Ajay Ishwarlal Bora, Nashik V. Assistant Commissioner of Income-tax,

ITA 86/PUN/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1488 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 20-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Question of law; Cost of acquisition; Fair market value; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.86/PN/2016 / ASSESSMENT YEAR : 2011-12 AJAY ISHWARLAL BORA, C/O. RAKA ASSOCIATES, 4/5, JAIN OSWAL BOARDING COMPOUND, TILAKWADI, NASHIK PAN NO. ABRPB9829J . / APPELLANT V/S A CIT, CIRCLE - 3 , MALEGAON . / RESPONDENT / APPELLANT BY : SHRI DHAVAL SHAH / RESPONDENT BY : SHRI SUHAS KULKARNI, CIT / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 04-11-2015 OF THE CIT(A)-I, NASHIK RELATING TO TH E ASSESSMENT YEAR 2011-12. 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS UNDER : 1. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS IN CO NFIRMING THE DISALLOWANCE OF INTEREST EXPENSES OF RS.3,00,000/- WHIL E DETERMINING THE INCOME FROM CAPITAL GAINS ON SALE OF PLOT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A N INDIVIDUAL AND FILED HIS RETURN OF INCOME ON 31-03-2012 DECLAR ING TOTAL INCOME OF RS.28,10,720/-. DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE AO NOTED THAT ASSESSEE HAD SOLD AN IMM OVABLE PROPERTY DURING THE RELEVANT PREVIOUS YEAR AND FURNISHED THE / DATE OF HEARING :27.07.2016 / DATE OF PRONOUNCEMENT:29.07.2016 2 ITA NO.86/PN/2016 PARTICULARS OF RESULTING CAPITAL GAIN IN THE RETURN OF INCOME, THE DETAILS OF WHICH ARE AS UNDER : SALES CONSIDERATION (24/1/2011) RS. 65,00,000 COST OF ACQUISITION (3/8/2010) RS.55,25,000 COST OF IMPROVEMENT RS.3,00,000 SALES COMISSION RS.4,00,000 SHORT TERM CAPITAL GAIN RS.2,75,000 4. THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF R ECEIPTS AND IN RESPECT OF THE EXPENDITURE. FROM THE DETAILS FURN ISHED BY THE ASSESSEE, THE AO NOTED THAT THE ASSESSEE HAS SHOWN C OST OF IMPROVEMENT AMOUNTING TO RS.3 LAKHS WHICH IS THE INTEREST PAID ON CAPITAL BORROWED TO PURCHASE THE IMMOVABLE PROPERTY. A CCORDING TO THE AO THE INTEREST PAYMENT IS NOT COST OF IMPROVEMENT. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. IT WAS SUBMITTED BY THE ASSESSEE THAT HE HAS BORR OWED RS.50 LAKHS FOR ACQUISITION OF THE PLOT AND HAS PAID INTEREST OF R S.3 LAKHS ON THIS BORROWED FUND TILL THE DATE ON WHICH SAID PLOT HAS BEEN SOLD. SINCE THE INTEREST OF RS.3 LAKHS HAS BEEN PAID ON BORROWE D FUND WHICH WAS USED FOR PURCHASE OF PLOT THE SAID INTEREST EXP ENDITURE IS COST OF ACQUISITION OF THE SAID PLOT AS PER SECTION 48(II) OF THE I.T. ACT. 6. