Interest Paid to Bank for Acquiring Capital Asset would form part of ‘Cost of Acquisition’: ITAT Jodhpur [Read Order]

In Gayatri Maheswari v. ITO, the division bench of the ITAT held that the interest paid to the bank for acquiring capital assets would be eligible as part of the cost of acquisition and therefore, is deductible while computing capital gains under the provisions of the Income Tax Act.

The assessee is an individual, derived income from interest and capital gains. The AO, while computing capital gain in respect of property sold by the assessee during the relevant year, refused to deduct the interest paid towards Bank loan obtained for acquiring the property.

On the first appeal, the CIT(A) rejected the plea of the assessee and confirmed the assessment order.

Based on judicial pronouncements, the bench clarified that if the property is purchased from borrowed funds then consideration for the purchased amount, the interest on borrowed funds also has to be paid. “The amount of interest paid by the assessee constitutes the actual cost to the assessee for that property. To exclude the interest amount from the actual cost of the assets/property would lead to anomalous results. The interest amount should be definitely added to the actual cost of the property.”

Read the full text of the Order below.

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