TMI Blog2013 (10) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale. Assessee having paid the full amount, when he entered into the "agreement of sale cum general power of attorney" with M/s Malineni Perumallu Educational Society, on 6.6.2005, in our opinion, it was in his own interest to perfect the title, which otherwise could have been an impediment for a sale. We cannot say that the amount of Rs. 13 lakhs paid by the assessee had no relevance in such a situation. Assessee had produced confirmation for payments effected to the parties, for settlement of the disputes. Veracity of the payments was not questioned at all - Therefore, assessee was eligible for deducting such amount while computing short-term capital gains - Decided in favour of assessee. Jurisdiction of CIT - Revisionary power exercised by CIT u/s 263 - Whether revisionary power exercised by CIT was due to letter written by A.O. or due to his independent assimilation of facts - Held that:- Two reasons have been cited by the CIT for invoking revisionary power. First is that investment in property, which was sold by the assessee, was not examined by the A.O. Second is that the cost of acquisition of rights of feature film could be considered only when amounts were actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer noted that while computing short-term capital gains, assessee had claimed an amount of Rs. 13 lakhs as a part of the cost under the head "Title Perfection Cost". Assessee had purchased a property from one M/s Malineni Perumallu Educational Society on 6.6.2005 through a document captioned as an "agreement for sale cum irrevocable general power of attorney". The said property was sold by the assessee on 3.12.2005 to four parties, namely, M/s Jayabheri Properties Pvt. Ltd., Shri Kishore Duggirala, Shri Maganti Raja Babu and Shri Maganti Ram Mohan and the short-term capital gains returned by the assessee, was the result of this transaction. 4. Assessing Officer put the assessee on notice why the "Title Perfection Cost" claimed as a deduction, while computing short-term capital gains, should be allowed. The A.O. was of the opinion that the deed dated 6.6.2005, through which assessee had acquired property from M/s Malineni Perumallu Educational Society, clearly mentioned that the said society was having full rights of enjoyment and disposal. In reply, assessee filed confirmations for payments totalling to a sum of Rs. 13 lakhs made to three parties. As per the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (291 ITR 500), the reopening done was valid. On merits, ld. CIT(Appeals) held that if at all there were any disputes, it should have been settled by the vendor, namely, M/s Malineni Perumallu Educational Society and there was no obligation on the part of the assessee for settling such disputes. 7. Now before us, learned A.R., assailing the orders of authorities below both on validity of reopening as well as on merits, submitted that the payments were effected only for perfecting the title. Eventual sale deed was admittedly a tripartite agreement, wherein the first party was the original vendor, namely, M/s Malineni Perumallu Educational Society. Confirmation letters for having effected payments to the claimants, were considered to be irrelevant by the Assessing Officer for a reason that assessee had no obligation for perfecting the title of the original vendor. Nevertheless, but for such payments, eventual buyers would not have proceeded with transaction. Therefore, it was a necessary cost incurred and was allowable while working out the short-term capital gains. 8. Per contra, learned D.R., strongly supporting the order of CIT(Appeals), submitted that assessee had no obliga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no relevance in such a situation. Assessee had produced confirmation for payments effected to the parties, for settlement of the disputes. Veracity of the payments was not questioned at all. We are, therefore, of the opinion that assessee was eligible for deducting such amount while computing short-term capital gains. Such addition stands deleted. 10. Since we have decided the issue in favour of assessee on merits, it is not necessary to go into the question of jurisdiction, viz. validity of reopening. 11. In the result, appeal of the assessee is allowed on merits. 12. Now we are taking up assessee's appeal in I.T.A. No. 745/Mds/2012. Grievance raised by the assessee is that CIT had invoked his powers for revision under Section 263 of the Act even though original order of the Assessing Officer was not erroneous and prejudicial to the interests of Revenue. 