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, THE PROVISIONS OF SECT ION 48 ALLOW DEDUCTION OF COST OF ANY IMPROVEMENT TO THE ASSET A CQUIRED. PROVISIONS OF SECTION 55 DEFINES COST OF IMPROVEMENT. THE MEANING OF COST OF IMPROVEMENT IN RELATION TO ASSET IS RESTRICTED T O CAPITAL EXPENDITURE INCURRED IN MAKING ANY ADDITIONS OR ALTERATIONS TO THE CAPITAL ASSET. THE INTEREST PAYMENT ON BORROWED CAPITAL FOR 3 ITA NO.86/PN/2016 ACQUISITION OF ASSET IS NOT IN THE NATURE OF CAPITAL EXPENDIT URE. ACCORDING TO HIM, BY NO STRETCH OF IMAGINATION, CAN THE INTE REST PAYMENT BE CONSTRUED AS INCURRED IN MAKING ANY ADDITION OR ALTERATION TO THE CAPITAL ASSET. HE, THEREFORE, DISALLOWED TH E CLAIM OF INTEREST EXPENDITURE OF RS.3 LAKHS AS COST OF IMPROVEMENT AND MADE ADDITION OF THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 7. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO BY OBSERVING AS UNDER : 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSION OF THE APPELLANT AND MATERIAL AVAILABLE ON RECORD. THE ON LY ISSUE IN CONSIDERATION IS WHETHER INTEREST PAID TO BANK FOR PUR CHASE OF PLOT DATED3/8/2010 IS TO BE ADDED IN THE COST OF ACQUISITIO N FOR PURCHASE OF PLOT. 4.4 SECTION 48, 49 AND 55 OF THE INCOME TAX ACT SPEC IFY ISSUES RELATED TO THE COST OF ACQUISITION OF A CAPITAL ASSET W HILE CALCULATING CAPITAL GAINS. HOWEVER, THESE SECTIONS DO NOT EXPLICIT LY STATE WHETHER INTEREST ON LOAN CAN BE CONSIDERED AS COST OF ACQUISITIO N FOR THE PURPOSE OF CALCULATING CAPITAL GAINS WHEN PROPERTY IS SOLD. 4.5 FOR COMPUTATION OF CAPITAL GAINS ONE NEED TO DED UCT THE 'COST OF ACQUISITION' AS ONE OF ITEM DEDUCTIBLE FROM THE CONSID ERATION ACCRUING ON TRANSFER. IN SECTION 48(II) THE EXPRESSION USED IS AS F OLLOWS: (II) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO. THE ARTICLE 'THE' HAS BEEN USED, THAT INDICATES THAT T HE COST OF ACQUISITION IS TO BE A DEFINITE AMOUNT AND IT CANNOT BE FLUCTUATING, EXCEPT IN CIRCUMSTANCES WHEN LAW PERMITS SUBSTITUTION. IN THOSE CASES ALSO THE EXPRESSION WILL BE USE D IN A DEFINITE MANNER IN THE SENSE THAT THE AMOUNT SUBSTITUTE D UNDER LAW WILL BE THE COST OF ACQUISITION. FOR EXAMPLE WHEN ASSESSEE LAWFULLY EXERCISE OPTION TO TAKE FAIR MARKET VALUE O F CAPITAL ASSET ON SPECIFIED DATE (AT PRESENT 31.03.1981). THUS ONCE F MV AS ON 31.03.1981 IS FIXED, IT WILL REMAIN FIXED. FOR ALLO WING PRICE ESCALATION EFFECT LAW PROVIDE UNDER SEPARATE PROVISION S TO INCREASE THE ALLOWABLE COST AND THAT IS POPULARLY CALL ED AS THE INDEXED COST OF ACQUISITION. MEANING OF 'COST OF ACQUI SITION': 4.6 I FIND THAT DEFINITE MEANINGS HAVE BEEN GIVEN T O THE TERM 'COST OF ACQUISITION', FOR THIS PURPOSE OF SECTION 48 AND 49 IN S. 55 (2) IN RELATION TO DIFFERENT TYPE OF ASSETS ACQUIRED IN DIFFERENT CIRC UMSTANCES AS MENTIONED THEREIN. FURTHERMORE THE EXPRESSIONS USED IN THE HEADING OF SECTION 55 AND IN THE SECTIONS INDICATES THAT THERE IS DEFINITE MEANING GIVEN AND THE MEANING SO GIVEN ARE NOT SUBJECT TO THE CONTEXT AS IS CASE IN RELATION TO MANY OTHER CLAUSES DEFINING