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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 31.01.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.
The assessee has raised three grounds of appeal
. At the time of hearing, the assessee did not press ground Nos.1 &
2. Therefore, the same are dismissed as not pressed. The issue raised in ground No.3 is against the order of Ld. CIT(A) not allowing the interest expenditure incurred of Rs.23,15,662/- on loan taken for acquisition of office premises as part of the cost of assets under the provisions of section 48 of the Act.
2 M/s. Horizon Enterprises 3. The facts in brief are that during the course of assessment proceedings, the AO observed from the computation of capital gain that assessee has claimed deduction of interest on loan borrowed for acquisition of the property in question of Rs.23,15,662/- consisting of Rs.13,80,516/- in A.Y. 2009-10 which was shown under the head deferred revenue expenses and Rs.9,35,146/- was incurred in F.Y. 2010-11. The Ld. A.R. submitted that the said expenses were not claimed in the profit & loss account at all. However, the AO brushed aside the contentions of the assessee by holding that the interest expenditure can not be reduced from the sale consideration while computing the capital gain as the section 48 especially provides for the deductions which are admissible to be deducted from the sales consideration as expenditure incurred wholly and exclusively in connection with transfer and cost of acquisition of the assets and cost of improvement thereof.
4. In the appellate proceedings, the Ld. CIT(A) did not allow the interest paid to bank on loan taken as stated above as deduction while computing the capital gain by rejecting the contentions of the assessee.
The Ld. A.R. submitted before the bench that the assessee has bought this office premises out of loan taken from NKGSB Co-operative Bank Ltd. of Rs.73,00,000/- against margin of 25% and the said loan was to be repaid in 84 EMIs of Rs.1,37,000/- each. The Ld. A.R. submitted that the interest of Rs.23,15,662/- was not claimed in the profit & loss account as interest incurred of Rs.13,80,516/- incurred in F.Y. 2009-10 and Rs.9,35,146/- incurred in F.Y. 2010-11 were not claimed in 3 M/s. Horizon Enterprises the profit & loss account at all. The Ld. A.R. argued that since the said interest was incurred in connection with the loan taken for the acquisition of the office premises, the said interest constitute a part of the cost of the property which has to be allowed in the computation of capital gain under the provisions of section 48 of the Act. The Ld. A.R., in defence of his arguments relied on a series of decisions which are as under:
1. 1. CIT vs. Trishul Investments Ltd. 305 ITR 434 (Madras HC) as affirmed by the Hon’ble Supreme Court by dismissing the SLP filed by the department. SLP No.CC 8665of 2008 dated 11.07.2008.
2. CIT vs. Maithreyi Pai 152 ITR 247 (Kar. HC)
CIT vs. Mithilesh Kumari 92 ITR 9 (Delhi – HC)
Gayatri Maheshwari vs. ITO (2017) 88 taxmann.com 757 (Jodhpur)
5. ACIT vs. Mrs. Sheela Chopra ITA No.169/Kol/2014
The Ld. A.R. finally prayed before the Bench that in view of the ratio laid down in the aforesaid decisions, the appeal of the assessee may be allowed and AO be directed accordingly.
The Ld. D.R., on the other hand, relied on the order of AO and Ld. CIT(A) by submitting that the interest paid on loan for acquisition of property is not part of the cost of acquisition and prayed for the upholding the order of Ld. CIT(A).
After hearing both the parties and perusing the material on record, we find that the assessee has bought office premises by taking loan from NKGSB Co-operative Bank Ltd. of Rs.73,00,000/- against a margin of 25% which was to be repaid in 84 EMIs of Rs.1,37,000/- each and thus interest paid to the bank in two years in F.Y. 2009-10 Rs.13,80,516/- and in F.Y. 2010-11 Rs.9,35,146/- were not claimed in the profit & loss
4 M/s. Horizon Enterprises account. Now when the assessee sold the property, assessee has claimed the deduction of the said interest from the sale proceeds as being part of cost of acquisition in terms of provisions of section 48 of the Act. The Revenue Authorities have disallowed the claim of the assessee by holding that the interest paid on loan is not an allowable deduction under the provisions of section 48 of the Act. The said conclusion of the authorities below is not acceptable for the reasons that any interest paid on loan taken for acquisition of property has to be allowed as deduction as part of the cost of the assets. The view has been upheld by the various high courts and co-ordinate benches of the Tribunal. In the case of CIT vs. Trishul Investments Ltd. (supra) it has been held that interest paid for acquisition of shares would partake the charter of cost of shares and therefore same was rightly capitalized along with the cost of acquisition of the shares which has to be allowed under section 48 while computing the capital gain on the sale of shares. The said decision of the Hon’ble Madras High Court has been affirmed by the Hon’ble Supreme Court by dismissing the SLP filed by the Revenue in SLP No.CC8665/2008 vide order dated 11.07.2008. In the case of CIT vs. Mithilesh Kumari (supra) it has been held that interest on amount borrowed was expenditure incurred for acquisition of capital assets (land) and it has to be considered while computing the capital gain upon sale of the said assets. In the case of Gayatri Maheshwari vs. ITO (supra) the co-ordinate bench of the Tribunal held that where the property was purchased out of borrowed funds the interest paid on such borrowing would be part of cost of acquisition. Considering the ratio laid down by the Hon’ble High
5 M/s. Horizon Enterprises Courts and co-ordinate bench of the Tribunal, we set aside the order of the Ld. CIT(A) and direct the AO to treat the interest paid Rs.23,15,662/- as part of cost of acquisition under section 48 and compute the capital gain accordingly.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 22.03.2019.