Interest on borrowed capital for property acquisition allowed only under section 24, not as cost of acquisition for capital gains under section 48(ii)

The ITAT PUNE dismissed the assessee's appeal regarding disallowance of indexed cost of interest paid for property acquisition as deduction under section 48(ii) from Long Term Capital Gains. The tribunal held that interest expenditure on borrowed capital for property acquisition is allowable only under section 24 as deduction from house property income, not as cost of acquisition for capital gains computation. The AO's approach was deemed correct per statutory provisions. The tribunal also ruled that examining cost of acquisition was within the scope of limited scrutiny under CASS since it forms an integral part of property sale transactions selected for scrutiny.

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Issues Involved:
The appeal challenges the disallowance of deduction u/s 48(ii) of the Income Tax Act from Long Term Capital Gains, and the disallowance of interest paid for acquisition of a house property. The appellant also contests the charging of interest u/s 234B of the Income Tax Act. The key issues are the jurisdiction of the Assessing Officer in disallowing deductions, the treatment of interest paid for property acquisition, and the correctness of the assessment order.

Disallowed Deduction u/s 48(ii):
The appellant contested the disallowance of deduction u/s 48(ii) of the Income Tax Act from Long Term Capital Gains, specifically in relation to the indexed cost of interest paid for the acquisition of a house property. The appellant argued that the Assessing Officer exceeded the scope of limited scrutiny assessment under CASS. The appellant sought to allow the indexed cost of interest expenditure as a deduction in computing capital gains. The NFAC rejected the appellant's submissions, citing the decision in CIT vs. Tata Iron & Steel Co., holding that the disallowance was justified.

Interest Expenditure Disallowance:
The appellant raised additional grounds challenging the disallowance of interest paid for the acquisition of two flats. The Assessing Officer disallowed interest paid for acquisition of the flats, treating it as the indexed cost of improvement. The appellant argued that the interest paid for property acquisition should be allowed as a deduction, relying on various decisions. However, the NFAC upheld the disallowance, citing the decision in CIT vs. Tata Iron & Steel Co. The Tribunal found that the Assessing Officer's approach was in accordance with the provisions of the Income Tax Act and dismissed the appeal.

Jurisdiction of Assessing Officer:
The appellant contended that the Assessing Officer's addition of interest expenditure exceeded the limited scrutiny assessment's scope. However, the Tribunal found that the Assessing Officer's actions were within the selected items for scrutiny assessment under CASS. The Tribunal dismissed the grounds of appeal and additional grounds raised by the appellant. Ultimately, the appeal filed by the appellant was dismissed, and the order was pronounced on November 15, 2023.

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