INCOME TAX OFFICER, WARD-1, BEAWAR, COURT CAMPUS BEAWAR vs. GAURAV KARNAWAT HUF, BEAWAR

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ITA 408/JPR/2026Status: DisposedITAT Jaipur03 September 2026AY 2020-217 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A)'s order was not illegal or perverse, and that interest expenditure incurred wholly and exclusively for acquiring a capital asset is includible in the cost of acquisition. Additionally, the Tribunal noted the appeal was not maintainable due to low tax effect.

What were the facts?

The Revenue appealed against the CIT(A)'s order which allowed the assessee's claim that interest expenditure on borrowed funds for an IPO application constituted part of the 'cost of acquisition'. The CIT(A) had deleted the disallowance made by the Assessing Officer.

What were the issues?

Whether interest expenditure on borrowed funds for IPO application is part of the cost of acquisition, and whether the appeal is maintainable due to low tax effect.

Which sections of the Income-tax Act were involved?

Section 48,Section 147,Section 148A,Section 148,Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR “SMC” BENCH, JAIPUR

Before: SMT. ANNAPURNA GUPTA & SHRI KULDIP SINGH

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR “SMC” BENCH, JAIPUR (PHYSICAL HEARING) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No: 408/JPR/2026 Assessment Year: 2020-21

Income Tax Officer Gaurav Karnawat HUF, Ward-1, Near Bus Stand, Court Vs Beawar. Campus, Beawar. (Appellant) PAN:AAGHG7110P (Respondent)

CO. No. 03/JPR/2026 (Arising out of ITA No: 408/JPR/2026) Assessment Year: 2020-21

Gaurav Karnawat Income Tax Officer HUF, Ward-1, Near Bus Stand, Vs Beawar. Court Campus (Appellant) Beawar. PAN:AAGHG7110P (Respondent) Assessee Represented: Sh. Sanjeev Jain, C.A. Revenue Represented: Ms. Aarti Rawat, Addl.CIT Date of hearing : 19-08-2026 Date of pronouncement : 03-09-2026 ORDER

I.T.A No. 408/JPR/2026 & 2 CO. No. 3/JPR/2026 Page No Gaurav Karnawat HUF

PER : KULDIP SINGH, JUDICIAL MEMBER:-

The Appellant- Revenue by filing aforesaid appeal, sought to set aside the impugned order dated 05.12.2025 passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] qua assessment year 2020-21 on the grounds inter-alia that:- ITA No. 408/JPR/2026 (Revenue’s grounds)

“1. Whether on the facts & the circumstances of the case and in law the Ld. CIT(A) has erred in quashing the reassessment proceedings u/s 148A/148, ignoring the fact that the Jurisdictional Assessing Officer (JAO) possesses valid statutory jurisdiction to issue notice u/s 148, and the Faceless Reassessment Scheme does not curtall such jurisdiction and that the AO followed the statutory procedure before issuing Notice u/s 148 of the Act?

2.

Whether on the facts & circumstances of the case and in law, the Ld CIT(A) has erred in relying on the decision of Hon'ble High Court in the case of Sharda Devi Chhajer without appreciating that the said decision has not been accepted; and, challenged further before the Hon'ble Supreme court and has not attended finality yet?

3.

Whether on the facts & circumstances of the case and in law, the Ld CIT(A) has erred in holding that interest expenditure of Rs. 16,44,724/- incurred on borrowed funds availed for IPO application constituted part of the 'cost of acquisition' under section 48 of the Income tax Act, 1961. without appreciating that the statutory expression cost of acquisition' refer strictly to the actual consideration paid for acquiring the capital asset, i.e. the price at which the shares were allotted (Rs. 2,58,50,445/-), and does not extend to financing or borrowing costs arising from a separate and independent loan transaction?

4.

Whether on the facts & circumstances of the case and in law, the Ld CIT(A) has erred in not appreciating that the interest liability emanated from a contractual arrangement with the lender and not from the acquisition of the shares; such interest neither enhanced nor altered the intrinsic purchase price of the shares as determined by the allotment; and, that the section 48 of the Act does not contemplate capitalization of financing costs?

I.T.A No. 408/JPR/2026 & 3 CO. No. 3/JPR/2026 Page No Gaurav Karnawat HUF

5.

That the appellant craves to add, amend, alter, delete or modify any or all the above grounds of appeal before or at the time of hearing.” ITA No. 3/JPR/2026 (Assessee’s ground) “1. The Ld. Assessing Officer erred in law as well as on facts of the case by filing appeal before Honorable Income Tax Appellate Tribunal, Jaipur in the case WHARE tax effect is below monetary limit as prescribed by Central Board of Direct Taxes.

2.

