2024 (2) TMI 867 - AT - Income Tax

Capital gain computation - disallowance of interest on housing loan which has been claimed as part cost of acquisition - case of the assessee that deduction u/s 24(b) of the Act as claimed when the assessee declares income from house property whereas the indexed cost of the said asset was taken into consideration when the asset was sold and capital gains are computed u/s 48 - HELD THAT - As per Section 48 of the Act, the cost of acquisition is the value for which the property has been acquired by the assessee and, therefore, expenses of capital nature for completing or acquiring the title of the property are includable in the cost of acquisition. Further it is also claimed that the assessee has not taken benefit of the interest or claimed the same under any of the provisions of the Act. As per Section 55(2) of the Act, the interest due or paid on the money borrowed from the date of borrowing of money and till the last day of previous year prior to the previous year of construction/acquisition shall be accumulated and such accumulated interest shall be allowed as deduction in five equal installments starting from the previous year in which construction of the house is completed or the house is acquired and interest from the seat of construction or acquisition of house till it is repaid, shall be allowed as deduction in respective previous years to which it belongs. Where the house property is sold within 5 years of the year of purchase or construction and the interest for the pre-construction period could not be claimed as deduction as it is allowed as deduction in five equal installments starting from the previous year m which construction of the house is completed or the house is acquired, the balance interest may be treated as part of cost of asset for computing capital gain. Thus, in our considered view, the cost of acquisition will include only the amount which has direct nexus with the purchase of property and the interest on the loan taken has no direct nexus with the property purchases. The Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Tata Iron Steel 1997 (12) TMI 5 - SUPREME COURT held that the cost of asset and cost of raising money for purchase of asset are two different and independent transactions and even subsequent to acquisition of assets cannot change the price paid for it. Thus we find no error or infirmity in the order of the Ld. CIT(A) in confirming the disallowance being indexation cost of acquisition of property on account of interest paid on borrowed capital - Decided against assessee.

Summary

Issues Involved:
1. Legality of the assessment order passed u/s 143(3).
2. Error in computing total income and making addition.
3. Disallowance of interest paid on housing loan as cost of acquisition and improvement.
4. Interpretation of judicial precedents related to the disallowance.
5. Principles of natural justice and opportunity of being heard.
6. Wrongful charging of interest u/s 234A and 234B.

Summary:

1. Legality of the Assessment Order:
The assessee challenged the assessment order passed u/s 143(3) as illegal and bad in law, which was upheld by the CIT(A).

2. Error in Computing Total Income:
The Assessing Officer computed the total income at Rs. 2,47,09,790/- against the declared income of Rs. 1,30,66,270/-, adding Rs. 1,16,43,521/-. This addition was contested as unjust, excessive, and not based on any material on record.

3. Disallowance of Interest on Housing Loan:
The primary grievance was the disallowance of Rs. 94,17,082/- as interest paid on a housing loan, claimed as part of the cost of acquisition. The assessee argued that this interest should be included in the cost of acquisition as it was not claimed under any other income heads. The Tribunal, however, upheld the disallowance, citing judicial precedents that interest on borrowed capital does not form part of the cost of acquisition.

4. Interpretation of Judicial Precedents:
The Tribunal relied on the Supreme Court judgment in Commissioner of Income-tax vs. Tata Iron & Steel Co. Ltd., which held that the cost of an asset and the cost of raising money for its purchase are independent transactions. The Tribunal also referenced the ITAT Delhi decision in ACIT vs. Sunil Batra, supporting the disallowance of interest on the loan as part of the cost of acquisition.

5. Principles of Natural Justice:
The assessee contended that the assessment and appellate orders violated the principles of natural justice by not affording a reasonable opportunity of being heard. The Tribunal did not find merit in this argument.

6. Wrongful Charging of Interest:
The assessee argued that interest u/s 234A and 234B was wrongly charged as the disallowances/additions could not have been foreseen. The Tribunal did not address this issue separately, implying no change in the charging of interest.

Conclusion:
The Tribunal dismissed the appeal, confirming the disallowance of Rs. 1,16,43,521/- being the indexed cost of acquisition on account of interest paid on borrowed capital. The appeal was found to lack merit based on the prevailing judicial interpretations and the facts of the case.