SMT JAYA J KANUNGO L/H LATE SHRI JAWAHAR P KANUNGO,MUMBAI vs. ACIT 15(3), MUMBAI

Aforesaid appeal by assessee for Assessment Year (AY) 2011-12 arises out of the order of learned Commissioner of Income-Tax (Appeals)-51, Mumbai [CIT(A)], dated 18/09/2019 in the matter of assessment framed by Ld. Assessing Officer (AO) u/s 143(3) of the Act on 27/03/2014. The grounds read as under: -

That on facts and circumstances of the case and in law the Id. CIT (Appeals) has legally erred in disallowing the entire lawful indexed Interest claim of appellant

Having heard rival submissions and upon perusal of relevant material on record, our adjudication would be as given in succeeding paragraphs.

The material facts are that the assessee sold part of land as per agreement dated 25/06/2010 for sale consideration of Rs.110 Lacs. The proportionate cost as per conveyance deed dated 03/09/2001 was Rs.7.44 Lacs. However, as per the assessee, the agreement for purchase of land was made on 20/06/1988. The assessee paid interest of Rs.8.06 Lacs during the years 1994 to 1998 on funds borrowed to acquire the land. Thus, applying the indexes of various years to the proportionate cost of land as well as interest paid, it computed Long- Term Capital Gains of Rs.52.94 Lacs and offered the same to tax. However, Ld. AO opined that the date of execution of conveyance deed (03/09/2001) was to be taken as the date of acquisition of land and therefore the indexation would apply only from AY 2002-03. Accordingly, indexing the proportionate cost of land as well as interest cost from AY 2002-03, the gains were recomputed at Rs.80.02 Lacs.

Upon further appeal, Ld. CIT(A) concurred that the indexation would be available on proportionate cost of land from the year 1988. However, interest could neither be considered as cost of acquisition nor cost of improvement while computing the gains. Accordingly, Ld. AO was directed to re-work the gains. Aggrieved, the assessee is in further appeal before us.

Upon perusal of assessee’s computation of income for various years, it could be gathered that interest paid on borrowing has been capitalized by the assessee in the books of accounts along with the cost of land and no deduction of the same has ever been claimed by the assessee. For the same reason, Ld. AO has already accepted the interest cost as part of cost of acquisition and allowed indexation on the same, though from AY 2002-03. The Ld. CIT(A) opined that the interest cost could neither be considered as cost of acquisition nor cost of improvement and therefore, the same would not, at all, be allowed as deduction. We are of the considered opinion that it is undisputed fact that the borrowed funds had direct nexus with acquisition of the property and the interest has been capitalized in the books along with cost of land. The said interest has been paid prior to date of execution of conveyance deed. Therefore, the interest cost having direct nexus with acquisition of land, would be available for deduction as part of cost of acquisition of the land. The assessee has claimed deduction of the same by applying the indexes of respective years in which the interest has actually been paid. The Ld. AO is directed to allow the same in the same manner, as claimed by the assessee.

The appeal stands allowed. Order pronounced on 1st September, 2021. (Mahavir Singh) (Manoj Kumar Aggarwal) उपाध्यक्ष / Vice President लेखा दस्य / Accountant Member मुिंबई Mumbai; सदनािंक Dated : 01/09/2021 Sr.PS, Dhananjay