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Issues Involved: Whether interest on borrowings utilized for acquisition of shares can be added to the cost of shares.
Issue 1: Capitalization of Interest on Borrowings for Acquisition of Shares The dispute in this case revolved around whether interest on borrowings used for acquiring shares should be added to the cost of acquisition of shares. The Assessing Officer disallowed the capitalization of interest, stating that it was not in accordance with accounting standards. However, the CIT(A) allowed the claim of the assessee, citing a judgment of the Hon'ble Karnataka High Court which held that interest on loan taken for the purchase of property should be included in the cost of acquisition. The appellant argued that interest paid on borrowings for acquiring shares should indeed be added to the cost of acquisition, referencing judgments from the Hon'ble Delhi High Court and a decision by the Pune Bench of the Tribunal. On the other hand, the ld. DR contended that interest could not be capitalized as it could only be allowed while computing income from other sources received from the investment. Issue 2: Interpretation of "Cost of Acquisition" The Tribunal examined whether interest paid on borrowings for the acquisition of shares should be considered as part of the cost of acquisition. Citing the judgment of the Hon'ble Delhi High Court in a similar case involving land acquisition, it was held that interest expenditure on borrowings used for the consideration paid for acquiring an asset should be included in the actual cost of acquisition. The Tribunal also referred to previous judgments by the Hon'ble High Courts of Calcutta and Bombay, emphasizing that the actual cost to the assessee is what has been expended or laid out for acquiring the depreciable assets. The Tribunal rejected the argument that the cost of acquisition was different from the actual cost, asserting that interest expenditure on borrowings for the consideration paid should be considered part of the cost of acquisition. Conclusion The Tribunal upheld the decision of the CIT(A) in allowing the capitalization of interest to the cost of acquisition of shares, following the precedent set by the Pune Bench of the Tribunal in a similar case. The appeal of the revenue was dismissed, affirming that interest on borrowings utilized for the acquisition of shares could indeed be added to the cost of shares.
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