Case Law Details
S.I. Media LLP Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that interest on housing loan is allowed to be included in cost of acquisition of capital asset under section 48 of the Income Tax Act provided the same is not claimed as deduction u/s. 24(b). Accordingly, matter restored back to AO for verification.
Facts- The assessee in the present case is a partnership firm engaged in the activity of entertainment and related services. The assessee in the year under consideration has shown a loss under the head “capital gain” amounting to ₹4,84,01,053 on the sale of property. However, such loss was disallowed by the AO, treating the impugned loss as non-genuine on the grounds that the assessee had sold the property to the son of one of the partners.
CIT(A) held that the said transaction to the son of the partner was genuine and therefore the same could not be treated as bogus. However, while dealing with the issue on hand, CIT(A) observed that the assessee had claimed deduction for the amount of ₹2,25,76,076 – indexed cost of ₹2,51,20,901 representing the interest on the borrowed money which was claimed as deduction against the sale consideration of the property. As per CIT(A), the impugned capital asset was shown as investment in the firm and therefore the assessee was not entitled to the interest paid on the loan taken for the purchase of the capital asset in dispute. Accordingly, CIT(A) disallowed the claim of the deduction of the assessee for ₹2,51,20,901 representing the indexed cost of interest.
Conclusion- Held that we direct the AO to decide the matter in line with the decision of the Tribunal in the case of Shri Gobindram Chandramani vs. ITO wherein it is held that the assessee be allowed interest on housing loan for acquisition of capital asset while computing cost of acquisition u/s 48 for computing capital gains chargeable to tax so far as such interest on housing loan on acquisition of capital asset is not claimed as deduction u/s 24(b) by the assessee, and that is what the assessee is also now contending, albeit without prejudice. Thus, the AO is required to verify whether or not interest on housing loan on the acquisition of capital asset was claimed as deduction by the assessee u/s 24(b) in the current year as well in the preceding years, and then allow the claim set up by the assessee for inclusion of interest on housing loan in the cost of acquisition of the capital asset u/s 48 accordingly after excluding aforesaid double deduction .The assessee will be given opportunity of being heard by the AO. The issue is restored to the file of the AO accordingly. We order accordingly.
FULL TEXT OF THE ORDER OF ITAT DELHI
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 18/01/2024 in DIN No. ITBA/NFAC/S/250/ 2023-24/1059865150(1) for the assessment year 2021-22.
2. There is a delay of 290 days in filing the appeal by the assessee before the Tribunal. The assessee has filed an application for condonation of delay, supported by an affidavit stating that the partner who was well-versed with the facts of the case was suffering from multiple illnesses. In support of the claim, the learned Authorized Representative (AR) has placed on record various medical documents evidencing the partner’s illness.
3. Considering the medical evidence placed on record and the fact that the partner was the key person familiar with the details of the case, the learned Departmental Representative (DR) has fairly submitted that there is no objection if the delay is condoned.
4. In view of the above, and taking into account the bona fide reasons explained by the assessee supported by medical records, we are inclined to condone the delay of 290 days in filing the appeal. Accordingly, we proceed to adjudicate the matter on merits.
5. The only issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of the indexed cost of interest of ₹2,51,20,901 claimed on the borrowed money utilized for acquiring the capital asset against the capital gain.
6. Briefly stated, the facts are that the assessee in the present case is a partnership firm engaged in the activity of entertainment and related services. The assessee in the year under consideration has shown a loss under the head “capital gain” amounting to ₹4,84,01,053 on the sale of property. However, such loss was disallowed by the AO, treating the impugned loss as non-genuine on the grounds that the assessee had sold the property to the son of one of the partners.
7. On appeal, the learned CIT(A) held that the said transaction to the son of the partner was genuine and therefore the same could not be treated as bogus. However, while dealing with the issue on hand, the learned CIT(A) observed that the assessee had claimed deduction for the amount of ₹2,25,76,076 – indexed cost of ₹2,51,20,901 representing the interest on the borrowed money which was claimed as deduction against the sale consideration of the property. As per the learned CIT(A), the impugned capital asset was shown as investment in the firm and therefore the assessee was not entitled to the interest paid on the loan taken for the purchase of the capital asset in dispute. Accordingly, the learned CIT(A) disallowed the claim of the deduction of the assessee for ₹2,51,20,901 representing the indexed cost of interest.
8. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
9. The learned AR before us filed a paper book running from pages 1 to 121 and contended that the interest cost was incurred on the money borrowed which was utilized for the purpose of acquiring the capital asset in dispute. As per the learned AR, the impugned interest cost was not claimed either against the business income or against the income under the head “house property.” Therefore, the assessee is entitled to the amount of interest cost incurred on the acquisition of the property in dispute. The learned AR, in support of his contention, relied on the order of this Tribunal in the case of Shri Gobindram Chandramani vs. ITO in ITA No. 656/Bang/2023 for the assessment year 2011-12, vide order dated 13 September 2024.
10. On the contrary, the learned DR submitted that the fact whether the impugned amount of interest was claimed as deduction either against the income under the head “business or profession” or “house property” is not available on record. Therefore, the matter needs to be verified at the level of the AO.
11. In the rejoinder, the learned AR did not raise any objection if the matter is set aside to the file of the AO for verification whether such amount of interest has been claimed as deduction against the business income or house property income.
12. We have heard the rival contentions of both the parties and perused the materials available on record. The issue involved in the case on hand is identical to the case cited by the ld. AR in his contention. Therefore, we direct the AO to decide the matter in line with the decision of the Tribunal in the case of Shri Gobindram Chandramani vs. ITO (supra), particularly paragraph 11 of the said order which is reproduced as under:
“11. We have considered rival contentions and perused the material on record including cited case laws. The background of the dispute between rival parties is enumerated in para 8-10 supra. The dispute is in narrow compass, whether interest paid on housing loan for acquiring a capital asset can be added towards cost of acquisition u/s 48 while computing capital gains chargeable to income-tax arising from sale of capital asset. The interest on housing loan is allowed as deduction u/s 24(b) of the Act , subject to conditions and monetary ceiling prescribed therein. The assessee having availed the said deduction u/s 24(b) towards interest on housing loan on acquisition of capital asset, cannot claim double deduction of the same interest on housing loan by making addition to cost of acquisition of capital asset u/s 48 for computing capital gains chargeable to income-tax. So much so as that if income cannot be doubly taxed , there cannot be double deduction on account of same expenditure, unless the statute itself specifically provide for higher weighted deductions , say for example u/s 35. Once, the assessee has availed deduction u/s 24(b) on account of interest paid on housing loan , there could not be again addition of the same interest on housing loan to the cost of acquisition u/s 48 for computing capital gains chargeable to income-tax, as the said increased cost of acquisition is deducted while computing capital gains chargeable to income-tax. The income is chargeable to tax u/s 4, which is a charging section. Scope of Income is defined u/s 5. The heads of income is enumerated u/s 14. There are five heads of income, namely income from Salaries, Income from House Property , Profits and Gains of Business of Profession, Capital Gains, and lastly Income from other sources. Thus, the income is to be brought to income-tax under these five heads, the object being to compute income chargeable to income-tax under the charging Section 4. Thus, once interest on housing loan on acquisition of capital asset is allowed u/s 24(b), then the same cannot be allowed by adding to cost of acquisition of capital asset u/s 48 in order to compute capital gains chargeable to income-tax. It will lead to double deduction as the object of computing income chargeable to tax under the head ‘Income from House Property’ as well ‘Income from Capital Gains’ is to compute total income chargeable to income-tax under the charging section under the different heads of income as stipulated u/s 14 , and hence double deduction is not permissible unless specifically provided by the statute. There is an authority on this principle vide Hon’ble Supreme Court judgment and order in the case of Escorts Limited v. UOI (1993) 199 ITR 43(SC), and the ratio decidendi of the aforesaid decision will be squarely applicable in the instant issue before us. Thus, once the deduction of interest on housing loan u/s 24(b) is claimed , there is no question of its being added to cost of capital asset u/s 48 while computing cost of acquisition which would go on to reduce capital gains chargeable to income-tax u/s 48, as it will lead to double deduction. As contended by ld. DR, there was a misuse by claiming double deduction on this count, and law makers brought first proviso to clause (ii) to Section 48 by Finance Act, 2023 wef 