VARIOUS WOR DS, EXPRESSIONS, 4 ITA NO.86/PN/2016 PHRASES OR TERMS USED IN DEFINITION CLAUSES. THEREFORE, I T CAN BE SAID THAT THE LANGUAGE USED IS INDICATIVE OF A DEFINITE AM OUNT WHICH CAN BE CONSIDERED AS 'COST OF ACQUISITION'. THE LD. AR HAS RELI ED ON PLETHORA OF DECISIONS WITHOUT POINTING FACTS OF THE CASE CITED ARE SIMILAR TO THE FACTS OF HIS CASE. FURTHER ON PERUSAL OF THOSE DECISIONS WITH R ESPECTS TO HON'BLE COURT AND TRIBUNAL IT IS OBSERVED THAT IN NON E OF THE CASE THERE IS DECISION ON DEFINITE DATE OF COST OF ACQUISITION AND FIXED COST ON THAT DATE. THE RULING THAT INTEREST (FOR PERIOD AFTER ACQ UISITION) SHALL BE PART OF COST OF ACQUISITION APPEARS TO BE NOT ACCORDING TO THE PROVISIONS AND NEED RECONSIDERATION. THE REASON IS THAT ONCE A CAPITAL ASSET IS ACQUIRED THE DATE OF ACQUISITION AND COST OF ACQUISITION NEED T O BE FIXED ON THAT DAY . ALL EXPENSES RELATED TO THE CAPITAL ASSET CAN BE CONSIDE RED WHILE COMPUTING INCOME BEING EARNED , WHICH MAY FAL L UNDER ONE OR MORE HEADS OF INCOME . HOWEVER , AFTER ACQUISITION, ANY COST I NCURRED INCLUDING INTEREST ON BORROWED FUNDS TO ACQUIRE THE ASSET CANNOT BE CONSIDERED AS 'COST OF ACQUISITION'. INTEREST ON BORROWED FUNDS FOR T HE PERIOD TILL ACQUISITION (OR COMPLETION OF ASSET TO USABLE CONDITION ) CAN ONLY BE CAPITALIZED . INTEREST THEREAFTER IS INTEREST INCURRED TO HOLD , POSSESS , USE AND CARRY THE PROPERTY AND NOT TO ACQUIRE THE PROPE RTY . THE DELHI HIGH COURT HAS HELD THAT RENT WAS TO HOLD THE PLOT SO IT WA S NOT COST OF ACQU I SITION . SIMILARLY , IN MY VIEW THE INTEREST ON CAP I TAL BORROWED FOR THE PER I OD AFTER ACQU I SIT I ON CAN ONLY BE CONSIDERED AS A RECURRING COST TO HOLD THE PROPERTY AND NOT COST OF ACQUISITION . 4.7 THE EXPRESSION 'ACTUAL COST' FOR THE PURPOSE OF IN COME FALLING UNDER HEAD BUSINESS OR PROFESSION IS DEFINED IN S . 43(1). EARLIER SOME COURTS TOOK VIEW THAT ENTIRE I NTEREST ON BORROWED CAPITAL INCURRED WHILE PURCHASING ASSET UNDER DEFERRED PAYMENT BASIS WAS PART OF 'ACTUAL COST '. SOME COURTS HELD THAT I NTEREST ON L Y UP TO DATE OF PUTTING TO USE CAN BE REGARDED AS 'ACTUAL COST ' . TO MAKE THE LEGAL POSITION CLEAR , THE EXPLANATION 8 WAS I NSERTED BELOW S. 43(1) VIDE THE FINANCE ACT , 1986 W . R . E.F . 01.04.1974 . AS DISCUSSED EARLIER , THE EXPRESSION ' ACTUAL COST ' IS MUCH WIDER THAN THE EXPRESSION 'COST OF ACQUISITION' AS USED IN CONTEXT OF THE HEAD 'CAPITAL GAINS' . THEREFORE, INTEREST FOR THE PERIOD AFTER A CAPITAL ASSET IS ACQUIRED/OR COMPLETED FOR INT ENDED USE CANNOT BE REGARDED AS COST OF ACQUISITION. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 9. