2019 (4) TMI 1912

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....Act was issued and served upon the assessee. A perusal of the record would indicate that the assessee has declared income from house property at Rs. 13,17,195/-, income from business and profession of Rs. 2,03,09,661/-, long term capital gain of Rs. 1,67,17,396/-, short term capital gain of Rs. 99,40,558/- and income from other sources of Rs. 31,543/-. For the purpose of controversy in this appeal, the issue regarding computation of long term capital gain and short term capital is relevant. While computing short term capital gain as well as long term capital gain from sale of immovable property, the assessee has reduced interest of Rs. 27,18,866/- from short term capital gain, and Rs. 7,57,278/- from long term capital gain as cost of acquisition being interest paid on borrowed capital invested in purchase of the said asset. The ld.AO sought to disallow the above claim and invited explanation of the assessee. In response to the show cause, the assessee has filed written submissions vide letter dated 13.3.2013 which has been reproduced by the on page no.3 to 6 of the assessment order. We deem it appropriate to take note of this explanation of the assessee as under: "Explanat....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....loans. Hence, this interest expense is an expense as defined u/s 55(2) and is taken as part of cost of acquisition as also held in the above referred cases. This establishes a clear nexus between the unsecured loans taken and the investments made in the land properties, Further, this also establishes an indirect nexus between invest made in land properties and interest paid on unsecured loans taken, as this expenditure being incurred owing to borrowing of funds which was actually borrowed to make investment. We have attached herewith the extracts of the assessee's Bank Book, Cash book and ledgers to show the nexus between the loans taken and the investments made as Annexure-B. In the case of Habib Husein Vs. CIT (1963) 48 ITR 859, it was held as under: The dictionary meaning of the word 'cost' is what is laid out or suffered to anything...In our opinion therefore, the meaning of the expression 'actual cost to the assessee' as used in sub-section (5) of section 10 of the Act would be what the assessee has, in fact, expended or laid out for the purpose of acquiring the asset" The above referred lines clearly ascertain that the a....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....erm and Long term gain from sale of land. Therefore the same is being disallowed and added to the income. (Disallowed interest of Rs. 27,18,866/- out of STCG and Rs. 7,57,278/- out of LTCG) 5. Dissatisfied with this finding, the assessee carried the matter in appeal before the ld.first Appellate Authority. He contended that he never agreed for disallowance, rather in an alternative plea, he submitted, without prejudice to the stand taken by him on merit, that in case the AO differs from his point of view then interest be disallowed. This stand was taken with view to avoid undue litigation and cooperate with the department so that penalty proceedings may not be initiated against the assessee. The ld.CIT(A) has taken into consideration both the arguments of the assessee, and ultimately concurred with the AO. The relevant finding of the ld.CIT(A) reads as under: "I am not inclined with appellant that A.O. has not appreciated the facts and evidences. With due regards to various case laws relied on by appellant, the issue is not about inclusion of interest on borrowed capital in cost of acquisition but the issue is about appellant' failed to establish link/nexus....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....Shri Trambaklal B Sheth while Rs. 5 lacs outstanding shown from M/s.Shell India Marketing but as per balance sheet as on 31.03.2008 there is no such outstanding from M/s.Shell India Marketing. As against this the ledger account of land at Chiloda Survey No.96 reflect debit of interest of Rs. 1,260 on 31.03.2007 only though the land was sold on 01.05.2009. It is therefore, the claim of deduction of interest is not having proper nexus on one hand while on other hand the same appear to be on pro rata basis. The interest on loan to repay earlier loan cannot be held as direct nexus for investment and if at all it is there then appellant failed to submit such detail and demonstrate the same. It is this lacuna that appellant agreed for such disallowances. In such agreement it will not be reasonable or logical to put the condition of non-initiation of penalty. It is therefore, disallowances and additions so made of Rs. 34,76,144/- by AO is upheld and confirmed. The ground with sub-ground is dismissed." 6. Before us, the ld.counsel for the assessee reiterated submissions, as were made before the lower authorities. He relied upon the following judgments and copies of which have b....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....on, therefore, the meaning of the expression 'actual cost to the assessee' as used in sub-section(5) of section 10 of the Act would be what the assessee has, in fact, expended or laid out for the purpose of acquiring the depreciable assets." 5.1 It is clear from the judgment of the Hon'ble Jurisdictional High Court in the case of Habib Husein (supra), that actual cost is nothing but the expenditure incurred for acquiring the asset, and therefore, the argument of the ld. DR that cost of acquisition was different from actual cost cannot be accepted. The cost of acquisition as to what the assessee incurred for acquiring an asset. In case, in addition to the consideration paid for acquiring the amount, the assessee has also incurred, interest expenditure on borrowings from which the consideration was paid, the interest expenditure would definitely be part of cost of acquisition. We also find that the case of the assessee is covered by the decision of Pune Bench of the Tribunal in the case of S. Balan alias Shanmugam (129 ITD 869), which is directly on the point as in that case also the issue was regarding allowability of interest as part of cost of acquisition of s....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....d funds vis-àvis investment. This second fold of issue involved in this appeal, which we take for adjudication. The ld.CIT(A) has made discussion on facts under three sub-heads; (a), (b) and (c) in para 5.1. According to the ld.CIT(A) a perusal of the bank statements and balance sheet would reveal that a sum of Rs. 5.00 lakhs was borrowed from Shri Mukesh Kumar T. Padhiyar on 4.10.2006; Rs. 2.00 lakhs was borrowed from Shri Mahesh T. Padiyar HUF. He thereafter made reference to the balance sheet as on 31.3.2008 and observed that no loans are reflected from Shri Mukesh Kumar T. Padhiyar and Shri Mahesh Kumar T. Padhiyar. By making reference in half-way, the ld.CIT(A) has demonstrated that the assessee failed establish nexus between borrowed funds vis-aivis investments. 11. With the assistance of the ld.representatives, we have perused profit & loss account and balance sheet. The assessee has submitted fund flow statement in a summarized manner which has been extracted in the assessment order and noticed by us. A perusal of the balance sheet as on 31.3.2005 loan of Rs. 1,99,000/- against name of Shri Maheshkumar T. Padhiyar is outstanding. Similarly substantial loan liabili....