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Issues involved: Appeal against order allowing interest expenditure claimed by the assessee in respect of shares applied in IPO but not allotted, quantum of assessment u/s 143(3) for assessment year 2006-200.
Summary: 1. The appeal was filed by the revenue against the order dated 02-07-2010, passed by the CIT(A)-31, Mumbai, regarding the allowance of interest expenditure claimed by the assessee in relation to shares applied in an IPO but not allotted. The Assessing Officer noted that only a small quantity of shares were allotted to the assessee out of those applied for through IPO. The entire interest costs paid on loans taken for share application were capitalized towards the cost of acquisition of shares. The CIT(A) decided in favor of the assessee, deleting the addition of short term capital gain made by the Assessing Officer, based on previous decisions of the ITAT Mumbai Bench and reasoning that interest expenditure on unallotted shares cannot be considered part of the cost of allotted shares. 2. The ITAT Mumbai Bench's decision in the case of Neera Jain and Shri Harshad N. Patel supported the assessee's position that interest paid on borrowed funds for acquiring shares through IPO should be allowed as a deduction. The Tribunal held that the entire interest paid on borrowed money for share acquisition should be treated as part of the cost of acquisition of shares, even if all applied shares were not allotted. Following these decisions, the appeal raised by the department was dismissed, and the interest expenditure was allowed as a deduction in computing short-term capital gain. Judgment: The appeal filed by the revenue was dismissed based on the decisions of the ITAT Mumbai Bench, allowing the interest expenditure claimed by the assessee in relation to shares applied in an IPO but not allotted, as a deduction in computing short-term capital gain.
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