TaxTMI 
TaxTMI 
2019 (3) TMI 1689
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....tiny and thereafter assessment was framed u/s 143(3) of the Act vide order dt.27.03.2015 and the total income was determined at Rs. 6,19,630/- after assessing the long term capital gains and short term capital loss. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who vide order dt.19.10.2016 (in appeal No.ABD/CIT(A)-2/187/2015-16) granted substantial relief to the assessee. Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us and has raised following grounds : "1. The assessment was completed under section 143(3) by making disallowance of a sum of Rs. 1,07,42,039/- that was claimed as cost of improvement comprising of interest expenses. The Commissioner of Income Tax (Appeals) erred in allowing the sum of Rs. 1,07,42,039/-. 2. On the facts and circumstances of the case, the order of Commissioner of Income Tax (Appeals), Aurangabad may be vacated and the order of the AO may be restored." 3. On the other hand, assessee has raised the following effective ground. "The lower authorities have erred in not allowing set off of long term capital loss on sale of shares of listed companies Rs. 62,45,117/- against lon....
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....ther hand, Ld.A.R. reiterated the submissions made before AO and Ld.CIT(A) and supported the order of Ld.CIT(A). 6. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to allowability of interest paid on borrowed funds for the purpose of acquisition of capital asset as part of acquisition. We find that Ld.CIT(A) while deciding the issue in favour of the assessee has noted the fact that the amount was borrowed for the purpose of acquisition of property, the interest on bank loan was debited to the asset account and assessee had not claimed the deduction of interest in respect of the respective years under any head of income. We find that Ld.CIT(A) after considering the various decisions namely, CIT Vs. Mithilesh Kumari (1973) 92 ITR 9 (Del), ACIT Vs. K.S.Gupta (1979) 119 ITR 372 (AP) and other decisions cited in his order has decided the issue in favour of the assessee. Before us, Revenue has not pointed out any contrary binding decision in its support nor has pointed out any fallacy in the findings of Ld.CIT(A). In view of these facts, we find no reason to interfere with the order of Ld.CIT(A) and thus the groun....
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.... assessee is now in appeal before us. Having heard the learned counsel for the assessee, we see no error in the decision of the Tribunal. Section 74 of the Act pertains to losses under the head "capital gains" and clause (b) of sub-section (1) of section 74 of the Act provides inter alia that where in respect of any assessment year, the net result of the computation under the head "capital gains" is a loss, the whole loss shall, subject to the other provisions of Chapter VI, be carried forward to the following assessment year and insofar as it relates to a long-term capital asset, it shall be set off against income, if any, under the head of "capital gains" assessable for that assessment year in respect of any other capital asset not being a short-term capital asset. It is this provision that the learned counsel for the assessee has placed heavy reliance on. For the application of the said provision, what is necessary is that there should be a loss suffered by the assessee under the head of "capital gains". In such a situation, if such loss relates to long term capital asset, it is permitted to be carried forward for the following assessment year and be set off against income, if a....
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....ansaction tax under that Chapter: Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB." 7. The fact that the capital asset in question, namely, the shares of Suashish Diamond Ltd. was covered under section 10(38) of the Act was not in dispute. That being the position, by virtue of section 10(38) of the Act, in computing the total income of previous year, any income covered under such clause shall not be included. If that be so, the loss also arising out of such an asset and covered by the said clause would likewise be not includable in computation of the income of the assessee for the year under consideration. The contention of the learned counsel for the assessee that for the purpose of section 10(38) of the Act, the term "income" would not include "loss", cannot be accepted and rightly rejected by the Tribunal. If this is the conclusion, it can immediately be seen that any loss in respect of any such capital asset would not be available for set off. The Tribunal rightly relied on the decision in the case of Harprasad (supra) to come to a conclus....
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....n 88 ITR 192 submitted that if a statutory provision is capable of more than one view then the view which favours the assessee should be preferred. Ld.D.R. on the other hand supported the order of AO and Ld.CIT(A) and further submitted that on the facts of the present case, the decision of Hon'ble Gujarat High Court in the case of Kishorebhai Virani (supra) are applicable. He therefore submitted that no interference to the order of Ld.CIT(A) is called for. 10. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to the setting off of long term capital loss from sale of shares of listed companies on which security transactions tax has been paid / payable against the long term capital gains arisen out of sale of a private limited company on which no security transaction tax is paid / payable. It is Revenue's case that profits arisen from transfer of listed companies on which security transaction is paid is exempt u/s 10(38) of the Act and therefore loss arising from such source also cannot be set off against any other income which is chargeable to tax. We find that Ld.CIT(A) following the decision of Hon'ble Gujara....
