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Mrs. Rinku Rupen Mody Versus The ITO, Ward – 8 (4) , Ahmedabad

2017 (9) TMI 660 - ITAT AHMEDABAD

Disallowance of interest expenses - inclusion of the interest expenditure in the cost of acquisition - whether the cost of acquisition of capital assets under Section 48(2) would include interest amount qua borrowed funds used for acquiring such assets ? - Held that:- We are satisfied that the assessee has demonstrated the availability of funds. She has taken the funds from Riddhi Trade Services Pvt. Ltd. and Navkar Broking Services Pvt. Ltd. These funds were deposited in Centurion Bank. Out of .....

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mitted the details as to how the funds have been received by her from Shri Rupen M. Modi and how these funds have been travelled to Riddhi Trade Services Pvt. Ltd. and Navkar Broking Services Pvt. Ltd. Thus, the assessee has demonstrated her stand of acquiring funds as well as its uses. If these details are looked into in the light of proposition propounded then it would reveal that the assessee is entitled for inclusion of the interest expenditure in the cost of acquisition. - The same cost .....

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way, the appeal of the assessee is partly allowed. - ITA No. 1807/Ahd/2015 - Dated:- 7-9-2017 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER For The Assessee : Shri T.P. Hemani, AR For The Revenue : Shri O.P. Meena, Sr DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: The assessee is in appeal before the Tribunal against the order of the ld. CIT(A)-8, Ahmedabad dated 01.04.2015 passed for Assessment Year 2011-12. Though the assessee has taken six grounds of appeal, but .....

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n scrutiny of the accounts, it revealed to the Assessing Officer that the assessee had shown income from other sources at ₹ 1,89,468/-. It also revealed to the Assessing Officer that the assessee had claimed a deduction of ₹ 25,09,546/- under Section 57 of the Act. The Assessing Officer observed that out of this total expenditure claimed under Section 57 of the Act, an expense of ₹ 24,93,646/- had been claimed towards interest. The Assessing Officer was of the view that there i .....

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pleaded by the assessee that the interest expenditure of ₹ 24, 93,646/- was incurred in respect of funds borrowed for acquisition of capital assets which were sold during the year under consideration; hence, interest may be treated as part of cost of acquisition of such assets and the same may be allowed under Section 48 of the Act. This additional ground was raised on the strength of the Hon ble Supreme Court s decision in the case of National Thermal Power Co. Ltd. vs. CIT, reported in ( .....

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at page No.140-153 of the paper-book. Ld. CIT(A) somehow did not entertain this alternative contention of the assessee on the ground that sufficient opportunities were given to the assessee by the Assessing Officer during the course of assessment proceedings. Accordingly the ld. CIT(A) has rejected the contentions of the assessee and confirmed the disallowance. 4. Before us, the ld. Counsel for the assessee contended that if very taxability of the assessee is going to the effected, then the ass .....

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that, while verifying the documents submitted by the assessee on this alternative plea, the ld. Assessing Officer did not find any defects. The only objection raised by him is that this is the third occasion when the assessee has changed her stand. According to the ld. Counsel for the assessee, the assessee could always take her defense as admissible in law. By mere change of stand would not authorize the Assessing Officer to legalize the illegalities on such technical pleas. Taking us through t .....

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eration. The assessee has pointed out that a sum of ₹ 52,50,000/- was received by her on 17.03.2008 from Navkar Broking Services Pvt. Ltd. Similarly, a sum of ₹ 72,50,000/- was received from Riddhi Trade Services Pvt. Ltd. These amounts have been repaid by the assessee after receiving the sums from Shri Rupen Mayurbhai Modi. The assessee has tabulated the details exhibiting the amounts received from Shri Rupen M. Mody and how these amounts were repaid to Riddhi Trade Services Pvt. Lt .....

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wo concerns. The assessee has also produced the details showing the amounts received from these two concerns which were deposited in Centurion Bank account and how these amounts were given to the vendors. Ld. Counsel for the assessee pointed out that these aspects have not been disputed by the Assessing Officer in the remand report. On the strength of these details, he submitted that the interest expenditure deserves to be included in the cost of acquisition and the assessee deserves to be allow .....

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Departmental Representative, on the other hand, relied upon the orders of the Revenue Authorities. 6. We have duly considered the rival contentions and gone through the record carefully. The first question for our adjudication is whether the cost of acquisition of capital assets under Section 48(2) would include interest amount qua borrowed funds used for acquiring such assets or not. This aspect has been considered by the ITAT, Mumbai Bench as well as Ahmedabad Bench in the decisions referred b .....

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n while computing capital gain on sale of such shares. On this aspect, the Ld. Representative for the respondent assessee relied upon the Judgment of Hon ble Madras High Court in the case of Trishul Investments Ltd. 305 ITR 434(Madras) which is directly on the point. In the case before the Hon ble Madras High Court, the assessee was carrying on the business of investment in shares/securities and the profit derived from sale of shares was held subject to capital gains. Apart from other issues, th .....

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tion of shares. The Hon ble High Court affirmed the decision of this Tribunal that the interest payable on moneys borrowed for acquisition of shares should be added to the cost of acquisition of shares for the purpose of computing capital gains. The aforesaid legal position propounded by the Hon ble Madras High Court fully covers the conclusion drawn by the CIT(A) in the present case. Notably, it is not disputed by the Revenue that the interest costs in question were incurred on the funds utiliz .....

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enue that monies borrowed have been utilized for acquisition of shares in question. Therefore, having regard to the factual findings of the CIT(A), in our view, the legal position as propounded by the Hon ble Madras High Court in the case of Trishul Investments Ltd (supra) supports the plea of the assessee that interest paid for acquisition of the shares would partake the character of cost of shares and, therefore, assessee had rightly capitalized the interest along with the cost of acquisition .....

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s thereof as the fact of instant case. There is no dispute that provisions in the Act nowhere provide specific definition of the costs incurred or to be taken in computing capital gains. There is further no quarrel that all the above stated decisions decide the very issue against the Revenue. The CIT(A) s case on the other hand is that they pertain to the old Act. We find that the same is factually incorrect at least so far as hon ble Andhra Pradesh and Madras high court s decisions are concerne .....

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(1978) 113 ITR 589 (Bom.) to hold that even judgments of hon ble non jurisdictional high courts bind this tribunal. The CIT(A) s latter reason(supra) thus has no merit. We are therefore of the opinion that ld. CIT(A) s reasoning narrated in preceding paragraphs is not sustainable. 5. It is further evident to us that Section 48(ii) of the Act specifically postulates cost of acquisition of the asset instead of mere cost of the asset for the purpose of computing capital gains. We reiterate trite p .....

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instant appeal is accepted. 7. The next question is whether the assessee has demonstrated the nexus between the funds availed by her on interest for purchasing the asset or not. No doubt that before the Assessing Officer the assessee did not take this plea, but before the First Appellate Authority she not only raised this plea but also elaborated her stand in her detailed written submissions running into 21 pages. She has annexed all supporting documents. The ld. First Appellate Authority called .....

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