Interest on Borrowed Funds Qualifies as Cost of Acquisition Under Section 48 — ITAT Delhi
Case Overview: ACIT Vs Smt. Sadhna Aggarwal (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal delivered a significant ruling in ACIT Vs Smt. Sadhna Aggarwal, dismissing the Revenue's appeal in its entirety and upholding the order passed by the Commissioner of Income Tax (Appeals)-VII, New Delhi. The central controversy revolved around whether interest paid on a housing loan taken for acquiring a residential property could legitimately form part of the cost of acquisition for the purposes of computing capital gains under Section 48 of the Income Tax Act, 1961.
The assessment in question pertained to Assessment Year 2016-17, and the original assessment order was passed under Section 143(3) of the Income Tax Act, 1961 on 16.12.2018. The CIT(A)'s order reversing the disallowances was dated 31.05.2019, and the Tribunal pronounced its order on 15.03.2023.
Background and Facts of the Case
The Property and its Acquisition
The assessee, Smt. Sadhna Aggarwal, along with her late husband Shri Mahesh Aggarwal, was originally allotted a penthouse located at Omaxe the Forest, Noida, as evidenced by an allotment letter issued by the builder on 21.12.2004. Following the demise of her husband, the property was transferred solely in the assessee's name in August 2010.
During the year under consideration, the assessee sold this penthouse and claimed a Long Term Capital Loss of Rs. 5,34,61,155/- in her return of income. The cost of acquisition claimed by the assessee incorporated several components, each of which was subsequently challenged by the Assessing Officer.
Components of Cost of Acquisition Claimed
The assessee's computation of cost of acquisition comprised the following distinct elements:
- Basic cost paid to the builder — Rs. 2,79,96,770/- (adjusted upward from Rs. 2,75,00,000/- on account of an increase in the flat's area from 6,500 sq. ft. to 6,610.84 sq. ft.)
- Interest paid on housing loan taken from DHFL (an NBFC) — Rs. 1,82,53,834/-
- Interest paid to the builder for delayed payment of basic cost — Rs. 4,56,744/-
- Loss on stamp papers purchased in the joint names for property registration — Rs. 1,35,930/-
Assessing Officer's Position and Disallowances
The Assessing Officer raised objections against each of these components and made the following disallowances:
- Basic cost restricted to Rs. 2,75,00,000/- as per the original allotment letter, disregarding the additional cost attributable to the increased area
- Interest on housing loan of Rs. 1,82,53,834/- fully disallowed, on the ground that interest on borrowed capital for acquisition or construction of house property is exclusively deductible under
Section 24of the Act and has no place in the computation of capital gains underSection 48 - Builder's delayed payment interest restricted to Rs. 3,95,321/- instead of the claimed Rs. 4,56,744/-, calculated proportionately on the originally allotted area
- Loss on stamp papers of Rs. 1,35,930/- disallowed entirely
As a consequence of these adjustments, the Long Term Capital Loss was curtailed drastically from the claimed Rs. 5,34,61,155/- to a mere Rs. 2,08,46,527/-.