2012 (3) TMI 591 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the issue of whether the interest paid as the cost of acquisition of shares should be considered for computing short term capital loss.

Summary of Judgment:

Issue 1: Consideration of Interest as Cost of Acquisition for Computing Short Term Capital Loss

The appeal was filed by the Revenue against the order of Ld. CIT (A)-XVI, Ahmedabad for the Assessment Year 2008-09. The assessee applied for 60,00,000 equity shares in an IPO but was allotted only 37,604 shares due to oversubscription. The assessee considered the interest paid as "cost of acquisition" and added it to the cost of shares, resulting in a short term loss upon selling the shares. The Assessing Officer disallowed a portion of the interest, calculating only the proportionate interest eligible for consideration as cost. However, CIT (A) allowed the appeal, stating that the interest paid for the entire loan amount borrowed for share acquisition should be considered. The Tribunal also held in favor of the assessee, emphasizing that the borrowed funds had a direct nexus with the acquisition of shares, and the entire interest paid should be allowed as a deduction. The Tribunal dismissed the Revenue's appeal, affirming that the interest paid on the borrowed funds for acquiring shares should be considered as the cost of acquisition for computing short term capital loss.

Issue 2: Disallowance of Interest Expenditure

The Assessing Officer disallowed a claimed interest expenditure of &8377; 27,408 as no supporting evidence was provided by the assessee. CIT (A) upheld the disallowance, stating that even if the Assessing Officer did not request evidence, the assessee could have submitted it during appellate proceedings. As the assessee failed to provide any details, the disallowance was sustained. The Tribunal agreed with CIT (A) and dismissed the cross objection of the assessee.

In conclusion, the appeal of the department and the cross objection of the assessee were both dismissed in the judgment pronounced on 16 - 3 - 2012.