DCIT Vs Narendra Gehlaut (ITAT Mumbai)
ITAT Mumbai held that interest paid on housing loan borrowed for purchase of flat is not allowable as cost of acquisition.
Facts- During the scrutiny proceedings, the Assessing Officer noticed ‘long term capital gain ’(LTCG) of Rs.8,98,59,373/- declared by the assessee on transfer and assignment of provisional reservation rights in a flat No. C-3501, which was booked by the assessee in an apartment namely “BLU Estate & Club”, Worli (Mumbai). In the assessment order passed u/s 143(3) of the Act on 31/12/2018 , AO made various additions with regard to the capital gain.
CIT(A) deleted all the additions/ disallowances. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that the flat C-3501 has been allotted to the assessee on 3 1.10.2015 as mentioned in the MOU dated 14.12.2016, which is a document signed by the buyer as well as seller of the rights, therefore, the holding period of the rights in Flat C -3501 is less than 36 months and thus gain arising from transfer of said rights is short term capital gain (STCG) only.
Hon’ble Supreme Court in the case of CIT Vs Tata Iron and steel Co Ltd has held that cost of the asset and cost of raising money for purchase of the asset, are two different transactions. Thus, interest for money borrowed for purchase of asset is not allowable as cost of acquisition.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the Revenue is directed against order dated 24.02.2022 passed by the Ld. Commissioner of Income-tax (Appeals)-54, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2017-18, raising following grounds:
1. “On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that flat No C-3501 was allotted to the assessee on 23.04.2013 and not on 31.10.2015, as no verifiable evidence has been submitted by the assessee in support of his claim that the flat No C-3501 was allotted to him on 23.04.2013?”
2. “On the facts and in the circumstances of the case, whether the learned CIT(A) was justified in holding that flat No C-3501 was allotted to the assessee on 23.04.2013, thereby allowing the claim of the assessee, without considering the fact that the loan sanction letter dated 31.03.2015 mentions that the “disbursal amount” of Rs 13,45,88,871/ – is for the property i.e. C-2901 and not Flat No C-3501 for which the assessee has claimed benefit of interest paid of Rs 3,19,28, 276/ – to the lender, in the computation of capital gain? “
3. “On the facts and in the circumstances of the case, whether the learned CIT(A) was justified in holding that flat No C-3501 was allotted to the assessee on 23.04.2013 thereby allowing the claim of the assessee without considering the fact that in the absence of any verifiable details that the amount of Rs. 11,33,10,868/ – was paid for Flat No. 3501, from F.Yr. 2013-14 to F.Yr. 2016-17, the same cannot be considered as correct and therefore, no cost of acquisition can be allowed to the assessee in respect of sale of Flat No. C-3501?”
4. “On the facts and in the circumstances of the case, whether the learned CIT(A) was justified in deleting the addition of Rs 11,53,38,145/ – on account of unexplained investment w/s 69B of the Act by observing that Rs 22.86 crores as mentioned in MOU dated 14.12.2016 is nothing but the consolidated payment received from assesse e as well as the lender of the assessee, without considering the fact that the loan sanction letter dated 31.03.2015 mentions that the “disbursal amount” of Rs 13.45.88,871/ – is for the property i.e. C-2901 and not Flat No C-3501?”
5. “On the facts and in the circumstances of the case, whether the learned CIT(A) was justified in deleting the addition of Rs 13,88,737/ – u/s 56(2)(vi) without considering the fact that the assessee has not reported the same as liability?”
6. “On the facts and in the circumstances of the case, whether the learned CIT(A) was justified in deleting the addition of Rs 2,78, 000/ – on account of unexplained money w/s 69A of the Act, without considering the fact that during the assessment proceedings the assessee had not submitted any documentary evidences to establish the source of cash found during the search at assessee’s residential premises?”
