INCOME TAX ACT, 1961

Section 48

Capital gains - Computation - Interest on borrowed funds claimed as cost towards capital gain -

Assessee had been making investments in the purchase of land, out of borrowed funds. Interest expenditure incurred on such funds was being capitalized in the investments. On sale of those lands, while computing the capital gain, assessee used to claim cost of interest expenditure. This claim of assessee had been disallowed by AO and added to the total income as assessee had failed to establish any nexus between loan taken for purchase of land and its utilization for purchase of land. Held: On analysis of the details, it was noted that the authorities had failed to appreciate the facts and circumstances in right perspective while holding that nexus had not been proved. Assessee had demonstrated that interest free funds were used for acquiring assets and interest expenditures were capitalized. Unsecured loans were remained outstanding at the end of every accounting year. In such situation, it could not be construed that nexus had not been demonstrated. It was also noticed that the order of AO, which was absolutely silent on any of the aspects though CIT (Appeals) had made reference to the details in order to demonstrate that assessee failed to prove the nexus, but on re-appreciation of these very details CIT(Appeals) had not appreciated the facts in right perspective, and considered them half-heartedly.There was no disparity on facts between assessment years 2010-11 to this assessment year (2013-14). Therefore, assessee was entitled for the claim of interest expenditure while computing the long-term capital gains/short-term capital gains on sale of investments.

REFERRED : CIT v. K. Raja Gopala Rao 2001 TaxPub(DT) 0817 (Mad-HC); CIT v. Mithlesh Kumari (1973) 92 ITR 9 (Del) : 1973 TaxPub(DT) 0422 (Del-HC); CIT v. Fort Gloster Industries Ltd. (1971) 79 ITR 48 (Cal.) : 1971 TaxPub(DT) 0033 (Cal-HC); Habib Hussein v. CIT (1963) 48 ITR 859 (Bom) : 1963 TaxPub(DT) 0237 (Bom-HC); Shri Rameshkumar TrikamlalPadhiyar v. JCIT [ITA No. 322/Ahd/2015, dt. 30-4-2019]; ITO v. M/s. Global Assets Holding Corporation (P) Ltd. [ITA No. 4738/Mum/2010, dt. 27-7-2011]; S. Balan Alias Shanmugam BalkrishnanChettiar v. Dy. CIT (2009) 129 ITD 869 (Pune) : 2009 TaxPub(DT) 0299 (Pune-Trib); ITO v. Smt. Pushpaben B. Wadhwani 1986 TaxPub(DT) 1375 (Ahd-Trib).

FAVOUR : In assessee'sfavour

A.Y. : 2013-14

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