ITO WD 2(1)(4), MUMBAI v. GLOBAL ASSET HOLDING CORPORATION P. LTD, NAVI MUMBAI

ITA 4738/MUM/2010 | 2004-2005
Pronouncement Date: 27-07-2011 | Result: Dismissed

Appeal Details

RSA Number 473819914 RSA 2010
Assessee PAN AAACG8301L
Bench Mumbai
Appeal Number ITA 4738/MUM/2010
Duration Of Justice 1 year(s) 1 month(s) 19 day(s)
Appellant ITO WD 2(1)(4), MUMBAI
Respondent GLOBAL ASSET HOLDING CORPORATION P. LTD, NAVI MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 27-07-2011
Date Of Final Hearing 14-07-2011
Next Hearing Date 14-07-2011
Assessment Year 2004-2005
Appeal Filed On 08-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G : MUMBAI BEFORE SHRI RAJENDRA SINGH (AM) AND SMT. ASHA VIJA YARAGHAVAN (JM) ITA NO.4738/MUM/2010 ASSESSMENT YEAR : 2004-05 INCOME TAX OFFICER WARD-2(1)(4) 5 TH FLOOR ROOM NO.553 AAYAKAR BHAVAN M.K. ROAD MUMBAI. ..( APPELLANT ) VS. M/S. GLOBAL ASSETS HOLDING CORPORATION PVT. LTD. (FORMERLY KNOWN AS CGES HOLDING PVT. LTD.) 303 JANMABHOOMI CHAMBERS 29 W.H. MARG BALLARD ESTATE MUMBAI-38. ..( RESPONDENT ) P.A. NO. (AAACG 8301 L) APPELLANT BY : SHRI A.K. NAYAK RESPONDENT BY : SHRI P ARAS SAVLA O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 23.3.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2004-05. T HE ONLY DISPUTE RAISED IN THIS APPEAL IS AS TO WHETHER INTEREST O N BORROWINGS UTILIZED FOR ACQUISITION OF SHARES CAN BE ADDED TO THE COST OF SHARES. ITA NO.4738/M/10 A.Y:04-05 2 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE H AD PURCHASED 1 20 000 SHARES OF GTL IN F.Y. 1999-00 FOR CON SIDERATION OF RS.1 10 31 400/-. CONSIDERATION HAD BEEN PAID OUT OF BORROWED FUNDS ON WHICH ASSESSEE HAD PAID INTEREST IN THE SUBSEQUENT TWO YEARS WHICH HAD BEEN ADDED TO COST OF ACQUISITION WHILE COMPUTI NG CAPITAL GAIN. THE ASSESSING OFFICER OBSERVED THAT INTEREST ON BOR ROWINGS HAD BEEN PAID AFTER PURCHASE OF SHARES AND CAPITALIZATION OF INTEREST WAS NOT IN ACCORDANCE WITH ACCOUNTING STANDARDS AND THEREFORE HE DID NOT ALLOW CAPITALIZATION OF INTEREST. IN APPEAL CIT(A) OBSERVED THAT THERE WAS NO DISPUTE THAT BORROWINGS HAD BEEN USED FOR REPAY MENT OF CREDITORS FOR PURCHASE OF SHARES AS THE SHARES HAD BEEN PU RCHASED ON CREDIT. HE REFERRED THE JUDGMENT OF HONBLE KARNATAK A HIGH COURT IN THE CASE OF CIT VS. HARIRAM HOTELS (2010)(34 DTR 162)(KAR .) IN WHICH IT WAS HELD THAT INTEREST ON LOAN TAKEN FOR PURCHASE O F PROPERTY WAS TO BE INCLUDED IN THE COST OF ACQUISITION OF PROPERTY. CIT (A) THEREFORE ALLOWED CLAIM OF THE ASSESSEE AGGRIEVED BY WHICH THE REV ENUE IS IN APPEAL. 3. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT I NTEREST HAD BEEN PAID ON THE BORROWINGS WHICH WERE FOR ACQUIRING SH ARES AND THEREFORE THE SAME HAD TO BE ADDED TO THE COST OF ACQU ISITION. HE RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COU RT IN THE CASE OF ITA NO.4738/M/10 A.Y:04-05 3 CIT VS. MITHILESH KUMARI (92 ITR 9)(DEL) IN WHICH IT WAS HELD THAT INTEREST ON BORROWINGS TAKEN FOR PURCHASE OF LAND HAD T O BE ADDED TO THE COST OF LAND WHILE COMPUTING CAPITAL GAIN. IT WAS A LSO SUBMITTED BY HIM THAT THE ISSUE IN THE CASE OF THE ASSESSEE WAS COVERED B Y THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE O F S. BALAN ALIAS SHANMUGAM VS DCIT (2009) 129 ITD 469(PUNE) IN WHICH INTEREST PAID ON BORROWINGS FOR PURCHASE OF SHARES HAD TO BE ADDED TO THE COST OF ACQUISITION. 4. THE LD. DR ON THE OTHER HAND ARGUED THAT THE CASE OF MITHILESH KUMARI (SUPRA) WAS DISTINGUISHABLE AS THE SAME WAS UNDER T HE PROVISIONS OF THE OLD ACT IN WHICH THE PHRASE USED WAS ACT UAL COST WHEREAS THE PRESENT CASE IS UNDER THE NEW ACT IN WHICH WE ARE CONCERNED WITH THE COST OF ACQUISITION. IT WAS SUBMITTED THAT THE COST OF ACQUISITION HAS TO BE TAKEN AS ONLY FOR THE CONSIDERAT ION PAID FOR PURCHASE OF ASSET. IT WAS THUS SUBMITTED THAT INTEREST COUL D NOT BE CAPITALIZED AS SAME CAN BE ALLOWED ONLY WHILE COMPUTING INCOME FROM OTHER SOURCES RECEIVED FROM THE INVESTMENT. