DCIT Vs Neville Tuli (ITAT Mumbai)
Interest on Borrowed Funds Deductible Under Section 48 Before Finance Act 2023 Amendment: ITAT Mumbai
The ITAT Mumbai considered the Revenue’s appeal challenging the order of the CIT(A), which had allowed the assessee to include indexed interest paid on borrowed funds as part of the cost of acquisition while computing long-term capital gains. The assessee had purchased the property using borrowed funds, claimed limited deduction under Section 24(b) in earlier years, and claimed the balance interest as indexed cost of acquisition/improvement under Section 48. The Assessing Officer disallowed the claim, holding that interest paid after acquisition could not form part of the cost of acquisition or improvement.
The CIT(A), after examining Sections 48, 49 and 55 and various judicial precedents, held that interest paid on borrowings used for acquiring the property formed part of the cost of acquisition. The CIT(A) also observed that the proviso inserted in Section 48 by the Finance Act, 2023, excluding interest already claimed under Section 24(b) or Chapter VIA from the cost of acquisition, was effective from Assessment Year 2024-25 and was not retrospective.
The Tribunal agreed with the CIT(A), noting that the assessee had not claimed double deduction, having claimed only the permissible deduction under Section 24(b) and the balance interest under Section 48. It further held that, prior to the amendment effective from 01.04.2024, there was no statutory restriction on including such interest in the cost of acquisition. Relying on the Delhi High Court decision in Mithlesh Kumari and other judicial precedents, the Tribunal held that interest paid on borrowed funds used to acquire property constituted part of the actual cost for computing capital gains. Finding no perversity or illegality in the CIT(A)’s order, the Tribunal upheld the relief granted to the assessee and dismissed the Revenue’s appeal.
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