2023 (3) TMI 770 - AT - Income Tax

Disallowance towards interest from the cost of acquisition of the capital asset - interest paid to the bank into consideration and computed indexed value on the same - CIT(A) has reversed the disallowance on account of interest on borrowed funds and held that such interest cost will form part of the cost of acquisition - HELD THAT:- We find that the reasons cited by the CIT(A) are sound and is in consonance with the judgment rendered by the Hon’ble High Courts as well as the Co-ordinate Bench of Tribunal - See Mithlesh Kumari [1973 (2) TMI 11 - DELHI HIGH COURT] We thus see no reason to interfere.

Significantly, the Finance Bill, 2023 has proposed certain amendment in this regard. On a reading of the Finance Bill, it appears that as per the existing position of law, some assessee claims deduction towards interest paid on borrowed capital utilized for acquisition of the property under Section 24(b) of the Act. The same amount of interest is also being claimed under Section 48 of the Act as part of cost of acquisition.

The proposed amendment in Section 48 to prevent double taxation makes the existing position of law loud and clear. As a corollary, as per the existing position, the assessee is entitled to claim interest on borrowed capital used for acquisition of property as part of its cost of acquisition for the purposes of determination of capital gains. For this reason also, there appears to be no infirmity in the conclusion drawn by the CIT(A). Hence, we decline to interfere.

Enhancement of cost of acquisition on account of loss of stamp paper - CIT(A) has allowed the cost of replacement of stamp paper since the stamp papers were purchased specifically for registration of flat and therefore, such amount was spent for acquisition of flat and hence forms part of the cost of acquisition. We find the reasoning given by the CIT(A) to be worthy of merit. CIT(A) has rightly found that the aforesaid cost is directly attributable to the cost of acquisition of flat proposed to be purchased jointly by the assessee and her husband which was later modified due to demise of the husband. We see no reason to interfere with the action of the CIT(A).

Increase in the basic cost of flat - The cost of acquisition claimed by the assessee relates to the area eventually vested to the assessee. For the same reason, the Assessing Officer is also not justified to artificially reduce the cost of interest on delayed payment in proportion to the originally allotted area instead of increased area. We find ourselves in agreement with the observations made by the CIT(A) and hence see no merit in Grounds of the Revenue’s Appeal.