LD AO, only the flat number 702 on the seventh floor is mentioned in the agreement to sell. So the cost of the flat paid by the assessee amounting to Rs.2,79,96,770/- should be taken as the cost and the proportionate disallowance of interest amounting to Rs.61,423/- should be allowed as cost of acquisition. The interest paid by the assessee to the builder was Rs.4,56,744/- and the proportionate interest allowed by Ld. AO is Rs 3,95,321/-. 4.2. I have carefully considered the assessment order and written submissions furnished by the Ld. AR. The AO had disallowed the cost of stamp papers purchased for the registration of the flat and it was to be cancelled due to death of the husband of the assessee and 10% cost of the stamp paper amounting to Rs. 1,35,930/- should be allowed u/s 48 of the Income Tax Act. As stamp paper were purchased specifically for the registration of the flat therefore any amount spent for the flat is to be allowed as part of the acquisition. 4.3. The AO had reduced the cost of the acquisition from Rs.2,79,96,770/- to Rs.2,75,00,000/- even though the confirmation of builder dated February 2016 was submitted. The AO had taken the cost as per allotment letter dated 21 12.2004 which is always a provisional allotment and which is subject to the changes. The assessee was originally allotted flat measuring 6500 sq. ft. which was subsequently increased to 6610.84 sq. ft. The papers submitted by the appellant clearly indicate the final area to be 6610.84 sq. ft. and payments were made and confirmed accordingly. Hence, the addition on this ground does not stand. The proportionate disallowance of interest is consequential also therefore deleted. These grounds of appeal
are ruled in favour of the appellant.
5. Ground No. 6 & 7 are general in nature, which require no specific adjudication.
6. In the result, the appeal is allowed.”
6. Aggrieved by the relief, the Revenue is in appeal before the Tribunal.
We have considered the rival submissions on the various points in issue.
7.1 At the outset, we observe that the CIT(A) has reversed the disallowance of Rs.1,82,53,834/- on account of interest on borrowed funds and held that such interest cost will form part of the cost of acquisition placing reliance upon the judgment rendered by the Hon’ble Jurisdictional High Court in CIT vs. Mithlesh Kumari (1937) 92 ITR 9 (Del) and other judgments as noted in earlier paragraphs.
7.2 We find that the reasons cited by the CIT(A) are sound and is in consonance with the judgment rendered by the Hon’ble High Courts as well as the Co-ordinate Bench of Tribunal. We thus see no reason to interfere.
7.3 Significantly, the Finance Bill, 2023 has proposed certain amendment in this regard. On a reading of the Finance Bill, it appears that as per the existing position of law, some assessee claims deduction towards interest paid on borrowed capital utilized for acquisition of the property under Section 24(b) of the Act. The same amount of interest is also being claimed under Section 48 of the Act as part of cost of acquisition. In order to prevent double deduction, the Finance Bill, 2023 has proposed to insert a proviso after clause (ii) of Section 48 so as to provide that cost of acquisition or the cost of improvement shall not include the amount of interest claimed under Section 24 of the Act. The amendment is proposed to take effect from Assessment Year 2024-25 prospectively. Thus, the proposed amendment in Section 48 to prevent double taxation makes the existing position of law loud and clear. As a corollary, as per the existing position, the assessee is entitled to claim interest on borrowed capital used for acquisition of property as part of its cost of acquisition for the purposes of determination of capital gains. For this reason also, there appears to be no infirmity in the conclusion drawn by the CIT(A). Hence, we decline to interfere.
7.4 Ground No.1 of the Revenue appeal is dismissed.
Ground No.2 of the Revenue’s Appeal concerns enhancement of cost of acquisition of Rs.1,35,000/- on account of loss of stamp paper. The CIT(A) has allowed the cost of replacement of stamp paper since the stamp papers were purchased specifically for registration of flat and therefore, such amount was spent for acquisition of flat and hence forms part of the cost of acquisition. We find the reasoning given by the CIT(A) to be worthy of merit. The CIT(A) has rightly found that the aforesaid cost is directly attributable to the cost of acquisition of flat proposed to be purchased jointly by the assessee and her husband which was later modified due to demise of the husband. We see no reason to interfere with the action of the CIT(A).
8.2 Ground No.2 of the appeal of the Revenue is dismissed.
Grounds No.3 and 4 concern increase in the basic cost of flat. As noted by the CIT(A), the assessee was handed over area at 6610.84 sq. ft. as against tentative original allotment of 6500 sq. ft and the increase in the cost represents the increase in area. The payment made to the builder has been also confirmed by the builder along with payment towards interest for delayed payment of cost of purchase. The cost of acquisition claimed by the assessee relates to the area eventually vested to the assessee. For the same reason, the Assessing Officer is also not justified to artificially reduce the cost of interest on delayed payment in proportion to the originally allotted area instead of increased area. We find ourselves in agreement with the observations made by the CIT(A) and hence see no merit in Grounds No.3 and 4 of the Revenue’s Appeal.
9.1 Grounds No.3 and 4 of the Revenue appeal are dismissed.
In the result, the appeal of the Revenue is dismissed.
Order was pronounced in the open Court on 15.03.2023.