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE 3 AND 4 OF THE PAPER BOOK SUBMITTED THAT THE ASSESSEE HAS PURCH ASED THE PLOT ON 03-08-2010 AND SOLD THE SAME ON 24-01-2011. THE A SSESSEE HAS PAID AN AMOUNT OF RS.3 LAKHS TO CLOVER LABORATORIES PVT. L TD. ON THE LOAN OF RS. 50 LAKHS OBTAINED FROM THEM FOR PURCHASE OF TH E PLOT. THE INTEREST OF RS.3 LAKHS TILL THE DATE OF SALE OF PLOT IS CRE DITED TO THIS UNSECURED LOAN ACCOUNT. THE ASSESSEE HAS DECLARED SHORT TERM 5 ITA NO.86/PN/2016 CAPITAL GAIN OF RS.2,75,000/- ON THE SAID PLOT AFTER DEDUCTING THE COST OF ACQUISITION OF RS.55,25,000/-, SALES COMMISSION OF RS.4 LAKHS AND COST OF IMPROVEMENT AT RS.3 LAKKHS FROM THE SA LE CONSIDERATION OF RS.65,00,000/-. WHILE THE AO HAS ALLOWED TH E SALES COMMISSION OF RS.4 LAKHS, HE DID NOT ALLOW THE INTEREST EXPENDITURE OF RS.3 LAKHS CLAIMED BY THE ASSESSEE AS COST OF IMPROVEMENT. 10. REFERRING TO THE DECISION OF HONBLE MADRAS HIGH COUR T IN THE CASE OF CIT VS. THRISHUL INVESTMENTS LTD. REPORTED IN 30 5 ITR 434 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DEC ISION HAS HELD THAT INTEREST LIABILITY INCURRED ON BORROWING TO ACQUIRE SHARES IS AN ALLOWABLE EXPENDITURE. HE SUBMITTED THAT THE HONBLE HIG H COURT AT PARA 7 OF THE ORDER HAS HELD THAT INTEREST PAID FOR ACQUISITION OF SHARES WOULD PARTAKE THE CHARACTER OF COST OF SHARE AN D THEREFORE THE SAME WAS RIGHTLY CAPITALIZED ALONG WITH THE COST OF AC QUISITION OF SHARES. HE SUBMITTED THAT THE DEPARTMENT FILED AN SLP B EFORE THE HONBLE SUPREME COURT AND THE HONBLE SUPREME COURT VIDE ORDER DATED 11-07-2008 IN C.C.NO.8665/2008 DISMISSED THE SLP FILE D BY THE REVENUE WHICH HAS BEEN REPORTED IN 306 ITR 4 (STATUTE). 11. REFERRING TO THE DECISION OF HONBLE MADRAS HIGH COUR T IN THE CASE OF CIT VS. RAJAGOPAL RAO REPORTED IN 252 ITR 459 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT COST OF ACQUISITION OF ASSET WAS NOT MERELY THE AMOUNT THAT H AS BEEN PAID TO THE VENDOR BUT ALSO THE COST OF THE BORROWING M ADE BY HIM FOR THE PURPOSE OF PAYING THE VENDOR AND OBTAINING THE S ALE DEED. THE FACT THAT THE MORTGAGE WAS EXECUTED AFTER THE SALE DEED WAS OBTAINED EVEN THOUGH BOTH THE DOCUMENTS WERE SIGNED A ND REGISTERED ON THE SAME DAY DID NOT RENDER THE MORTGAG E AND THE 6 ITA NO.86/PN/2016 BORROWING MADE THEREUNDER IRRELEVANT TO THE TASK OF DET ERMINING THE COST OF ACQUISITION. 12. REFERRING TO THE DECISION OF HONBLE KARNATAKA HIGH CO URT IN THE CASE OF CIT VS. SRI HARIRAM HOTELS PVT. LTD. REPORTED IN 325 ITR 136 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT INTEREST ON AMOUNT BORROWED FOR PURCHASE OF PROPERTY IS PART OF COST OF ACQUISITION OF PROPERTY AND IS A DEDUCT IBLE EXPENDITURE WHILE COMPUTING THE CAPITAL GAIN. HE ALSO RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SMT. SUNITA A. DAMANI VS. ACIT ORDER DATED 25-11-2011 AND THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF S. BALAN ALIAS SHANMUGAM VS. DCIT REPORTED IN 120 ITD 469. HE ACCORD INGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THE GROUND RAISED BY THE ASSESSEE BE ALLOWED. 13. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 14. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE V ARIOUS DECISIONS CITED BEFORE ME. I FIND THE ASSESSEE IN THE INSTANT CASE HAS PURCHASED A PLOT OF LAND BEARING PLOT NO.13, SITUATED AT M ARKAL ON 03-08-2010 FOR A CONSIDERATION OF RS.55,25,000/-. THE ASSE SSEE HAS BORROWED AN AMOUNT OF RS.50 LAKHS FROM CLOVER LABORATORI ES PVT. LTD. FOR ACQUISITION OF THE SAID PLOT. THE ASSESSEE SOLD THE SAID PLOT ON 24-01-2011 FOR A CONSIDERATION OF RS.65 LAKHS. THE AS SESSEE HAS PAID AN AMOUNT OF RS.3 LAKHS TO CLOVER LABORATORIES PVT. LTD. AS INTEREST ON THE BORROWING OF RS.50 LAKHS. THE ASSESSEE C OMPUTED 7 ITA NO.86/PN/2016 THE SHORT TERM CAPITAL GAIN OF RS.2,75,000/- BY DEDUCTING T HE COST OF LAND, INTEREST ON BORROWED FUND AND THE COMMISSION FOR TRA NSFER. THE AO ALLOWED THE COST OF PURCHASE AND THE COMMISSION E XPENSES FOR THE COMPUTATION. HOWEVER, HE DISALLOWED THE INTEREST O N BORROWED FUND AMOUNTING TO RS. 3 LAKHS HOLDING THAT THE S AME IS NOR ALLOWABLE AS EXPENDITURE TOWARDS COST OF IMPROVEMENT. I FIND THE LD.CIT(A) UPHELD THE ABOVE ACTION OF THE AO AND THE R EASONS FOR SUCH DECISION HAS ALREADY BEEN REPRODUCED IN THE PRECED ING PARAGRAPHS. 15. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSE E THAT SUCH INTEREST EXPENDITURE PARTAKES THE CHARACTER OF CO ST OF ACQUISITION AND THEREFORE IS ALLOWABLE. I FIND FORCE IN THE AB OVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. THE HONB LE MADRAS HIGH COURT IN THE CASE OF CIT VS. TRISHUL INVESTMENTS LTD .(SUPRA) WHILE DECIDING THE ISSUE OF INTEREST LIABILITY INCURRED ON BORR OWING TO ACQUIRE SHARES HAS HELD AS UNDER : 5. IN RESPECT OF QUESTION NO.2, THE INTEREST LIABILIT Y ON THE BORROWED FUNDS WAS DEBITED IN THE BOOKS OF THE ASSESSEE COMPANY. TH E TRIBUNAL CORRECTLY HELD THAT THE INTEREST PAID FOR ACQUISITION OF SHARES WOULD PARTAKE CHARACTER OF COST OF SHARE AND THEREFORE THE SAME WAS RIGHTLY CAPITALISED ALONG WITH THE COST OF ACQUISITION OF SHARE S. THERE IS NO DENIAL REGARDING THE BORROWED MONEY FOR THE ACQUISIT ION OF SHARES BY THE ASSESSEE. THE TRIBUNAL CORRECTLY HELD THAT THE INTE REST PAYABLE THEREON SHOULD BE ADDED TO THE COST OF ACQUISITION OF SHARES. THE REASONS GIVEN BY THE TRIBUNAL ARE BASED ON VALID MATER IALS AND EVIDENCE. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND AN Y ERROR OR LEGAL INFIRMITY IN THE ORDER OF THE TRIBUNAL SO AS TO WARR ANT INTERFERENCE. HENCE NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERA TION OF THIS COURT IN RESPECT OF QUESTION NO.2. 