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Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
This captioned appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)-NFAC, Delhi dated 24.09.2025 under section 250 of the Act (hereinafter referred as ‘the Act’) arising from the assessment order dated 21.03.2024 by the NFAC, Delhi under section 143(3) r.w.s. 144B of the Act for the Assessment Year 2022-23.
The Assessee has raised the following grounds of appeal:
1.That in the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [CIT(A)] has erred in passing the appellate order under section 250 read with section 144B of the Income-tax Act, 1961 dated 24.09.2025, disallowing the claim of Long-Term Capital Loss of Rs.27,93,435/- made by the Assessee.
2.That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in upholding the order of the Ld. Assessing Officer in disallowing the indexed cost of interest expenditure of Rs.27,93,435/-incurred by the Assessee in connection with the acquisition of the property, holding that such expenditure does not form part of cost of acquisition or cost of improvement within the meaning of Sections 48 and 55(2) of the Income-tax Act, 1961.
3.That on the facts and circumstances of the case, the Ld. CIT(A) has further erred in holding that the interest expenditure incurred for acquisition of property can only be claimed under section 24(b) of the Income-tax Act, 1961 in the year of payment, and not as part of the cost of acquisition under section 55 of the Act, disregarding judicial precedents and established legal interpretation.
4.That the Ld. CIT(A) has failed to appreciate that the interest cost incurred for acquisition of a capital asset is a part of the cost of acquisition and, hence, allowable while computing capital gains under section 48 of the Act.
5.That the order of the Ld. CIT(A) is bad in law and void ab initio as it fails to consider the submissions, documents, and judicial precedents relied upon by the Assessee.
6.That given the facts and circumstances of the case, the Ld. CIT(A) has grossly erred in charging interest u/s 234A, 234B, and 234C of the Income Tax Act based on the wrong computation of income.
The Assessee prays for the leave to add, amend, or vary the above grounds before or at the time of hearing.”
The brief facts of the case are that the assessee is an Individual and has filed its Income Tax Return for the assessment year for AY 2022-23 on 21.10.2023 within the due date u/s 139(1) declaring Salary Income of Rs. 1,39,14,458/-, Professional Income of Rs. 3,40,747/-, long term capital loss of Rs.46,82,149 and Interest Income of Rs.13,056/- and paid Taxes of Rs. 47,57,064/-.
The assessee during the year has sold a property, Plot at Pocket-R2, Block-F, Plot No. 110, "Hyde Park Estate" New Chandigarh which he jointly owned with his brother Sandeep Gupta, for Rs.79,00,000/- vide agreement dated 10.04.2021. The stamp duty valuation of this property is Rs.1,10,00,000/-. The deed for this sale was made on 11.06.2021 for an amount of Rs.79,00,000/- for stamp duty purpose. The Assessee, on the above sale of property, has claimed a Long-term Capital Loss of Rs.46,82,149/-. The Ld. A.O. while completing the assessment, has not allowed the deduction of the Indexed cost of interest expenditure of Rs.27,93,435 as part of the cost of the said Plot while computing Capital Gains u/s 48 of the IT Act in his order dated 21.03.2024 passed u/s 143(3) read with Sec 144B of the Income Tax Act. Upon appeal, the CIT(A) upheld the disallowance. Aggrieved the Assessee is in appeal before us.
The ld counsel of the assessee stated that the cost of acquisition of the plot sold was Rs.81,21,636 and Assessee 50% share is Rs 40,60,818/-. The Indexed cost of assessee 50% share of the plot is Rs 69,87,964/- which has been accepted by the Ld. A.O. Further, Assessee had paid interest on the home loan taken to acquire this plot and the total interest paid, from FY 2012-13 to FY 2020-21, was Rs 43,30,784/-. The Assessee's 50% share of the interest paid to HDFC Ltd comes to Rs 21,65,392/-. The Indexed cost of Assessee's 50% share of the interest paid is Rs 27,93,435 for which complete details were filed before the Ld. A.O. during assessment proceedings. It is submitted that the Ld. A.O. has wrongly disallowed the indexed cost of interest paid by the Assessee to HDFC Ltd for his 50% share of plot. Further the Assessee had also paid stamp duty, Registration fees and other charges of Rs 6,76,500/- and claimed his 50% share amounting to Rs.3,38,250 in his Income tax return which has been accepted by the Ld. A.O. Thus, the total cost for 50% share of the Assessee for the cost of plot comes to Rs 1,01,19,649 as per details given below in the table.
It is further submitted that the Assessee sold this plot during the assessment year under reference for Rs.1,10,00,000/- and Assessee's 50% share comes to Rs 55,00,000. Assessee also paid Brokerage of Rs 1,25,000 and claimed 50% of brokerage of Rs.62,500/- in his Income tax return. Thus the Assessee has suffered long-term capital loss of Rs.46,82,149/-. It is submitted that Assessee had availed the loan for purchasing of the said plot. After the said plot was sold, the Assessee, therefore, included the interest paid to HDFC Ltd while computing Long term capital gains under section 48 of the "Act". The Assessee relies upon the following cases:
ACIT vs Subhash Bana, Gurgaon (2011) ITA No.147
ITO vs Smt. Gayatri Maheshwari (2013) ITA No.208
ITO vs Smt Aishwarya (2011) ITA No.1120
CIT vs. Mithlesh Kumari (1973) 92 ITR 9
Addl.CIT vs. KS Gupta, (1979) 119 ITR 372
ACIT vs. Mrs. Sheela Chopra (2014) ITA No.169
Per contra, the ld DR relied on the orders of the AO/CIT(A).
We have heard the rival submissions and have perused the materials on record. The provisions governing the capital gains in section 48 of the Act mandates as under:
“48.The Income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:-
(i)Expenditure incurred wholly and exclusively in connection with such transfer,
(ii)The cost of acquisition of the asset and the cost of any improvement thereto."
From the perusal of the above provisions, it emanates that the interest paid on borrowed funds, for acquisition of the asset in question, has to be considered as an expenditure in acquiring the asset. We are therefore of the view that the interest payment on such borrowed funds, is includable in the cost of acquisition, for determination of Capital Gains/Loss and the benefit of indexation u/s 48 is to be allowed under the provision of law. We find the AO has not disputed the genuineness of the interest payment as such. We therefore, are of the considered view that the Assessee is certainly entitled to include the indexed interest amount as cost of acquisition at the time of computing capital gains u/s 48 of the Act. Our decision is fortified by the ITAT decisions in the cases of ACIT vs Subhash Bana, Gurgaon ; ITO vs Smt. Gayatri Maheshwari ;ITO vs Smt Aishwarya; CIT vs. Mithlesh Kumari ; Addl.CIT vs. KS Gupta; ACIT vs. Mrs. Sheela Chopra (supra). The grounds are allowed.
The grounds on interest is consequential and the ground of penalty is premature.
In the result, the appeal in ITA No. 7448/DEL/2025 is allowed.