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2020 (11) TMI 744 - AT - Income TaxLong Term Capital gain recomputation - not allowing deduction towards cost on account of interest capitalized to cost of asset - no nexus between the capital borrowed and its utilization for acquisition of the property - assessee was selected for scrutiny assessment under CASS - HELD THAT:- AO did not assign any reason as to why the explanation of the assessee was not acceptable when under the similar facts and circumstances, claim of the assessee regarding capitalization of interest was allowed in the earlier year. This approach of the AO is contrary to the settled principles of law. It is incumbent upon the assessing officer at least assign the reason as to why he was adopting a different view then the adopted by its predecessor in earlier years. CIT(A) recorded the finding that the issue of capitalization was not examined by AO as the assessee capitalized the interest without routing through its profit and loss account and the case as relied by the Ld. DR is on a different set of facts are not applicable on the facts and circumstances of the present case. We cannot affirm this view of the Ld. CIT(A) where he made guesswork by using word it appears that means the finding is not based upon correct appreciation of the facts. There is no dispute so far issue regarding allowability of interest paid on the borrowed capital used for acquisition of property. Hence cost of acquisition would also include the interest paid on such borrowed capital. Both the authorities below have disallowed the claim of the assessee, on the ground that there is no nexus between the capital borrowed and its utilization for acquisition of the property. It is not in dispute that the property was acquired by a borrowed capital initially borrowed from the relatives of the Directors. Thereafter, the loan taken from such persons was repaid out of the loan received from ICICI bank. Therefore, it cannot be construed that there is no nexus between the acquisition of the property and the utilization of the capital so borrowed. Authorities below were not justified in disallowing the claim of the assesseee - interest paid on the capital utilized for repayment of loan, we allow as cost of acquisition. AO hereby directed to allow capitalization of interest to the extent that the assessee had utilized borrowed funds for repayment of loan taken from directors and other relatives. - Decided in favour of assessee.
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