16. I FIND THE ABOVE DECISION OF HONBLE MADRAS HIGH COURT WAS CHALLENGED BY THE REVENUE AND THE HONBLE SUPREME COUR T DISMISSED THE SLP FILED BY THE REVENUE WHICH HAS BEEN RE PORTED IN 306 ITR 4 (STATUTE). THE HONBLE MADRAS HIGH COURT IN TH E CASE OF 8 ITA NO.86/PN/2016 CIT VS. K. RAJA GOPALA RAO REPORTED IN 252 ITR 459 HAS HELD THAT COST TO INCLUDE COST OF EXECUTION OF MORTGAGE OF ASSET AN D MORTGAGED INTEREST PAID TILL THE DATE OF SALE. THE RELEVANT OBSERVATIO N OF THE HONBLE HIGH COURT READS AS UNDER : 5. HERE, THERE CAN BE NO DOUBT THAT THE COST OF AC QUISITION TO THE ASSESSEE WAS NOT MERELY THE AMOUNT THAT HE HAD PAID TO T HE VENDORS BUT ALSO THE COST OF THE BORROWING MADE BY HIM FOR THE PU RPOSE OF PAYING THE VENDOR AND OBTAINING THE SALE DEED. THE FACT THA T THE MORTGAGE WAS EXECUTED AFTER THE SALE DEED WAS OBTAINED EVEN THOUGH BOTH THE DOCUMENTS WERE SIGNED AND REGISTERED ON THE SAME DAY, D OES NOT RENDER THE MORTGAGE AND THE BORROWING MADE THEREUND ER IRRELEVANT TO THE TASK OF DETERMINING THE COST OF ACQUISITION. WITHO UT THE MONEY BORROWED, THE ASSESSEE WOULD NOT HAVE BEEN IN A POSITION TO BUY THE PROPERTY. THE PURCHASE NOT HAVING BEEN MADE WITH HIS OWN FUNDS, HE WAS REQUIRED TO PAY INTEREST FOR THE BORROWED FUND AN D SECURE THE BORROWING BY CREATING A MORTGAGE. SUCH MORTGAGE COU LD NOT HAVE BEEN CREATED EARLIER AS HE HAD TO FIRST ACQUIRE TITLE BEFO RE ENCUMBERING THE SAME. PAYMENT OF CONSIDERATION FOR THE SALE INDISPUTAB LY HAVING BEEN MADE WITH THE BORROWED FUNDS, THE BORROWING DIRECTLY RELATED TO THE ACQUISITION AND, INTEREST PAID THEREON WOULD FORM PAR T OF THE COST OF ACQUISITION. 6. THE FACTS OF THE CASE THEREFORE CLEARLY FALL WITH IN THE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CHALLAP ALLI SUGARS LTD. . 7. THE QUESTION REFERRED TO US IS THEREFORE REQUIRED TO BE AND IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENU E. 17. I FIND THE HONBLE KARNATAKA HIGH COURT IN THE CASE O F CIT VS. SRI HARIRAM HOTELS PVT. LTD. HAS HELD THAT INTEREST ON AM OUNT BORROWED FOR PURCHASE OF PROPERTY IS PART OF COST OF ACQ UISITION OF THE PROPERTY AND IS A DEDUCTIBLE EXPENDITURE. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT READS AS UNDER : 4. THE TRIBUNAL AFTER HEARING THE PARTIES AND HA V ING CON S IDERED THE CA S E O F THE ASSESSEE HELD THAT OUT OF THE BORROWED LOAN FROM THE DIRECTORS, THE PROPERTY HAS BEEN ACQUIRED AND ANY INT EREST PAID THEREON WOULD ALSO TO BE ACCOUNTED TOWARDS THE COST OF ACQUISI TION OF THE ASSET . ACCORD I NGLY THE RELIEF HAS BEEN GIVEN TO THE ASSESSEE . CHALLENGING THE LEGALITY AND CORRECTNESS OF THE SAME, THE PRESENT APPE AL IS FILED. WE HAVE HEARD THE LEARNED COUNSEL FOR THE REVENUE. 9 ITA NO.86/PN/2016 5. THE MAIN CONTENTION OF THE LEARNED COUNSEL FOR TH E REVENUE I S THAT AFTER SELLING THE P R OPERTY A RESOLUTION I S PASSED BY THE COMPANY TO PAY THE INTEREST TO THE DIRECTORS . IN VIEW OF SUCH RESOLUTION, THERE WAS NO LIABILITY OF THE COMPAN Y TO PAY THE INTEREST AS ON THE DATE OF SALE . IN THE CIRCUMSTANCES THE TR I BUNAL HAS COMMITTED A SERIOUS ERROR IN GRANTING THE RELIEF TO THE ASSESSEE AS THE DECISION TO PA Y THE INTEREST IS SUBSEQUENT TO THE DATE OF SALE . 