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING CAPITALI ZATION OF INTEREST PAID ON BORROWINGS FOR ACQUISITION OF SHARES WHI LE COMPUTING ITA NO.4738/M/10 A.Y:04-05 4 CAPITAL GAIN FROM SALE OF SHARES. THERE IS NO DISPUTE T HAT THE SHARES HAD BEEN ACQUIRED FROM BORROWED FUNDS. THE DISPUTE IS WHETHER INTEREST ON BORROWINGS CAN BE ADDED TO THE COST OF ACQUI SITION OF SHARES. WE FIND THAT SIMILIAR SITUATION HAD BEEN CONSIDE RED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MITHILESH KUMARI (92 ITR 9) IN WHICH THE HONBLE HIGH COURT HELD THAT INTE REST PAID ON BORROWINGS USED FOR PURCHASE OF LAND HAD TO BE TAKEN AS PART OF ACTUAL COST OF PURCHASE OF LAND. THE HONBLE HIGH COURT HAD FOL LOWED THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF C IT VS. FORT GLOSTER INDUSTRIES (P.) LTD. (1971) 79 ITR 48(CAL.) I N WHICH IT WAS HELD THAT THE INTEREST PAID ON THE BORROWINGS HAD TO BE T AKEN AS PART OF THE ACTUAL COST OF PLANT AND MACHINERY. IN HOLDING SO THE HONBLE HIGH COURT OF CALCUTTA HAD FOLLOWED THE JUDGMENT OF HONBL E HIGH COURT OF BOMBAY IN THE CASE OF HABIB HUSSEIN VS. CIT (1963) (48 ITR 859) IN WHICH IT WAS HELD AS UNDER :- THE DICTIONARY MEANING OF THE WORD COST IS WHAT IS LAID OUT OR SUFFERED TO OBTAIN ANYTHING.. IN OUR OPINION THE REFORE THE MEANING OF THE EXPRESSION ACTUAL COST TO THE ASSES SEE AS USED IN SUB-SECTION(5) OF SECTION 10 OF THE ACT WOULD BE WHAT THE ASSESSEE HAS IN FACT EXPENDED OR LAID OUT FOR THE PURPOSE OF ACQUIRING THE DEPRECIABLE ASSETS. 5.1 IT IS CLEAR FROM THE JUDGMENT OF THE HON'BLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF HABIB HUSEIN (SUPRA) THAT ACTUAL COS T IS NOTHING BUT THE EXPENDITURE INCURRED FOR ACQUIRING THE ASSET A ND THEREFORE THE ARGUMENT OF THE LD. DR THAT COST OF ACQUISITION WAS DIFF ERENT FROM ITA NO.4738/M/10 A.Y:04-05 5 ACTUAL COST CANNOT BE ACCEPTED. THE COST OF ACQUISITION AS TO WHAT THE ASSESSEE INCURRED FOR ACQUIRING AN ASSET. IN CASE IN ADDITI ON TO THE CONSIDERATION PAID FOR ACQUIRING THE AMOUNT THE ASSESSEE HAS ALSO INCURRED INTEREST EXPENDITURE ON BORROWINGS FROM WHICH THE CONSIDERATION WAS PAID THE INTEREST EXPENDITURE WOULD DEFINITELY BE PART OF COST OF ACQUISITION. WE ALSO FIND THAT THE CASE O F THE ASSESSEE IS COVERED BY THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF S. BALAN ALIAS SHANMUGAM (129 ITD 869) WHICH IS DIRECT LY ON THE POINT AS IN THAT CASE ALSO THE ISSUE WAS REGARDING ALLOWA BILITY OF INTEREST AS PART OF COST OF ACQUISITION OF SHARES. IN THAT CASE THE CIT(A) HAD HELD THAT SINCE INTENTION OF INVESTMENT IN SHARES WAS FOR EARNING OF DIVIDEND AND AS THE SAID DIVIDEND INCOME WA S EXEMPT FROM TAX THE INTEREST EXPENDITURE COULD NOT BE TAKEN INTO ACCOUNT IN VIEW OF THE PROVISIONS OF SECTION 14A. THE VIEW TAKEN BY THE CI T(A) WAS NOT ACCEPTED BY THE TRIBUNAL. IT WAS HELD THAT SINCE THE AS SESSEE HAD BORROWED FUNDS FOR ACQUISITION OF SHARES AND INTEREST HAD BEEN CAPITALIZED INTEREST COULD NOT BE SEPARATED FROM AMOUN T OF INVESTMENT. THUS IT WAS HELD THAT INTEREST LIABILITY HAS TO BE TAKEN INTO ACCOUNT TOWARDS COST OF CAPITAL ASSET FOR THE PURPOSE O F COMPUTATION OF CAPITAL GAIN. THE CASE OF THE ASSESSEE IS I DENTICAL. WE THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE P UNE BENCH OF THE TRIBUNAL (SUPRA) SEE NO INFIRMITY IN THE ORDER OF TH E CIT(A) IN ALLOWING ITA NO.4738/M/10 A.Y:04-05 6 CAPITALIZATION OF INTEREST TO THE COST OF ACQUISITION O F SHARES. THE ORDER OF THE CIT(A) IS ACCORDINGLY UP HELD. 6. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.7.2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 27.7.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.