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TMI Blog2015 (1) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that loan was raised on property by developer therefore the expenditure incurred by appellant was allowable as deduction. 3. The assessee has also filed an application seeking the leave of the Tribunal to raise the following additional ground: "On the facts and in the circumstances of the case, and without prejudice to the Grounds of appeal already raised, The assessee be allowed 1/6th share of additional cost of Rs. 55,88,350/- as cost of acquisition of the development right and other rights, being amount paid for perfecting his title by clearing the encumbrance of mortgage created by the Developer Mehta Constructions: Proprietor Shri Shital Ulhas Mehta for raising loan of Rs. 65,00,000/- from Warana Sahakari Bank by mortgaging the property given to him by the assessee and the other co-owners for development with a power of Attorney, which made the developer virtually and in substance a full owner of the said property." 4. We have heard the parties on admission of the additional ground. We find that as the original grounds are general in nature hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan amount would keep multiplying and hence, the land owners decided to repay the loan of Rs. 53,75,000/- (Principal Amount + Accrued Interest) and make a fresh Development Agreement with another builder. Accordingly, the bank liability owed by the M/s. Mehta Construction was discharged by the assessee and other co-owners and said amount was claimed as expenditure while working out the capital gains arising on transfer of development rights of the property to M/s. Amatya Developers subsequently. It was claimed that the expenditure was in the nature of cost of acquisition of the property and therefore, allowable as deduction while working the capita! gains. The assessing officer, however, was not satisfied with the contention of the assessee and observed as under: i. Conditions of the development agreement had not been fulfilled by Mehta Construction. ii. As per the development agreement, Mehta Construction was responsible for repayment of loan and not the land owners. iii. The land owners did not enquire about the reputation or Mehta Constructions in the market and their assets and liabilities. iv. The land owners did not make any efforts to vacate the land from the bank excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving the above reasons. The assessee carried the issue before the Ld. CIT(A) but without any success. The Ld. CIT(A) placed his reliance on the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Roshanbabu Mohammed Hussein Merchant 275 ITR 231 (Bom). As observed by the Ld. CIT(A) the assessee was not under any obligation to discharge bank loan liability created by the developer i.e. M/s. Mehta Construction Co. and responsibility of discharging the liability was that of developer and not property owners. The Ld. CIT(A) also referred to Clause No. 3 of the Development Agreement, and observed that the assessee and other co-owners reserved the right to unilaterally cancel the Development Agreement in case there was delay in payment of the balance consideration by the developers. In the opinion of the Ld. CIT(A) as per the facts the assessee has voluntarily taken over the liability of a third party in the garb of avoiding long drawn litigation and it amounts to creating an encumbrance by the assessee himself. The Ld. CIT(A) confirmed the assessment order. Now, the assessee is in appeal before us. 7. We have heard the rival submissions of the parties and peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Act, 2002. Notice was also issued to the owners of the property including present assessee for recovery of the loan borrowed by the developer. The assessee and other co-owners settled the loan by making the payment of Rs. 55,88,350/- including the accrued interest. 8. The assessee subsequently, entered into a Development Agreement with M/s. Amatya Developers in which the assessee is a partner. Now, the issue before us is whether the assessee can claim the deduction in respect of the amount paid to Shri Warna Sahakari Bank Ltd. for settling the loan borrowed by the earlier developer M/s. Mehta Construction Co. The argument of the Ld. AR is that the charge was created by the developer on the said property and charge was not created by the assessee and other co-owners and the assessee was forced to repay the loan borrowed by the developer as otherwise the said property would have been acquired by the bank and the assessee would have been put to loss by losing the rights of the said property. The Ld. AR submits that the reliance placed by the Ld. CIT(A) on the decision of the Hon'ble High Court of Bombay in the case of Roshanbabu Mohammed Hussein Merchant (supra) is totally mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her co-owners. 11. In the case of Roshanbabu Mohammed Hussein Merchant (supra) their lordships have made a distinction between the obligation to discharge the mortgage debt created by the previous owner and the obligation to discharge the mortgage debt created by the assessee himself. In the said case the assessee stood as a guarantor to the company and mortgage was created. As per the facts noted in the said case, the said assessee was shareholder of a company known as Merchant Steel Industries (P) Ltd. in which her husband was a Director. The assesse owned a plot of land at Bhavnagar admeasuring 2992 Sq. Yards. The said company i.e. Merchant Steel Industries (P) Ltd. had raised a loan from the State Bank of Saurashtra and for the repayment of the said loan, the assessee stood as one of the guarantors and the assessee had offered the above plot of land as security for repayment of the loan. In the background of said fact their lordships held that it was a voluntary act of the assessee to create the mortgage after the property was acquired. Otherwise the assessee has created the mortgage only after acquiring the property. In our opinion the facts in case of Roshanbabu Mohammed Hus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case and in law the Learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that loan was raised by the developer on property owned by the appellant therefore the expenditure incurred by appellant for release of the said property was allowable as deduction while calculating the capital gain. 14. The assessee has also taken additional ground: "On the facts and in the circumstances of the case, and without prejudice to the Grounds of appeal already raised, The assessee be allowed additional cost of Rs. 55,88,350/- as cost of acquisition of the development right and other rights, being amount paid for perfecting his title by clearing the encumbrance of mortgage created by the Developer Mehta Constructions: Proprietor Shri Shital Ulhas Mehta for raising loan of Rs. 65,00,000/- from Warana Sahakari Bank by mortgaging the property given to him by the assessee and the other co-owners for development with a power of Attorney, which made the developer virtually and in substance a full owner of the said property." 15. The facts which revealed from the record are as under. The assessee is co-owners in property bearing S. No. 329, E/K/1A, New Shahupuri, Dhabholkar Corne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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