6. WE ARE UNABLE TO AGREE WITH THE ARGUMENTS ADVANCE D BY THE LEARNED COUNSEL FOR THE REVENUE FOR THE SIMPLE REASON ON THE FACTS THAT EVEN THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS HELD THAT ' INTEREST HAD ACCRUED AS ON MARCH 31 , 2003 , AND THEREFORE THE TRIBUNAL IS JUSTIFIED I N GRANTING THE RELIEF TO THE ASSESSEE SINCE THE PROPERTY HAS BEEN PURCHASED OUT OF THE LOAN BORROWED FROM THE DIR ECTORS AND ANY INTEREST PAID THEREON IS TO BE INCLUDED WHILE CALCULA TING THE COST OF ACQUISITION OF THE ASSET . THEREFORE , QUESTION NO . 1 HAS TO BE ANSWERED AGAINST THE REVENUE. 7. SO FAR AS QUESTION NO . 2 IS CONCERNED, THE SAME ALSO DOES NOT ARISE FOR CONSIDERATION FOR THE FOLLOWING REASONS. 8. ACCORDING TO THE REVENUE, THE INTEREST WAS NOT PAI D TILL THE PROPERTY IS SOLD AND THEREFORE THE ASSESSEE IS NOT ENTITLE D TO CLAIM THE AMOUNT PAID TOWARDS INTEREST SUBSEQUENT TO THE SALE UND ER THE HEAD COST OF ACQUISIT I ON OF THE PROPERTY . THIS FACT HAS BEEN SQUARELY COVERED BY THE JUDGMENT OF THI S COURT IN CIT V . MAITHREYI PAI [1985] 152 ITR 247 . 9. THEREFORE , WE DO NOT FIND ANY SUBSTANTIAL QUESTION OF LAW ARISES IN THIS APPE A L . A C CORDINGLY, THE APPEAL IS DISMISSED . 18. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNS EL FOR THE ASSESSEE SUPPORTS THE CASE OF THE ASSESSEE. SINCE THERE IS NO DISPUTE REGARDING THE BORROWED AMOUNT BEING UTILIZED FOR P URCHASE OF THE PROPERTY AND THE INTEREST PAID THEREON, THEREFORE , I AM OF THE CONSIDERED OPINION THAT THE ASSESSEE IS ENTITLED TO GET T HE BENEFIT OF DEDUCTION OF RS.3 LAKHS PAID ON ACCOUNT OF INTEREST ON THE BORROWED MONEY FOR PURCHASE OF THE SHORT TERM CAPITAL ASSET AS C OST OF ACQUISITION AND ACCORDINGLY HE IS ENTITLED TO GET THE DED UCTION. I, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT TH E AO TO ALLOW THE SAME. GROUND OF APPEAL NO.1 BY THE ASSESSEE IS ACCO RDINGLY ALLOWED. 10 ITA NO.86/PN/2016 19. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER : 2. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS IN CO NFIRMING INTEREST U/S.234B AND 234C OF THE INCOME TAX ACT, 1961. 20. AFTER HEARING BOTH THE SIDES, I AM OF THE OPINION THAT LEVY OF INTEREST U/S.234B AND 234C ARE MANDATORY AND CONSEQUE NTIAL IN NATURE. ACCORDINGLY, THIS GROUND BY THE ASSESSEE IS DISMISSED. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-07-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED : 29 TH JULY, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // // TRUE COPY // // $ % //UE &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - I, NASHIK 4. THE CIT-I, NASHIK 5. $ %%* , * , SMC BENCH / DR, ITAT, SMC BENCH PUNE; 6. 2 / GUARD FILE.