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2017 (5) TMI 356 - ITAT JODHPUR

2017 (5) TMI 356 - ITAT JODHPUR - TMI - Disallowance on account of cost of improvement while computing the capital gain - Held that:- Deduction u/s. 24(b) and computation of capital gains u/s 48 were altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. None of them excludes operative of the other. The interest in question was indeed expenditure in acquiring asset. Since both provisions were altogether different, assessee was entitled to include .....

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would lead anomalous result. The interest amount should be definitely added to the actual cost of the property. Respectfully following the above we reverse the findings of the ld. CIT(A) and hold that the interest paid to bank for acquiring capital asset would be eligible as part of cost of acquisition. - Decided in favour of assessee - ITA No. 208/Jodh/2017 - Dated:- 5-5-2017 - Shri Bhagchand, AM And Shri Partha Sarthi Chaudhary, JM Assessee by : Shri Rajendra Jain (Adv) Revenue by : Shri S.K. .....

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lowance of ₹ 5,42,877/- on account of the cost of improvement while computing the capital gain. 3. That on the facts and in the circumstances of the case, the ld CIT(A) erred in sustaining capital gains of ₹ 5,47,465/- as computed by the ld AO. Further holding that the interest paid to bank for acquired capital assets would not have eligible for part of cost of acquisition. 4. That on the facts and in the circumstances of the case, the ld CIT (A) erred in disregarding the judicial de .....

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ng the capital gain. 3. The brief facts arising herein are that the assessee is an individual, derived income from interest and capital gains. She filed the return of income for A.Y. 2013-14 on 31-03-2014 admitting the total income at ₹ 3,92,310/-. The return was selected for scrutiny under CASS and notice u/s 143(2) of the Income Tax Act, 1961 (in short the Act) was issued on 03-09-2014. After hearing the assessee, the assessment was completed u/s 143(3) of the Act on 23-11-2015 determini .....

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roperty which is a plot No. 118, Massuria, a part portion of this plot was sold by assessee alongwith one co-sharer to the tune of ₹ 44,00,000/-. Another property sold by the assessee alongwith two other partners on behalf of firm M/s Yashoma Exports, plot No. G- 564, 565 at Borlanada, Jodhpur. The details of capital gain exemptions and copy sale and purchase of property were submitted during the course of assessment proceedings. On going through the computation of income it reveals that t .....

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, it is stated that the assessee invested a sum of ₹ 11,80,684/- in the year 2008 and after indexing this amount a sum of ₹ 17,28,424/- comes as cost of acquisition after indexing. This seems correct and liable to be deducted from the cost of sale of property. As regards interest paid in the year 2008-09 to 2011-12 and indexing the same (i.e. interest), the same is not admissible. As there is no improvement on the plot and no constructions is made on plot hence, the cost of improveme .....

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case laws cited by the assessee of Hon'ble Delhi High Court it is stated that the issue involved in this case is "Whether on the facts and in the circumstances of the case the interest amount of ₹ 16,878/- and the ground rent of ₹ 3793/- constituted part of the actual cost of the plot to the assessed for the purpose of determining the capital gain?" Whereas in the present case the assessee is indexing the amount of interest paid as a cost of improvement which is not rel .....

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a cost of improvement which is not relevant from the cited case laws. As regards case laws cited by the assessee of Hon'ble Karnataka High Court it is stated that the issue involved in this case is "Whether the Tribunal was correct in holding that interest payment of a sum of ₹ 37,45,042/- to the Director by the assessee company towards loan availed for purchase of the property (asset) should be added to the cost of acquisition of the asset when computing long term capital gains b .....

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889/- Less; cost of acquisition as claimed by Assessee in computation 1180684/582*812 Rs.(-) 17,28,424/- Capital Gain ₹ 5,47,465/- 5. The assessee filed written submissions before the ld. CIT(A) at the time of hearing. The relevant portions of the written submissions are reproduced as under:- 1. That disallowances of ₹ 5,42,877/- in respect of disallowing the cost of improvement in respect of interest paid on borrowed fund for purchase of capital assets while computing the capital ga .....

