Cost of acquisition u/s 49

Cost of acquisition will be Cost of land + cost incurred in construction of building. 

cost of acquisition will be Rs 58 lakhs, if the whole amount of loan is taken in construction.

cost:

land                       800000

construction        5000000

total                     5800000                     indexed cost 13414286

sale consideration:

sales                     7500000

loan repayment    4300000

net cons.             11800000

hence your friend is haing a capital loss of Rs.1614285.

Cost of acquisition for the above will be separate for land and for building.

Since you have already avail deductions u/s 24(b) and 80C for interest and principal respectively, your cost of acquisition for building will not show interest paid.

The Chennai Tribunal in ACIT v. C. Ramabrahmam [2012] held that:

Deduction u/s 24(b) and computation of capital gains u/s 48 are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. Neither of them excludes the other. A deduction u/s 24(b) is claimed when the assessee computes 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. There is no doubt that the interest in question is an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee is entitled to include the interest at the time of computing capital gains u/s 48.
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Note: The Tribunal's decision appears to be on a sound footing as section 55(1)(b) which defines 'cost of improvement' specifically disallows expenditure which is deductible in computing income under other heads of income. However, section 55(2) which defines 'cost of acquisition' makes no such express disallowance of deduction of expenditure forming part of COA which is deductible/deducted for computing income under other heads of income.