$ * IN HIGH COURT OF DELHI AT NEW DELHI 11 + ITA 1029/2015 COMMISSIONER OF INCOME TAX-5 Appellant Through: Mr. Rahul Chaudhary, Senior standing counsel. versus KASHYAP METAL & ALLIED INDUSTRIES LTD Respondent Through: Mr. Ajay Vohra, Senior Advocate with Ms. Kavita Jha and Ms. Roopali Gupta, Advocates. CORAM: JUSTICE S.MURALIDHAR JUSTICE CHANDER SHEKHAR ORDER % 16.05.2017 1. This appeal by Revenue under Section 260A of Income Tax Act, 1961 against impugned order dated 31st October, 2014 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 5102/Del/2011 for Assessment Year ( AY ) 2008-09. 2. By order dated 22nd December 2015, Court confined notice issued in this appeal to Question B which reads thus: "Whether in present facts and circumstances of case, ITAT has erred in allowing indexation benefit on borrowing cost when leasehold right was cancelled on 29 th March 1998 and same was restored back on 6th August 2004?" ITA 1029/2015 Page 1 of 4 3. facts relevant to above question are that in 1973 Assessee, Kashyap Metal & Allied Industries Limited, acquired leasehold industrial land at Mohan Cooperative Industrial Estate. Assessee commenced construction of office premises thereon on continuous basis. completion certificate was issued by Delhi Development Authority ( DDA ) on 26th March, 1999. Various improvements were carried out by Assessee to premises during financial year 2005-06. 4. It is stated that in 2003 Assessee applied to DDA for conversion of leasehold land into freehold land. On 25th January, 2007, DDA executed conveyance deed in favour of Assessee. Assessee paid Rs. 3,89,89,196 to DDA towards conversion charges, other dues, unearned increase charges and stamp duty. 5. On 7th April 2007, Assessee sold entire land along with superstructure for consideration of Rs. 30 crores and offered for tax long term capital gains ( LTCG ) in sum of Rs. 4,07,35,010. In working out LTCG, calculation given by Assessee was under: Total sale consideration Rs. 30,00,00,000 Less: Indexed cost of acquisition & improvement on land & building Rs. 25,58,52,290 Less: Selling expenses (Professional Fees) Rs. 34,12,700 LTCG Rs. 4,07,35,010 6. Assessing Officer ( AO ) has, in order of assessment dated ITA 1029/2015 Page 2 of 4 30th December 2010 determined LTCG at Rs. 5,08,54,387. AO worked out LTCG as under: Indexed cost of land Rs. 1,25,25,589/- B Indexed cost of construction/improvement Rs. 16,16,75,673/- C Cost of interest payment Rs. 3,25,42,455/- D Other Charges related to transfer Rs. 34,12,700/- Hence total cost of Long term asset transferred is + B + C + D = 21,01 ,56,417. Therefore, Long term capital gain accruing to Assessee is Rs. 26,10,10,804- Rs. 21,01,56,417 = Rs. 5,08,54,387/- 7. Accordingly, sum of Rs. 1,01,19,377 was added to total income of Assessee. 8. Aggrieved by above order, Assessee filed appeal before Commissioner of Income Tax (Appeals) ( CIT (A) ) who, by order dated 19th July, 2011, upheld aforementioned addition made by AO. Assessee then further appealed to ITAT which by impugned order dated 31st October, 2014 allowed appeal. ITAT set aside finding of CIT (A) and held that land sale was long term capital asset and entire gain accruing on such transfer was taxable as LTCG only. ITAT also allowed indexation benefits on borrowing cost as already permitted by AO in assessment order. 9. Mr. Rahul Chaudhary, learned Senior standing counsel for Appellant/Revenue, submits that there was no warrant for allowing indexation on interest cost for period during which Assessee was not in fact in control or possession of land in question. Mr. Chaudhary points out that lease stood cancelled and restored and therefore, interest cost ITA 1029/2015 Page 3 of 4 for said period could not be allowed to be indexed. 10. ITAT has noted that there was termination of lease hold rights on 29th March, 1998 and these were restored only on 6th August, 2004. borrowing costs were recorded in books of accounts year after year. interest cost on year-to-year basis was capitalized under head capital work in progress which was later transferred to building accounts. Thus, ITAT pointed out, it would be fallacy to suggest that such borrowing cost in shape of interest was not incurred for development of property. 11. As explained by this Court in Commissioner of Income Tax v. Mithlesh Kumari (1973) 92 ITR 9 (Del), interest amount constituted part of actual cost of land. In fact AO has in assessment order calculated LTCG by including interest cost. It has been noted by CIT (A) that construction activities were carried out continuously and uninterruptedly even during period when lease was cancelled and later restored. Consequently, Court finds no error having been committed by ITAT in restoring indexed interest cost as directed by AO. 12. No substantial question of law arises in relation to above issue. appeal is, accordingly, dismissed. S.MURALIDHAR, J CHANDER SHEKHAR, J MAY 16, 2017/Rm ITA 1029/2015 Page 4 of 4 Commissioner of Income-tax-5 v. Kashyap Metal & Allied Industries Ltd