S. Rajasekaran Vs DCIT (ITAT Chennai)
Interest on Borrowed Capital Forms Part of Cost of Acquisition: ITAT Chennai Allows Capitalised Interest, Remands Farmers’ Payments for Verification
The Chennai Bench of the ITAT partly allowed the assessee’s appeal for AY 2023-24 in a capital gains dispute arising from sale of immovable properties. The assessee had claimed deduction of ₹7.67 crore (indexed) towards interest capitalised on loans borrowed for acquiring the properties and ₹1.16 crore (indexed ₹1.73 crore) towards payments made to farmers and agreement holders for securing clear title. The Assessing Officer and the NFAC–CIT(A) disallowed both claims while computing long-term capital gains.
The Tribunal held that interest paid on borrowed funds utilised for acquisition of a capital asset, till the date of sale, is allowable as part of the cost of acquisition / improvement under Section 48. It noted that the nexus between borrowed funds and acquisition of the properties was undisputed and that the lower authorities had not pointed out any defect in the computation or indexation of interest. Accordingly, the ITAT deleted the disallowance of capitalised interest of ₹7.67 crore and directed that the same be allowed while computing capital gains.
However, with respect to payments made to farmers and agreement holders, the ITAT observed that although such payments could qualify as cost of acquisition if incurred wholly and exclusively for obtaining clear and marketable title, the claim required factual verification. Since the payments were not reflected in the registered sale deeds and supporting evidence needed examination, the issue was remanded to the Assessing Officer for fresh verification. The AO was directed to allow the claim in accordance with law after examining the genuineness, necessity and nexus of the payments.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is arising out of the order dated 23.09.2025, passed by the Learned Commissioner of Income Tax (Appeal), NFAC, Delhi (in short “ld.CIT(A)”) for the assessment year (A.Y) 2023-24 against the order u/s.143(3) r.w.s 144B of the Income Tax Act, 1961 (hereinafter the ‘Act’) passed by the Assessing Officer (AO) dated 24.03.2025.