13. Facts apropos are that the order passed by the A.O. under Section 143(3) of the Act on 29.12.2009, which was subject matter of appeal in I.T.A. No. 768/Mds/2013, was sought to be revised by the ld. CIT. A notice under Section 263 was issued to the assessee for this purpose on 22.2.2012. In such notice, the reasons men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.3.2012, brought to the attention of the ld. CIT that all the details regarding payments effected, for acquiring the property, was also before the Assessing Officer during the original assessment proceedings. As per assessee, the information with regard to the source for investment in the property which was sold, which gave rise to the short-term capital gains, was already verified by the Assessing Officer with such bank accounts. Vis- -vis the issue of expenditure claimed as cost of acquisition of feature film, assessee mentioned that relevant agreements were all before the Assessing Officer and he had taken a lawful view that such amount could be allowed. 15. However, the CIT was not impressed by the above contentions of the assessee. According to him, out of Rs. 24 lakhs paid by the assessee to the seller of the property, Rs. 22 lakhs alone could be explained by the assessee. As per CIT, the balance Rs. 2 lakhs still remained to be explained. Vis- -vis payments made for acquiring distribution right of film "Ninne Cherukunta", CIT was of the opinion that out of total consideration of Rs. 35 lakhs, only Rs. 2 lakhs was paid during the relevant previous year. According to him, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer on both these issues. 18. Per contra, learned D.R. submitted that Assessing Officer had failed to properly verify whether the investment on the property was made out of bank account given by the assessee. Dates did not tally and the Assessing Officer completed the original assessment without verifying this aspect. Vis- -vis the film distribution rights, learned D.R. submitted that what was paid alone could be considered as cost of acquisition. Admittedly, only Rs. 2 lakhs was paid during the relevant previous year and Rs. 33 lakhs was outstanding. Latter amount could not be considered as part of acquisition cost. Thus, according to her, order of the A.O. was certainly erroneous and prejudicial to the interests of Revenue and CIT was well within his power to invoke revisionary jurisdiction vested on him under Section 263 of the Act. 19. We have perused the orders and heard the rival submissions. Two reasons have been cited by the CIT for invoking revisionary power. First is that investment in property, which was sold by the assessee, was not examined by the A.O. Second is that the cost of acquisition of rights of feature film could be considered only when amounts w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts have been opened only 04.07.2005 by depositing cash of Rs. 5,000/- each. 5. During the course of assessment proceedings, the assessee also furnished one affidavit from Shri C. Venkateswara Rao, Jubilee Hills, Hyderabad in which it has been stated that Shri Venkateswara Rao negotiated with the assessee for the purchase of the land in the months of May and June 2005 and that in pursuance of the same he had paid a sum of Rs. 22 lakhs as advance, in cash, on 5th and 6th of July, 2005. A copy of the same is enclosed as Annexure C. 6. It was explained during assessment proceedings that out of Rs. 22 lakhs received from Sri C. Venkateswara Rao, Rs. 12 lakhs was deposited into the Andhra bank account number 853 on 5.7.2005 and 6.7.2005 and another sum of Rs. 10 lakhs was deposited into the Vijaya bank account number 408401011000415 on the same dates. It was explained that only these cash deposits were utilised to make payment of Rs. 22 lakhs to the seller of the land. 7. A closer look at the dates on which payments were made to the seller of the property as seen from the above table will reveal that the assessee's submission is wrong. Only to the extent of Rs. 12 lakhs paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad taken a lawful view that the assessee had explained the source of investment. CIT himself in his order noted that only Rs. 2 lakhs, out of the total Rs. 24 lakhs, remained explained. Thus what was sought by the CIT was to substitute the view taken by the A.O. in the original assessment proceedings. The view taken by the CIT itself was based on a letter from the A.O. and was not on any independent verification of facts. 21. Coming to the second aspect, which is cost of acquisition of the feature film, Explanation to Rule 9B says that cost of acquisition means the amount paid by the film distributor to film producer under an agreement. Admittedly, assessee was following mercantile system of accounting. Sub-section (2) of Section 43, in our opinion, is very relevant here. The said section is reproduced hereunder:- "43 (2) "paid" means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession";" Thus "paid" will definitely include what is incurred as per the method of accounting followed by the assessee for computing his income from business. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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