The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) confirmed that taxpayers can claim loan interest deductions under Section 48 of the Income Tax Act even if they have already claimed similar deductions under Section 24(b). The tribunal clarified that amendments to Section 48 will apply only from Assessment Year (AY) 2024-25 onwards.
The assessee, Bani Broto Banerjee, filed their income tax return on 30.07.2014 for the assessment year 2014-2015 declaring a total income of Rs. 33,67,460.
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The income tax return was selected for scrutiny and the Assessing Officer (AO) issued notices under Sections 143(2) and 142(1) of the Income Tax Act initiating a detailed examination of the assessee’s income and claims.
During the assessment, the AO found that the assessee held a 99% share in a company called Rainey Park Limited, which operated a guest house/hotel. Due to financial losses, the property owned by the company was sold.
The assessee reported long-term capital gains on the sale of the property and claimed two deductions in the computation of capital gains. One was the written-down value (WDV) of furniture and fixtures amounting to Rs. 1,30,23,709. Another one was Interest expenditure of Rs. 1,90,78,228 incurred on loans taken for acquiring the property.
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The sale consideration of the property was Rs. 16,39,39,402 and the indexed cost of acquisition and other deductions were applied before arriving at the gains.
The Assessing Officer disallowed both claims stating that the WDV of furniture and fixtures could not be treated as part of the cost of the property and the interest expenditure even though incurred on borrowed capital for the property should have been claimed under Section 24(b) of the Income Tax Act as part of income from house property and not under Section 48 for capital gains computation.
After disallowing these deductions, the AO calculated the final long-term capital gains at Rs. 9,91,00,694. The assessee appealed before the Commissioner of Income Tax (Appeals). The CIT(A) partially ruled in favor of the assessee by accepting the deduction for the WDV of furniture and fixtures but upheld the AO’s disallowance of the interest expenditure of Rs. 1,90,78,228.
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Dissatisfied with the CIT(A)’s decision, the assessee appealed before the CIT(A) arguing that the interest expenditure directly linked to acquiring the property qualifies as part of the cost of acquisition under Section 48.
The assessee relied on multiple judicial precedents to support their claim including rulings from ITATs and High Courts, where similar interest expenditures were allowed as part of the cost of acquisition under Section 48.
The assessee’s counsel explained that Sections 24(b) and Section 48 are independent provisions and deductions under both sections are not mutually exclusive.
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The two-member bench comprising Rajpal Yadav (Vice-President) (KZ) and Rajesh Kumar (Accountant Member) observed various legal precedents and the Finance Bill, 2023 amendment to Section 48 which prospectively disallows such claims from AY 2024-25 onward to prevent double benefits.
For the relevant assessment year (2014-15), the tribunal explained that the amendment did not apply and ruled that the interest expenditure was indeed part of the cost of acquisition. So, the tribunal deleted the addition of Rs. 1,90,78,228 made by the AO and allowed the appeal.
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