Deduction u/s 36(1)(iii) for Interest shall be allowed even in case of purchase of capital asset

Fact and Issue of the case

The brief facts are that the assessee company is engaged in the business of real estate and has filed its return of income for the impugned year dated 20.09.2014, declaring total loss of Rs.4,22,62,577/-. The assessee’s case was selected for scrutiny and the assessment order u/s. 143(3) of the Act was passed on 30.11.2016, determining the total income at Rs.3,45,18,220/-, by making various additions/disallowances. The assessee challenged the said order before the ld. CIT(A) who deleted the said disallowance on the ground that the issue was already dealt with by the tribunal in assessee’s case for A.Y. 2013-14 in favour of the assessee and also by relying on the other decisions.

The Revenue is in appeal before us as against the order of the ld. CIT(A), deleting the impugned additions made by the Assessing Officer.

Observation of the Tribunal

Having heard the rival submissions and perused the materials on record. It is observed that the A.O. has disallowed the claim of the assessee towards interest expenses paid for short term borrowings for the reason that the expenditure incurred subsequent to the purchase of assets cannot be considered as ‘cost of acquisition’. The assessee has relied on the decision of the Hon’ble Madras High Court in the case of CIT vs. Trishul Investments Ltd. [2008] 305 ITR 434 (Mad), wherein it was held that the interest paid for acquisition of shares would amount to cost of shares and was to be capitalized with the cost of acquisition of shares. The assessee also relied on the decision of the co-ordinate bench in the case of Neera Jain vs. ACIT, Circle-12(3), Mumbai in ITA No. 1861/Mum/2009 vide order dated 23.03.2009, wherein it was held that the interest paid by the assessee was part of acquisition of shares and the same was to be allowed as deduction. It is pertinent to cite the relevant extract from the decision of the Hon’ble Madras High Court in the case of Trishul Investments Ltd.

By respectfully following the above cited decision, we are of the considered view that the assessee’s claim of interest on borrowings against STCG is to be allowed. We find no infirmity in the order of the ld. CIT(A) and we hereby dismiss grounds filed by the Revenue.