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....st was paid on the date of the purchase or whether it is paid subsequently. To exclude the interest amount from the actual cost of the assets would lead to anomalous results. Supposing she had purchased the land for Rs. 1,00,000.00 by raising a loan of that amount and had paid interest of Rs. 20,000.00 on the said loan and had sold the land for Rs. 1,20,000.00. It would be unreasonable to hold under such circumstances by excluding the interest amount from the actual cost of the land that she had made a capital gain of Rs. 20,000.00 when, as a matter of fact, she had not made any profit at all by the transaction. Applying the said observations of the Calcutta and the Bombay High Courts to the present case, we hold that the Tribunal was right in adding the interest amount of Rs. 16,878.00 towards the actual cost of the land." 8. In the case of Addl.Commissioner of Income-tax Vs. K.S. Gupta [19791 119 ITR 372 (Andhra Pradesh) the assessee purchased certain lands with borrowed money. During the relevant assessment year, the lands were sold. The assessee claimed that the interest paid on borrowings should be included. in the cost of acquisition, for purpose of determining capit....
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....ng out capital gain, assessee included amount of interest paid on funds borrowed for investment in shares to cost of shares and also capitalized said interest in cost. The Assessing Officer was of the view that since assessee had disclosed income under head capital gain, impugned computation was covered under provision of section 48 wherein expenditure incurred wholly and exclusively in connection with transfer and cost of improvement had to be allowed. He further held that component of interest happened to be not covered under said section and, accordingly, reduced capital loss on sale of shares by cost so enhanced. On appeal, Commissioner (Appeals) upheld order of Assessing Officer and held that since intention of investment in shares was earning of dividend and as said dividend income happened to be exempt, any expenditure in that regard had not to be taken into account in view of provisions of section 14A. The issue before the Hon'ble ITAT was whether since assessee had borrowed funds for acquisition of those share scripts and burden of interest had been capitalized, interest burden could not be segregated from amount of investment and whether, therefore, assessee was entit....
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....terest, and since it had been capitalized in the books of accounts treated as a part of cost of asset and never claimed as a revenue expenditure, then that too is towards enhancing the cost of such capital asset and cannot be segregated from the cost of acquisition. Nevertheless, this question has been answered by few decisions as relied upon by learned Authorised Representative namely CIT vs. Mithlesh Kumari (supra) wherein the Hon'ble Court has held that the interest paid by the assessee on money borrowed for the purchase of an open plot of land constituted part of actual cost of the assessee, for the purpose of determining the capital gain derived from the sale of the land. Facts were that the loan was raised from mother-in-law, for the purpose of purchasing the plot. As the interest was paid on this loan but since the genuineness of the transaction has not been disputed by the Revenue, then the question was whether the interest paid by the assessee to her mother-in-law could be included in the actual cost of the land. In this regard, an important finding was given by the Hon'ble Court that it will not make any difference whether the interest was paid on the date of purchase or ....
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....that the interest was wrongly capitalized, then in the light of the said accepted position, the interest ought to be held as part of the cost of the asset in question. Thus, our view gets fortified by the legal proposition laid down by the Hon'ble Court. In the light of this discussion, we arrive at the conclusion that the appellant is entitled to take into account the interest liability towards cost of the capital asset for the purpose of computation of the capital gain as prescribed under s. 48(ii) of IT Act. 8. The next question is new and also interesting because of the introduction of s. 14A in the statute. Nevertheless, the basic fundamentals for the introduction were that certain income are not includible while computing the total income as these are exempt under certain provisions of the Act. There have been cases where deductions have been claimed in respect of such exempted income. This in effect means that the tax incentive given by way of exemptions to certain categories of income is being used to reduce all the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of....
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....of hearing that whether the Revenue Department is assessing that revenue generation in the year under consideration i.e., the dividend income stated to be earned from those share scrips in question or the Revenue is taxing the gain arising on transfer of the impugned capital asset. Undisputedly, the issue is related to the transfer of the capital asset and not the revenue generated there out. To sum up, we hereby clarify that a situation may arise that on transfer of a capital asset, the gain is taxable but not the incidental income, and if so, the expenditure having nexus with the cost of acquisition has to be taken into account for the purpose of computation of the gain as prescribed under s. 48(ii) of IT Act." 10. Thought this decision is in respect of interest paid for funds utilized to buy share scripts, the principle enunciated in the decision would be applicable in the case of house property as well. Once it is an established fact that the assessee had borrowed the funds for acquisition of a property, the burden of interest had been capitalized and no deduction of the amount has been claimed in income tax returns, that interest burden cannot be segregated from the a....