At the same time, appellant, Gaurav Karnawat HUF by filing Cross Objection supported the impugned order dated 05.12.2025 by Ld. CIT(A) and also raised ground that present appeal is not maintainable having low tax effect as per notification passed by Central Board of Direct Taxes ( for short CBDT). 3. Briefly stated, facts necessary for consideration and adjudication of the issued at hand are : Assessee filed his original return of income declaring total income at Rs. 2,77,650/- and also declared a total capital loss (i.e. long term capital loss & short term capital loss from equity) amounting to Rs. 86,04,002/-. Subsequently, Revenue department noticed that the assessee has shown inflated capital loss to the tune of Rs. 16,44, 724/- by filing ITR in A.Y. 2020-21, and as such case was reopened under the provisions of section 147 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”). In the return of income filed by the assessee

I.T.A No. 408/JPR/2026 & 4 CO. No. 3/JPR/2026 Page No Gaurav Karnawat HUF

in response to notice u/s 148 of the Act, assessee has reduced excess short term capital gain amounting to Rs. 16,44,724/- and as such Assessing Officer has not drawn any adverse inference and proposed to initiate penalty proceedings u/s 270A of the Act for under reporting of income and computed total loss at Rs. 69,59,277/-. 4. Assessee carried the matter before the Ld. CIT(A) by way of filing appeal, who has allowed the appeal filed by the assessee. Feeling aggrieved with the impugned order passed by the Ld. CIT(A), Revenue department has come up before the Tribunal by way of filing the present appeal. At the same time the assessee also come up before the Tribunal by way of cross objection that appeal filed by the Revenue is not maintainable. 5. We have heard Ld. ARs for the assessee and Ld. DR for the Revenue and perused the record available on file. 6. Bare perusal of the impugned order passed by Ld. CIT(A) goes to prove that Ld. CIT(A) has decided the issue in favour of the assessee in accordance with law by holding that interest paid by the assessee qua the loan availed by the assessee for the purpose of allotment of shares is to be added to the cost as claimed by the

I.T.A No. 408/JPR/2026 & 5 CO. No. 3/JPR/2026 Page No Gaurav Karnawat HUF

assessee and as such interest of Rs. 16,44,724/- is allowable as

part of the acquisition. Operative part of the findings of Ld. CIT(A)

are extracted as under:-

“4.3 Regarding Ground No. 2 Disallowance of Interest of Rs.16,44,724/- from Cost of Acquisition: (i) During the appellate proceedings, the appellant contested that the appellant applied for IPO of SBI Cards for Rs.60 crore, financed primarily by a loan from MotilalOswalFinvest Ltd. The shares actually allotted were worth Rs.2,58,50,445/- and the balance was refunded and loan repaid together with interest of Rs. 16,44,724/-. The interest was incurred solely for acquisition of shares; therefore, it forms part of the cost u/s 48. In the decision of ITAT Mumbai in the case of Krishnamurthy Thagarajan v. ACIT and Neville Tuli v. DCIT has held that expenditure directly linked to acquisition of capital asset is includible in cost of acquisition. (ii) I have carefully considered the assessment order, submissions and legal position. From the submission and material placed on record by the appellant, it is evident that the loan was taken specifically and exclusively for the purpose of applying in the IPO. The interest liability arose only because of the funds utilised for allotment of shares. The shares were allotted proportionately and the loan was repaid out of refund proceeds along with interest. There is a clear, proximate and direct nexus between the borrowing (and interest) and the acquisition of shares. Judicial precedents cited by the appellant consistently hold that interest paid for acquiring a capital asset forms part of its actual cost, unless prohibited by law. Section 48 allows deduction of expenditure "incurred wholly and exclusively in connection with the transfer" as well as "cost of acquisition". Courts have interpreted "cost of acquisition" to include interest paid for acquisition funding. The AO's view that the interest cannot be added to cost is therefore not sustainable. On merits, the interest of Rs. 16,44,724/- is allowable as part of cost of acquisition. The short-term capital loss declared by the appellant is therefore correct and deleted in appeal.”

I.T.A No. 408/JPR/2026 & 6 CO. No. 3/JPR/2026 Page No Gaurav Karnawat HUF

7.

So on merits, we find no illegality or perversity in the impugned order passed by Ld. CIT(A), hence the appeal filed by Revenue is liable to be dismissed on merits. At the same time, appeal filed by the Revenue is not maintainable in view of Circular No. 09/2024 dated 17.09.2024 issued by CBDT having come under low tax effect category, Ld. DR for the Revenue was also fairly conceded that this case does not fall under any exception to the notification no. 09/2024 (supra). In view of the matter, the appeal filed by the Revenue is hereby dismissed and Cross objection filed by the assessee are allowed. 8. Resultantly, the appeals filed by the Revenue is dismissed and Cross Objection filed by the assessee are allowed. Order pronounced in the open court on 03-09-2026.

Sd/- Sd/- (ANNAPURNA GUPTA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Jaipur Dated:- 03/09/2026. *Santosh. Copy of the order forwarded to: 1. The Appellant- 2. The Respondent- 3. CIT

I.T.A No. 408/JPR/2026 & 7 CO. No. 3/JPR/2026 Page No Gaurav Karnawat HUF

4.

CIT(A) 5. DR, ITAT, Jaipur. 6. Guard File By order,

Asst. Registrar

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