INCOME TAX ACT, 1961

Section 8

Capital gains - Cost of improvement - Interest paid on borrowed funds -

Assessee sold an agricultural land and declared long-term capital gain after claiming indexed cost of improvement, i.e., interest paid on borrowed funds for acquisition of the said agricultural land. AO asked the assessee to submit details regarding funds borrowed for the purchase of the agricultural land. Assessee submitted that the said land was purchased several years back by borrowing funds from various parties and interest in respect to the cost of borrowed funds had been capitalized in the accounts. However, dissatisfied with the submission of the assessee, the AO made disallowance of the indexed cost of improvement. Held: Assessee was maintaining ledger accounts of plot/khasra wise with regard to different agricultural lands. Further, the assessee produced the copies of ledger accounts for the period in which the interest had been capitalized to the cost of land. Since the assessee took loan for purchasing plot of land, which was sold during the year, the said loan being directly relatable to purchase of property, so interest paid thereon was required to be included in cost of acquisition of the said property. Hence, the interest paid on money borrowed for purchase of the land was rightly claimed by the assessee as part of cost of improvement.

REFERRED : CIT v. K. Raja Gopala Rao (2001) 252 ITR 459 (Mad) : 2001 TaxPub(DT) 0817 (Mad-HC) CIT v. Maithreyi Pai (1985) 152 ITR 247 (Karn) : 1985 TaxPub(DT) 0269 (Karn-HC) Addl. CIT v. KS Gupta (1979) 119 ITR 372 (AP) : 1979 TaxPub(DT) 0349 (AP-HC) CIT v. Mithlesh Kumari (1973) 92 ITR 9 (Del) : 1973 TaxPub(DT) 0422 (Del-HC)

FAVOUR : In assessee's favour

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 48

SUBSCRIBE FOR FULL CONTENT