01.04.2024. This first proviso is to clarify the law as it always stood, which is supported by the judgment and order of Hon’ble Supreme Court in the case of Escorts Limited(supra) . The ld. Counsel for the assessee has also himself submitted, of course without prejudice, that deduction claimed u/s 24(b) of interest on housing loan to the tune of Rs. 4,53,628/- may not be added to the cost of acquisition of the capital asset u/s 48. Under the facts and circumstances, in our considered view, the assessee cannot be allowed double deduction firstly by allowing deduction on account of interest paid on housing loan on acquisition of capital asset u/s 24(b) and secondly of the same interest on housing loan being added to the cost of acquisition of capital asset u/s 48 to be deducted from full value of consideration while computing income chargeable to tax under the head Capital gains. We direct AO to make enquiry as to the interest on housing loan claimed as deduction u/s 24(b) in the impugned assessment year as well in the preceding years, and in case the interest on housing loan is claimed as deduction u/s 24(b) in the current year and /or preceding years, then the same shall not be added to the cost of acquisition for the purposes of Section 48 for computing income chargeable to tax under the head Capital gains, otherwise it would lead to double deduction of the same expenses viz. interest on housing loan on acquisition of capital asset, which is not permissible. The assessee reliance on judgment and orders of Rajasthan and Gujarati Charitable Foundation(supra) , in our humble considered view is not correct, as it was in context of computing firstly, application of income for charitable purposes by claiming , inter-alia, deduction of entire cost of capital assets u/s. 11 from the income derived from property held under trust wholly for charitable purposes in the case of charitable organizations and for determining accumulation of income required thereof keeping in view provisions of Section 11 , and secondly while computing the income in commercial parlance by taking into effect depreciation expenses on such capital assets under Section 32 of the 1961 Act. Section 11 falls within Chapter III which concerns itself with ‘Income which do not form part of total income’. This claim of deduction towards the cost of capital assets acquired as application of income u/s 11 , as well simultaneously computing income of charitable trust or institutions in commercial parlance after claiming deduction of depreciation expenses on such capital asset as provided u/s 32, is now barred by introduction of Section 11(6) of the 1961 Act by Finance Act , 2014 w.e.f. 01.04.2015, wherein it is stipulated that in respect of any asset, acquisition of which has been claimed as an application of income under Section 11 in the same or any other previous year, the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of such asset. But, in the instant case, both the deductions viz. allowing interest on housing loan u/s 24(b), as also allowing it to be added to the cost of acquisition of capital asset u/s 48 for computing income chargeable to income-tax, is certainly a double deduction both going to reduce taxable income chargeable to income-tax u/s 4 albeit under different heads of income specified u/s 14. The ratio of decision of Hon’ble Supreme Court in the case of Escorts Limited(supra) shall be squarely applicable, and double deduction is not permitted. Thus, in our considered view, the assessee be allowed interest on housing loan for acquisition of capital asset while computing cost of acquisition u/s 48 for computing capital gains chargeable to tax so far as such interest on housing loan on acquisition of capital asset is not claimed as deduction u/s 24(b) by the assessee, and that is what the assessee is also now contending, albeit without prejudice. Thus, the AO is required to verify whether or not interest on housing loan on the acquisition of capital asset was claimed as deduction by the assessee u/s 24(b) in the current year as well in the preceding years, and then allow the claim set up by the assessee for inclusion of interest on housing loan in the cost of acquisition of the capital asset u/s 48 accordingly after excluding aforesaid double deduction .The assessee will be given opportunity of being heard by the AO. The issue is restored to the file of the AO accordingly. We order accordingly.”
13. However, before parting, we are of the considered opinion that the matter requires verification at the level of the AO to examine whether the impugned amount of interest has been claimed as deduction under any other head of income. Therefore, we set aside this issue to the file of the AO for necessary verification in the light of above stated discussion as per law. In view of the above, the ground of appeal of the assessee is allowed for statistical purposes.
14. In the result appeal of the assessee allowed for statistical purposes.
Order pronounced in court on 29th day of May, 2025
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