Assessee wins appeal on LTCG deduction u/s 54 as entire purchase cost allowed instead of stamp duty only

ITAT Bangalore allowed assessee's appeal regarding LTCG deduction u/s. 54. CIT(A) erroneously considered only stamp duty of Rs. 1,03,60,000 as cost of new residential house instead of actual purchase price of Rs. 19,53,60,000. ITAT held entire purchase cost should be allowed as deduction u/s. 54, restricted to sale proceeds of Rs. 3,86,00,000. Additionally, CIT(A) wrongly disallowed interest on housing loan u/s. 24 on mistaken grounds. ITAT allowed the interest deduction as property was let out with rental income of Rs. 4,74,69,381, and assessee provided bank certificate proving interest payments previously allowed by department.

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Issues:
1. Disallowance of deduction u/s. 54 of the IT Act.
2. Disallowance of interest on housing loan claimed u/s. 24 of the IT Act.

Analysis:

Issue 1: Disallowance of deduction u/s. 54 of the IT Act:
The appeal was against the CIT(A)/NFAC order concerning the computation of deduction u/s 54 of the IT Act for AY 2021-22. The assessee contended that the CIT(A) erred in determining the available deduction by mistaking the cost of the new residential house. The actual cost, as per the purchase deed, was Rs. 18,50,00,000, while the CIT(A) considered it as Rs. 1,03,60,000. The discrepancy arose from the stamp duty charge. The Tribunal held that the entire purchase cost of Rs. 19,53,60,000 should be allowed as a deduction u/s 54 but restricted to the sale proceeds of Rs. 3,86,00,000.

Issue 2: Disallowance of interest on housing loan claimed u/s. 24 of the IT Act:
The second issue pertained to the disallowance of interest on a housing loan claimed u/s 24 of the IT Act. The CIT(A) rejected the claim as the loan was considered a simple loan, not a home loan, and no supporting documents were provided. However, the assessee had produced an interest certificate from Kotak Mahindra Bank, certifying the payment of Rs. 48,26,105 towards the loan. The Tribunal noted that the property was rented out during the relevant year, and there was no maximum limit on the deduction for interest on borrowed capital. As the interest payment was supported by bank certificates and had been claimed in preceding years, the disallowance was deemed unjustified.

In conclusion, the Tribunal allowed the appeal filed by the assessee, overturning the disallowances made by the CIT(A) and directing the proper computation of deductions under sections 54 and 24 of the IT Act.

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