2. Briefly stated, facts of the case are that a search and seizure action u/s 132 of the Income-tax Act, 1961 (in short ‘the Act’) was carried out in the case of “Indiabulls” Group on 13.07.2016. The assessee being a part of the said group was also searched u/s 132 of the Act. In the search action at the residential premises of the assessee located at, Delhi, cash of Rs.2,78,000/- was found. For the year under consideration, the assessee filed return of income on 28.07.2017 declaring total income of Rs.12,94,54,166/ -. The return was selected for scrutiny and statutory notices under the Act were issued and complied with. This is the assessment year corresponding to the previous year in which search was conducted and therefore, this was abated assessment year for the purpose of section 153A of the Act. During the scrutiny proceedings, the Assessing Officer noticed ‘long term capital gain ’(LTCG) of Rs.8,98,59,373/- declared by the assessee on transfer and assignment of provisional reservation rights in a flat No. C-3501, which was booked by the assessee in an apartment namely “BLU Estate & Club”, Worli (Mumbai). In the assessment order passed u/s 143(3) of the Act on 31/12/2018 , the assessing Officer made following additions:
(a) The assessing Officer disallowed assessee’s claim of LTCG amounting to Rs. 8,96,59,373/ – on transfer of rights in flat and assessed the same as ‘ Short term capital gain ( STCG)’ of Rs. 13,99,61,282/-.
(b) The Assessing Officer declined claim of interest 3,19,28,276/- as cost of acquisition , which was paid on loan borrowed for acquiring right in the flat,.
(c) In respect of flat, The developer confirmed the payment received Rs.22,86,49,013/- whereas the assessee while shown purchase cost incurred at Rs.11,33,10,868 /- only and therefore, the difference amount of Rs.11,53,38,145/- was held by the Assessing Officer as not recorded in the books of accounts and assessed as unexplained investment within the meaning of section 69B of the Act.
(d) The Assessing Officer also observed that the assessee acquired entire right in property against part payment only and neither paid the balance amount of Rs.13,88,737/ – for acquisition of the said rights and nor reported the same as liability in his books of accounts . This difference w as held to be benefit received by assessee and taxable as income falling under the provisions o f section 56(2)(vii) of the Act .
(e) The Assessing Officer also held the cash found at the residence of the assessee amounting to Rs.2,78,000/ – as unexplained in absence of source explained thereof along with documentary evidence.
2.1 On further appeal, the ld CIT(A) allowed relief to the assessee deleting all addition/disallowance. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.
3. Before us, the Ld. DR has filed a written note prepared by the Assessing Officer in respect of the additions.
4. The Ld. Counsel of the assessee filed a Paper Book containing pages 1 to 50 and also filed additional Paper Book containing pages 51 to 58.
5. The ground No. 1 and 2 of the appeal of the Revenue relates to the issue of capital gain on sale of flat No. C -3501 in apartment namely ‘BLU Estate & Club’, Worli, Mumbai. In these grounds, the dispute is whether the capital gain on transfer of rights in said flat is LTCG or STCG. The dispute is also regarding claim of interest paid on loan taken for investment in said flat as part of cost of acquisition.
5.1 Brief facts qua the issue in dispute are that during the course of assessment, for evidence of sale of rights in flat, the assessee filed a copy of Memorandum of Understanding (MO U) dated 14/12/2016, which was executed between assessee and buyers, transfer of rights in said flat i.e. C -3501 (a copy of which is placed on Paper Book pages 42 to 48 of the Paper Book). The Assessing Officer noted that as per MOU, the assessee vide application dated 23.04.2013 applied for a provisional reservation of residential flat No. C-3501 with the Developer of BLU Estate & Club, Worli, Mumbai, i.e. Indiabulls Infra Estate Ltd. The MOU further mentions that the allotment was made against consideration value of Rs.23,05,37,750/-, which was confirmed by the developer. The allotment of the flat was done by the developer on 31.10.2015 as recorded in the MOU dated 14.12.2016. The assessee stated to have paid an amount of Rs.22,80,40,013/ – to the developer towards the above reservation rights availed till 14.12.2016 (the date on which such rights have been transferred by the assessee). In the MoU dated 14.12.2016, the assessee claimed to have received consideration of Rs.14 crores from purchasers namely (1) Visaria Securities Pvt. Ltd. (2) Shri Kamal Mavji Visaria and (3) Mavji Lalji Visaria. While computing the capital gain the assessee has shown cost of acquisition at Rs.14,52,39,144/- which consists of Rs.11,33,10,868/- paid to the developer and Rs.3,19,28,276/ – paid as interest to the bank/financial institution for housing loan during the F.Y. 2013-14 to F.Y. 2016 -17. On further indexation, the indexed cost of acquisition was computed to Rs.16,36,12,777/ -. Accordingly, the assessee after reducing the indexed cost of acquisition Rs.16,36,12,77 7/- out of deemed sale consideration i.e. market value of the rights transferred for stamp duty purpose at Rs.25,32,72,150/-, computed long term capital gain of Rs.8,96,59,373/-, as under:
