Tribunal allows interest deduction from Capital Gains, emphasizing nexus between borrowed funds and share investment.

The Tribunal partially allowed the appeal, permitting the deduction of interest amounting to Rs. 12,15,500 from Short Term Capital Gains. The decision was based on establishing a one-to-one nexus between borrowed funds and share investment, considering the interest cost as part of the acquisition cost. The Tribunal emphasized that the interest was not claimed as a revenue expenditure but was capitalized, enhancing the cost of the capital asset. By relying on legal precedents, the Tribunal concluded that the interest should be included in the actual cost of the asset for computing capital gains.

---

---

Issues:
Disallowance of interest as deduction from Short Term Capital Gains.

Analysis:
The appeal in ITA No.756/Mum/2019 for A.Y.2015-16 questions the disallowance of interest amounting to Rs. 12,15,500 claimed as deduction from Short Term Capital Gains. The assessee contended that the assessment was under 'Limited Scrutiny' and the verification of interest was beyond the scope. However, the ld CITA upheld the disallowance, citing that securities transactions were part of the 'Limited Scrutiny' and hence, the interest could be examined. The assessee argued that the interest was incurred for acquiring shares of a specific company, supported by documents. The Tribunal noted the one-to-one nexus between borrowed funds and share investment, establishing the interest cost as part of the acquisition cost. The genuineness of borrowings and interest payment was undisputed by the revenue.

The Tribunal referred to a co-ordinate bench decision where it was held that interest capitalized for acquiring capital assets cannot be separated from the investment amount. The Tribunal emphasized that if interest is part of the cost of the asset, it falls under section 48 of the Income Tax Act. The Tribunal highlighted that the interest was not claimed as a revenue expenditure but was capitalized, enhancing the cost of the capital asset. The Tribunal relied on legal precedents to support the inclusion of interest in the actual cost of the asset for computing capital gains. Consequently, the Tribunal allowed the deduction of interest from Short Term Capital Gains, considering it as part of the cost of acquisition.

In conclusion, the Tribunal partially allowed the appeal, permitting the deduction of interest in the sum of Rs. 12,15,500 under the head 'short term capital gains'. The decision was pronounced on 24/03/2021, acknowledging the legal precedent and the genuine nature of the borrowings and interest payment for share acquisition.

---