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2016 (1) TMI 608 - AT - Income TaxComputation of Long term capital gain - disallowance of amount paid by the assessee out of the sale proceeds of the flat to her son, Mr Ketan C Shah can be allowed as deduction u/s 48(i), being expenditure incurred wholly and exclusively in connection with the transfer of an asset? - Held that:- If the assessee himself has created a mortgage or encumbrance and then same consequence shall not follow. Thus, if the assessee acquires a property in inheritance fully or partially with any kind of encumbrance therein, then any obligation amount spent to remove that encumbrance has to be treated as an expenditure wholly connected with the transfer of the property. Here in this case, the encumbrance was in the form of a right and interest of one of her son Mr. Ketan C Shah and if such an encumbrance would not have been removed, that is, amount of share of his right had not been settled or given to him then the property itself would have gone in dispute which could have led to long-drawn–litigation within the family and the subsequent purchases would not have got the clear title. This dispute has been resolved through Arbitral Award which itself goes to show that the encumbrance has to be discharged by making the payment to her son from the sale proceed of the flat and this had been eventually done after the property was sold. Thus, in our opinion the payment made by the assessee to her son was purely on account of discharge of the encumbrance on the property which has to be reckoned and treated as expenditure in connection with the property, therefore, deduction of such cost has to be allowed as cost of acquisition while computing the long-termcapital- gain. Accordingly, disallowance of ₹ 40 lakhs as made by the AO and confirmed the CIT(A) is deleted. Disallowances of Indexed Cost of Improvement and Amount paid through the builder to BDP enterprise as reinvestment in flat - So far as other disallowances are concerned, we are in agreement with the finding and conclusion of the CIT(A), as the assessee has failed to furnish any concrete evidence with regard to any of the expenditure or payment made by the assessee which has been claimed towards cost of acquisition. Even before us, the position remains the same, therefore on these two disallowances of Indexed Cost of Improvement and Amount paid through the builder to BDP enterprise as reinvestment in flat the addition gets confirmed. - Decided partly in favour of assessee.
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