TMI Blog2020 (11) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings, the assessing officer called upon the assessee to explain about the loan which was taken from ICICI bank. The interest so paid on this loan was capitalized, the assessee was asked to justify allowability of the interest and was further asked to establish the nexus between the loan sanctioned and its utilization for property under consideration. The explanation offered by the assessee was not found acceptable by the assessing officer and preceded to make addition of ₹ 77,04,728/-. 3. Aggrieved against this addition, the assessee filed an appeal before the ld. CIT(A), who after considering the submissions, dismissed the appeal. Now the assessee is in appeal before this Tribunal. 4. Ld. Counsel for the assessee reiterated the submission as made in the written submission. The submission of the assessee are reproduced as under: Grounds of Appeal No. 1 1.2: All these grounds of appeal, assessee has challenged the action of ld. AO of not allowing the indexed cost of interest paid of ₹ 77,04,728/- on borrowed funds claimed u/s 48(ii) as capitalization against the long term capital gains arisen from the sale of property. Brief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,75,713.00 Interest paid till acquisition 2009-10 19,09,227.00 28,36,652.00 Interest capitalized 2010-11 9,65,764.00 12,75,460.0. Interest capitalized 2011-12 14,46,718.00 17,30,533.00 Interest capitalized 2012-13 16,89,559.00 1,56,54,173.00 18,62,084.00 2,20,31,767.00 Capital Gain 6,08,45,827.00 5,44,68,233.00 It is relevant to state that indexation of the cost incurred prior to registration is not claimed from the year from which it is paid and was claimed from the year when the title of the said property has transferred in the name of appellant as per registered sale deed and the interest paid on the amount borrowed for the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property were paid off from the funds so borrowed from bank. Once the interest is allowable on the funds borrowed for purchases of property, interest paid on subsequent loan for repayment of such loan is also allowable as part of cost of asset so purchased. The borrowed funds were either utilized towards acquisition of property or were advanced as Loans to it group concerns and interest was recovered from such loans and only net interest was capitalized. It is immaterial whether it is housing loan or mortgage loan and it has to be established that the funds borrowed are utilized in the acquisition of property or for making payment of the funds borrowed for acquisition. By filing each individual details the Assessee company had established the nexus of loan taken with the acquisition of the property. Regarding the assessment for AY 2012-13 completed u/s 143(3), ld. CIT(A) has observed that since the interest is not routed through P L account and further principle of Resjudicata is not applicable in income tax proceedings, he did not accepted this contention. In this regard it is submitted that ld. CIT(A) failed to understand the accounting principal according to which any cost incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in the proceedings under the Income Tax Act. Every assessment year is independent assessment year. Ld. DR further submitted that the reliance is placed upon the decision of this Tribunal in ITANo. 975/JP/2016 rendered in the case of Shri Jagdish Wadhwani vs. ITO. 6. In rejoinder Ld. Counsel for the assessee submitted that case laws relied by the revenue are not applicable in the facts of the present case. He submitted that it is incorrect to say that the assessee had failed to provide relevant material on record. He drew our attention to the paper book to buttress the argument that the material was placed before the assessing officer. Further, he submitted that the assesseee has nowhere relied on the principle of res judi cata . He submitted that rule of consistency is to be followed. There is no change into facts and circumstances, hence the authorities below ought to have taken a consistent view. He contended that the interest is to be capitalized and to be treated as a part of cost of acquisition. In support of this the reliance is placed on the decision of Hon ble Karnataka High Court in the case of CIT vs. Shri Hari Ram Hotels Pvt. Ltd. (2010) 325 ITR 136 . On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 594452 Registration fees 2009-10 185570 275713 Interest and pre op expenses 2009-10 1909227 2836652 Interest capitalized 2010-11 965764 1275460 Interest capitalized 2011-12 1446718 1730533 Interest capitalized 2012-13 1689559 15654173 1862084 22031767 Profit/Capital Gain 60845827 54468233 (iii) It was further stated that it had taken loan for acquisition of property and the interest paid was capitalized every year as the asset was not put to use. The agreement for purchase of property was made in 2006 and payments were made in installments from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2009-10 i.e. prior to that, no interest was capitalized. During the appellate proceedings, the AR was required to explain why loan of ₹ 2.15 crore was taken whereas the cost of acquisition of land was to the tune of ₹ 96,42,905/- only but no explanation could be submitted by the AR. I fail to understand why the appellant has taken a huge loan of ₹ 2.15 crore for repayment of outstanding loans taken by it earlier for acquisition of the said property. (v) It would not be out of place to mention here that as on 31.03.2009 and 31.03.2010, the unsecured loans from Shri Rajendra Kumar Jain and Shri Sanjay Godha, the Directors of the appellant company, were shown at ₹ 41,58,395/- ₹ 38,30,000/- and ₹ 0/-and ₹ 43,50,000/- respectively, whereas as on 31.03.2010, the appellant company has provided loans and advances to the tune of ₹ 1,17,82,880/- and ₹ 24,33,120/- to M/s Ruby Buildcon P Ltd and M/s Royal Classic Buildmart P Ltd respectively. Thus, it is crystal clear that the borrowed funds from ICICI bank were not used for repaying the loans taken by the appellant company from its Directors for the purchase of the property unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is hereby sustained. 8. We find that the assessing officer 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. We are of the considered view this approach of the assessing officer 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. Further, the Ld. CIT(A) recorded the finding that the issue of capitalization was not examined by the assessing officer 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 cap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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