Income Tax Appellate Tribunal Delhi has held that the actual cost of acquisition of an asset is the amount paid to acquire it and it does not include the interest if any paid on the loan borrowed for the purpose of purchasing such asset.

Case Details:
ITA No.3644/Del./20110
Assessment Year :2007-08
ACIT (Appellant) vs Sunil Batra (Respondent)
Date of order: 30-09-2015

Brief Facts of the Case:
The assessee filed his income tax return for the Assessment Year 2007-08 declaring total income of Rs.21,42,260/-. The assessee had declared two STCG of Rs. 65449/- and 1738753/-. The case was selected for scrutiny u/s 143(2) of the Income tax Act, 1961 (‘Act’). During assessment proceedings assessee filed a computation regarding purchase and sale of property situated at PNA-013, The Pinnacle, Gurgaon, with A.O. as under:

Sale Consideration                  Rs. 4158100/-
Less: Cost of acquisition         Rs. 4092651/-
             STCG                          Rs. 0065449/-

However, A.O. relying upon the receipt dated 25.07.2006 issued by the assessee himself in favour of purchaser(s) observed that STCG comes to Rs.4,83,500/- instead of Rs.65,449/- as claimed by the assessee as under:
Sale consideration                  Rs.43,51,500/-
Less: Cost of acquisition         Rs.38,68,000/-
             STCG                          Rs.04,83,500/-

CIT(A) deleted the additions made and observed that the A.O. has erroneously assessed the cost of acquisition of property at PNA-013, the Pinnacle, Gurgaon at Rs.38,68,000/- as against actual cost of acquisition of Rs.40,92,651/-.

The breakup of difference of Rs. 224651/- (4092501-3868000) in Cost of acquisition as claimed by the assessee and as assessed by AO was as under:
1. Interest paid for acquisition of asset           Rs. 158209/-
2. Transfer charges                                        Rs. 036442/-
3. Commission charges                                 Rs. 030000/-   
            Total                                                    Rs. 224651/-

Held by ITAT:
Disallowed the amount of Rs.1,58,209/- being the interest paid to be added to the cost of acquisition

Excerpts from the ITAT Order:

During the proceedings before Ld. CIT(A), he has called comments from Ld. JCIT, Range 32, New Delhi which are as under:

“In respect of the computation of capital gains on property located a PC-2/303, it is submitted that only two components could be deducted from the full value of consideration while computing capital gains. These are expenditure incurred wholly and exclusively in connection with the transfer and the cost of acquisition of assets along with the cost of any improvement interest on capital for purchased property does not increase the cost of acquisition of asset (MLG Enterprises Vs CIT (Karnataka) (H.C.) 167 ITR 11 : ITO Vs Vikram Sadananda Hoskote (ITAT, Mum.) 1800 SOP 130). Therefore, the computation was done as per the provision of the I.T. Act, 1961.”

Ld. D.R. by relying upon the judgement cited as CIT Vs Tata Iron & Steel Co. Ltd. 231 ITR 285 (S.C.) contended that Ld. CIT(A) has wrongly ignored the law laid down by Hon'ble Supreme Court in the judgement (supra) by adding the amount of Rs.1,58,209/- as interest paid to Mrs. Gunjan Batra in the cost of acquisition

Hon’ble Apex Court in the judgement (supra) held as under:

“The manner of repayment of a loan cannot affect the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee, but even if the assessee did not repay the loan it will not alter the cost of the asset. If the borrower defaults in repayment of a part of the loan, the cost of the asset will not change. What has to be borne in mind is that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Even if an asset is purchased with non repayable subsidy received from the Government, the cost of the asset will be the price paid by the assessee for acquiring the asset.

Held accordingly, that for the assessment yeas 1960-61 and 1961-62, at the time of repayment of loan, there was a fluctuation in the rate of foreign exchange as a result of which the assessee had to repay a much lesser amount than he would have otherwise paid. This was not a factor which could alter the cost incurred by the assessee for purchase of the asset. The assessee may have raised the funds to purchase the asset by borrowing but what the assessee has paid for it, is the price of the asset. That price cannot change by any event subsequent to the acquisition of the asset. In our judgment, the manner or mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of his business.”

The ratio of the judgement (supra) is applicable to the facts and circumstances of the case and the cost of acquisition in the present case is to be taken at the actual amount of Rs.38,68,000/- paid by the assessee to M/s. DLF Universal Ltd. as is apparent from the receipt placed at page 2 of the paper book filed by the assessee and the amount of Rs.1,58,209/- cannot be added to the amount being the interest paid by him to Mrs. Gunjan Batra.

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