Can I include interest paid on loan in Cost of Acquisition

I think the formula for short term capital gain from Property deal (land sale) is (property sold within 3 years from date of purchase) 

Short Term Capital Gain  = Sale price - Total Cost of acquisition 

Is it correct to say that

Total Cost of acquisition = Purchase cost 
 + Registry Fee (Exemption under 80C was not taken during FY in which land was purchased) 
 + Total Interest Paid to Bank in last 2 years (Note:this is not a house loan and interest exemption was never taken)

and if it is a loss then can I offset this loss against current FY income to reduce taxable income.
Asked 6 months ago in Income Tax from Jodhpur, Rajasthan
Dear Sir,

Short term capital assets are those assets which are  transferred within 3 years of date of acquisition (Other than securities). In other words "Any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer will be treated as short-term capital asset"

Short term capital gain is calculated as follow:

Consideration received on transfer reduced by Total cost of acquisition and cost of improvement.

Now the question is will interest on borrowed capital is considered as cost of acquisition or not.

There are various case law in which interest on loan is allowed to treat as cost of acquisition.

CIT Vs. K. Raja Gopala Rao (2001 252 ITR 459 Mad)

This case concerns sale of a hotel property and the court declared that the interest on capital borrowed for the purpose of acquisition of the property shall be considered as cost of acquisition.

Payment of consideration for the sale indisputably having been made with the borrowed funds, the borrowing directly related to the acquisition and, interest paid thereon would form part of the cost of acquisition.

There is another case law in which it is allowed to take interest on home loan as deduction under house property and it is also allowed to include as cost of acquisition under the head capital gain.

A judgement delivered by a Chennai Tribunal (ACIT v C.Ramabrahmam) in 2012, states that a person can claim benefit under both Section 24 and Section 48.

After perusing the above said provisions, we are of the opinion that deduction under section 24(b) and computation of capital gains under section 48 of the “Act” are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. Further, a perusal of both the provisions makes it unambiguous that none of them excludes operative of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from ‘house property’, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. We do not have even a slightest doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 of the “Act”.

The important thing from above case law is that the loan should be only used for the purpose of acquisition of that property on which we are calculating capital gain.

Can short term capital loss set off or carry forward??????

Loss from transfer of a short term Capital Asset can be set off against gain from transfer of any other capital asset (Long Term or Short Term) in the same year. 
If there is a net loss under the head “Capital Gains” for an assessment year, the same cannot be set off against any other head of income viz., Salaries, House Property, Business or Profession or other sources. It has to be separated into Short term Capital Loss (STCL) and long term capital loss (LTCL) and carried forward to next assessment year. In the next year, the STCL can be set off against any gains from transfer of any capital asset (Long term or Short term) and the LTCL can be set off against gains from transfer of long term capital asset only. Any unabsorbed loss after such set off can be further carried forward to next assessment year.
Capital loss computed in an assessment year can be carried forward for eight assessment years and set off as above. 

Thanks & Regards
Shiv Kumar Agarwal
CA, Delhi
195 Answers
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Dear Sir,

1. If the loan is used entirely for the purpose of acquisition of concerned property then it can form part of purcahse cost.

2. Loss from transfer of a short term Capital Asset can be set off against gain from transfer of any other capital asset (Long Term or Short Term) in the same year. 

If there are no income in the Capital gain head in the current year, the same can be carried forward for eight assessment years and set off in the subsequent years.

Thanks and Regards,
CA Abhishek Dugar
caabhishekdugar@gmail.com
Abhishek Dugar
CA, Mumbai
755 Answers
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Dear Sir,

1. You can very well include the Interest Cost in your Cost of Acquisition if it is solely for the purpose of Buying the property. But be prepared as it is a debatable point and is subject to litigation, so your AO may not allow your claim and you will have to file an appeal and fight it out. So before taking your decision do consider the Cost-Benefit involved.

2. Capital Gain can be setoff only against Income from Capital Gain. In your case you cannot set it off against any other Income. But you can surely carry forward the same for the next 8 Assessment years and adjust it against any future Capital gains.

Trust this clarifies your query. 

Feel free to get back/ call back for any further clarifications. 

Thanking You. 

Regards,
Rohit R Sharma
BCOM, ACA, LLB - GEN, CERT. FAFP
Rohit R Sharma
CA, Mumbai
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Yes you can
Shyam Sunder Modani
CA, Hyderabad
953 Answers
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