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2022 (10) TMI 658 - AT - Income TaxSale consideration for capital gain - Enhancement on account of compensation paid for cancellation of agreement to sale executed earlier - HELD THAT:- As rightly contended by assessee, the factum as well as the quantum of compensation paid on cancellation of banakhat as per the mutual understanding between both the sides was duly established and since the same was duly supported by the cancellation agreement executed between both the sides on 22.02.2010, there was no justifiable reason for the CIT(A) to dispute the genuineness of the compensation paid by the assessee and to disallow the deduction claimed by the assessee for the same while computing the capital gain by enhancing the income of the assessee to that extent. Compensation charges on cancellation of banakhat being the cost of improvement of the property - Entitled for deduction on index basis while computing the capital gain, it is observed that this issue is squarely covered by the decision in the case of CIT vs. Shakuntala Kantilal [1991 (3) TMI 123 - BOMBAY HIGH COURT] wherein it was held that compensation paid to earlier buyer to cancel the agreement is an expenditure incurred wholly and exclusively in connection with transfer because without removing any encumbrance the sale or transfer of property could not be effected. As held by the Hon’ble Bombay High Court, such compensation, therefore, cannot be treated as cost of improvement to the capital asset so as to allow deduction at index value while computing the capital gain. We uphold the order of the Assessing Officer allowing deduction to the assessee on account of compensation paid for cancellation of banakhat to the extent of Rs.36 lakhs. Ground No.2 of the assessee’s appeal is thus partly allowed. Disallowance of brokerage expenses - said disallowance was made AO and confirmed by CIT(A) mainly on the ground that brokerage was paid by the assessee to the concerned broker in the year under consideration while the agreement to sale was executed on 01.06.2010 and almost the entire sale consideration was received by the assessee in the FYs 2009-10 and 2010-11. There is, however, nothing brought on record by the authorities below to dispute the services rendered by the concerned broker in connection with the sale of assessee’s property for which the brokerage was claimed to be paid. Moreover, the sale deed admittedly was executed in the year under consideration and when the brokerage was paid by the assessee after execution of the sale deed, it cannot be disallowed merely because the agreement for sale was executed and entire consideration was received by the assessee in the earlier years when there was nothing to dispute the services rendered by the concerned broker in connection with sale/transfer of the assessee’s property. Accordingly delete the disallowance made by the Assessing Officer and confirmed by CIT(A) on this issue and allow Ground No.4 of the assessee’s appeal.
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