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TMI Blog2019 (4) TMI 1912X X X X Extracts X X X X X X X X Extracts X X X X ..... cquiring assets and interest expenditures were capitalized. Unsecured loans were remained outstanding at the end of every accounting year. It cannot be construed that nexus has not been demonstrated. We have noticed the order of the AO, which is absolutely silent on any of the aspects though the ld.CIT(A) has made reference to the details in order to demonstrate that the assessee failed to prove the nexus, but on re-appreciation of these very details we are of the view that the ld.CIT(A) has not appreciated the facts in right perspective, and considered them half-heartedly. Therefore, we allow the appeal of the assessee and delete the disallowance. - Decided in favour of assessee. - ITA No. 322/Ahd/2015 - - - Dated:- 30-4-2019 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For the Assessee : Shri P.F. Jain, AR For the Revenue : Shri Santosh Kannan, Sr.DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-XIV, Ahmedabad dated 3.9.2014 passed for the Asstt.Year 2010-11. 2. Assessee has taken four grounds of appeal, which are not in consonance with Rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he capital gain. Further, section 55(ii) of the Income Tax Act, 1961 provided the meaning of Cost of Acquisition as it means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property,... . Further, the interest expense on money borrowed for purchase of asset is to be included in the cost of acquisition. According to Addl. CIT v/s. K. S. Gupta (1979) 119 ITR 372 (AP) and CIT V/s. Mithilesh Kumari (1973) 92 ITR 9 (Del.), interest paid by the assessee on money borrowed for the purchase of open plot of land constituted part of the actual cost of the assessee within the meaning of section 55(2) for the purpose of determining the capital gain derived from the sale of the land, The Ahmedabad Bench of the Tribunal also, in ITO v/s. Smt. Pushpaben Wadhwani (1986) 16 ITD 704 (Ahd-Trib), held that the interest paid on loan taken for construction of flat would form part of the cost of acquisition of flat for purposes of computation of capital gains where it has not been allowed in computation of income from house property in past. As per the judgment passed in the case of CIT v. Mithlesh Kumari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Rs.) Unsecured Loans Repaid (Rs.) Net Unsecured Loans (Rs.) Land Investment (Rs.) Balance of Unsecured loans as on 31st March (Rs.) Remarks 2005-06 1,07,69,001/- 36.00.000/- 71.69.C20/- 76,48,447/- 77,69,000/- The net Unsecured loans funded 95% of the Investment made. 2006-07 2,85, 40,837/-/ 1,80,70,000/- 7,04,70,837/- 7,48,57,645/- 7,76,39,837/- The majority of the investment was sold in this year. 2007-08 4,47,87,928/- 1,78,38,9017- 26,94;90,277- 7,77,64,762/- 4,45,88,864/- Previous years' sales proceeds of investments and current year's net loans of ₹ 26 lacs Have funded the net investment to the extent of ₹ 95 lacs. 2008-09 3,78,74,1 57/ 3,08,87,980 69,86,777/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest paid on borrowed fund for investment in land. As discussed in first para of this ground discussion, the interest apportioned for various land is the net interest and does not reflect correct picture. Further following observations are worth noting from the details so submitted by appellant. (a) For Tagore Park Flat, the appellant submitted through bank account at Syndicate Bank (A/c.No.70041010001120) that on 4.10.2006 ₹ 5 lac borrowed from Shri Mukesh Kumar T Padhiyar and ₹ 2 lac (in aggregate) from Shri Mahesh T.Padiyar HUF of ₹ 1.30 lac and from Shri Ramesh T.Padiyar HUF of ₹ 0.70 lac and utilized for purchases. In the ledger account appellant debited interest of ₹ 27,126 on 4,11.2006, ₹ 1,27,672 on 01.03.2008, ₹ 2,22,638 on 01.3.2009 and ₹ 1,37,514.71 on 01.09.2009. As against this the balance sheet as on 31.03.2008 (after the date of loan taken), does not reflect any loan from Shri Mukesh Kumar T.Padhiyar, while from Shri Mahesh Kumar T.Padhiyar HUF outstanding of ₹ 60,000 only and from Shri Rajesh Kumar T Padhiyar HUF outstanding of ₹ 70,000 is reflected. It is therefore interest debited thereafter i.e. on 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment of Income Tax, ITA No.4738/Mum/2010 ii) CIT Vs. Mithleshkumar, 92 ITR 9 (Del) iii) K. Rajgopal Rao, 252 IT 459 (Mad) iv) ITO Vs. Pushpaben Wadhwani, 25 TTJ (Ahd) 216 v) CIT Vs. Tensile steel Ltd., 104 ITR 581 (Guj) 7. On the other hand, the ld.DR relied upon the orders of the Revenue authorities. 8. We have duly considered rival contentions and gone through the record carefully. There are two angles of the controversy required to be adjudicated by us. In the first fold, the dispute is whether interest expenditure incurred by an assessee for acquiring the capital assets deserves to be capitalized and on its sale, required to be considered as cost of acquisition for the purpose of computation of capital gain. As far this legal issue is concerned, we find that it has been considered by the ITAT, Mumbai Bench in the case of Global Assets Holding Corporation (supra) and the following observations deserves to be noted: 5. We have perused the records and considered the rival contentions carefully. The dispute is regarding capitalization of interest paid on borrowings for acquisition of shares while computing capital gain from sale of shares. There is no dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd as the said dividend income was exempt from tax, the interest expenditure could not be taken into account in view of the provisions of section 14A. The view taken by the CIT(A) was not accepted by the Tribunal. It was held that since the assessee had borrowed funds for acquisition of shares and interest had been capitalized, interest could not be separated from amount of investment. Thus, it was held that interest liability has to be taken into account towards cost of capital asset for the purpose of computation of capital gain. The case of the assessee is identical. We therefore, respectfully following the decision of the Pune Bench of the Tribunal (supra), see no infirmity in the order of the CIT(A) in allowing capitalization of interest to the cost of acquisition of shares. The order of the CIT(A) is accordingly up held. 9. Similarly, the Hon ble Delhi High Court in the case of Mithleshkumar (supra) has also considered this aspect. The question framed by Hon ble Delhi High Court reads as under: Whether on the facts and in the circumstances of the case, the interest amount of ₹ 16,878/- and the ground rent of ₹ 3,793 constituted part of the actual cost of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced in the assessment order. How the Revenue authorities have appreciated this aspect. It is the dispute between the parties. For example, unsecured loan of ₹ 1,07,69,000/- were taken in the F.Y.2005-06. The outstanding unsecured loans were ₹ 71,69,000/-. The assessee has made investment of ₹ 76,48,447/-. The expectation of the ld.CIT(A) is to demonstrate that loans taken from A remains invested in the capital asset. If assessee has taken loan in subsequent year from B and repaid the loan of A , then it will not be construed that borrowed funds were used for the purchase of the assets. It can be explained by way an example viz. the assessee took loan of ₹ 100/- from A . Made investment in land at ₹ 150/-. He took loan in the next year from B and repaid ₹ 50/- to A out of loan of ₹ 100/-. Then according to the understanding of the ld.CIT(A) ₹ 100/- was not used for the purchase of the assets till it is sold. On the other hand, the stand of the assessee is, at the end of every year, there is outstanding unsecured loan which has been subsumed in the investment. Thus, on analysis of the details, we are satisfied that the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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