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CIT Vs Rohtak Textile Reported in 138 1TR 195, and same was followed in following cases: a. 150 1TR 80 (MADRAS) b. 152 ITR 247 (KARN.) c. 152 1TR 482 (MADRAS) d. 107 1TR 557 (KARN.) e. 107 ITR 840 (MADRAS) f. CIT v. K. Raja Gopala Rao (2001) 252 ITR 459 (Mad) 4. Here, there can be no doubt that the cost of acquisition to the assessee was not merely the amount that he had paid to the vendors but also the cost of the borrowing made by him for the purpose of paying the vendor and obtaining the sale .....

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purchased out of the loan borrowed from the Directors and any interest paid thereon is to be included while calculating the cost of acquisition of the asset. h. The Karnataka High Court in the case of CIT v Maithreyi Pai (1985) 152 ITR 247 (Kar) observed as under: Mr. Bhat, however, submitted that section 48 should be examined independently without reference to section 57. Section 48 provides for deducting from the full value of consideration received the cost of acquisition of the capital asset .....

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xclusively in connection with the transfer of the asset. The assessee added that interest to the cost of investment which is accordance with law. The observation of the Id AO that claim of the assessee was not allowable under head of capital gain which is totally erroneous as the assessee has sold the land and interest paid to bank for acquiring of such land. In this regards I rely on the decision Chennai Tribunal (AC IT v C.Ramabrahmam) in 2012, "After perusing the above said provisions, w .....

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et is taken into consideration when it is sold and capital gains are computed under section 48. We do not have even a slightest doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 of the Act . In view of above, the disallowance made by AO may kindly be deleted. 6. The ld. CIT( .....

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ear in accordance with and subject to the provisions of Act in respect of the total income of the relevant previous year of every person. As per the scheme of the Act, income is broadly classified under five different heads and the income chargeable to tax under these heads has to be computed as per the relevant provisions applicable to respective heads of income. Section 45 to section 55A falling under Chapter IV- E deal with assessment of income under the head 'capital gains' and secti .....

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uction in computing capital gains. The appellant, however, has failed to explain as to how the said interest could be considered as cost of acquisition of the land or the cost of any improvement thereto. She has also failed to explain as to how the interest paid could be treated as expenditure incurred wholly and exclusively in connection with sale of land. On the other hand, the basis on which the interest was paid by the appellant showed that it had no direct nexus with the purchase and sale o .....

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) opined that the interest amounts paid by the assessee to the bank with the F.Y. 2007-08 to 2012-13 were not deductible in computing he capital gains as rightly held by the Assessing Officer and the order of the Assessing Officer was upheld. 7. Being further aggrieved, the assessee is in appeal before us. The ld AR of the assessee has reiterated the submissions as made before the ld. CIT(A) and also relied on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Mithlesh Kumar .....

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e. In the present case, we find that the assessed in order to purchase the land had not only to borrow the amount of ₹ 95,000.00 which was the consideration for the purchase of the land but also had to pay interest of ₹ 16, 878.00 on the amount borrowed by her. The amount of ₹ 95,000.00 plus the interest paid by the assessed constitutes the actual cost to the assessed of the land. The fact that the amount of ₹ 95,000.00 was paid by the assessed to the vendor and the amoun .....

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by raising a loan of that amount and had paid interest of ₹ 20,000.00 on the said loan and had sold the land for ₹ 1,20,000.00. It would be unreasonable to hold under such circumstances by excluding the interest amount from the actual cost of the land that she had made a capital gain of ₹ 20,000.00 when, as a matter of fact, she had not made any profit at all by the transaction. Applying the said observations of the Calcutta and the Bombay High Courts to the present case, we ho .....

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fore, the Tribunal is justified in granting the relief to the assessee since the property has been purchased out of the loan borrowed from the Directors and any interest paid thereon is to be included while calculating the cost of acquisition of the asset. Therefore, question No. 1 has to be answered against the revenue. In the case of ACIT Vs C.Ramabrahmam, the ITAT Chennai Bench C in ITA No. 943/Mds/2012 has held that the assessee had purchased house property, availing loan. The house property .....

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