2023 (3) TMI 770 - AT - Income Tax

Tribunal affirms CIT(A)'s decisions on interest, stamp paper loss, flat cost reduction, and builder interest.

The Tribunal upheld the CIT(A)'s decisions on all contested issues, including disallowance of interest paid on borrowed funds, loss on stamp paper, ... 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. Issues Involved:1. Disallowance of interest paid on borrowed funds as part of the cost of acquisition.2. Disallowance of loss on stamp paper as part of the cost of acquisition.3. Reduction of the basic cost of the flat.4. Disallowance of interest paid to the builder on delayed payment.Summary:Issue 1: Disallowance of Interest Paid on Borrowed FundsThe Revenue contested the deletion of disallowance amounting to Rs.1,82,53,834/- towards interest from the cost of acquisition of a capital asset. The assessee had claimed this interest as part of the cost of acquisition for a penthouse sold during AY 2016-17. The Assessing Officer (AO) had denied the claim, stating that such interest should be claimed under Section 24 of the Income Tax Act, 1961, and not under Section 48. The CIT(A) reversed the AO's decision, noting that the interest paid on borrowed funds directly related to the acquisition of the property and thus should form part of the cost of acquisition. The Tribunal upheld the CIT(A)'s decision, citing relevant judicial pronouncements and the Finance Bill, 2023, which clarified the existing legal position.Issue 2: Disallowance of Loss on Stamp PaperThe Revenue challenged the deletion of disallowance of Rs.1,35,930/- on account of loss of stamp paper. The CIT(A) allowed this cost, reasoning that the stamp papers were purchased specifically for the registration of the flat and thus formed part of the cost of acquisition. The Tribunal found the CIT(A)'s reasoning to be sound and upheld the decision.Issue 3: Reduction of Basic Cost of the FlatThe AO had reduced the basic cost of the flat from Rs.2,79,96,770/- to Rs.2,75,00,000/-, despite the assessee's submission of a builder's confirmation letter. The CIT(A) noted that the original allotment area of 6500 sq. ft. had increased to 6610.84 sq. ft., justifying the higher cost. The Tribunal agreed with the CIT(A) that the increased cost was valid and upheld the decision.Issue 4: Disallowance of Interest Paid to the BuilderThe AO had allowed only Rs.3,95,321/- out of Rs.4,56,744/- claimed by the assessee as interest paid to the builder for delayed payment. The CIT(A) found that the entire amount was justified as part of the cost of acquisition. The Tribunal upheld this decision, agreeing that the interest related to the increased area should be included in the cost of acquisition.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all contested issues. The order was pronounced in the open Court on 15.03.2023.