TMI Blog2015 (1) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... iability of the developer repaid by the assessee and other co-owners, to extend of assessee’s share u/s. 48(i)/(ii) of the Act. Appeal allowed. - ITA No. 914/PN/2011, ITA No. 924/PN/2011 - - - Dated:- 31-12-2014 - Shri G. S. Pannu And Shri R. S. Padvekar,JJ. For the Petitioner : Shri B.C. Malakar For the Respondent : Ms. Deepa Khare ORDER Per R. S. Padvekar, JM:- These two appeals are filed by two different assessees, who are the brothers and also co-owners of the property, challenging the respective impugned orders of the Ld. CIT(A), Kolhapur dated 28-02-2011 and 17- 02-2011 for the A.Y. 2006-07. As the issues arising in both the appeals are common hence, these appeals are disposed off by this consolidated order. 2. We first take the appeal filed by Neelkanth Ramchandra Pandit being ITA No. 914/PN/2011. The assessee has taken the following original grounds in the appeal: 1. On the facts and circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition made by Assessing Officer holding the expenditure incurred by assessee for release of property title was not allowable while calculating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . was also responsible for removal of the tenant M/s. Kumar Automobiles occupying the said property. The developer mortgaged above property on basis of the Development Agreement to obtain a loan of ₹ 65,00,000/- from Shri Warna Sahakari Bank Ltd. The said amount of loan is stated to have been utilized by M/s. Mehta Construction Co. for purposes other than development of the property and the cheques issued to the land owners by the developer could not be realized. As M/s. Mehta Construction Co. defaulted on payment of the loan installments with the bank, the bank initiated recovery proceedings by issuing notices to the land owners thereby indicating attachment of the property in case of non-payment of the outstanding loan. As the developer had failed to pay the full consideration to the assessee and other co-owners, the Development Agreement entered into with him was cancelled vide cancellation agreement executed on 13-05-2005. It is stated that the assessee s efforts to recover the outstanding amount by issuing legal notices to M/s. Mehta Construction Co. were also in vain. Realizing that in case the property was attached by the bank, a suit with the civil court to vacate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and decision of the Madras High Court in the case of CIT Vs. N Vajrapani Naidu reported in 241 ITR 560, the assessee was called upon by the Assessing Officer to explain as to why the expenditure on discharging the loan liability of the developer should be allowed as cost of transfer while computing the capital gains. Before the Assessing Officer, it was contended that the mortgage on the property was not created by the assessee but by a developer, and therefore, expenditure incurred for releasing such mortgage was an allowable expenditure. However, this explanation was held to be without any merit by the Assessing Officer by observing that the assessee has paid the liability of a third party when he was not liable to pay, which is not an allowable expenditure while working out the capital gains. The Assessing Officer placing his reliance on the decision of the Hon'ble Supreme Court and Madras High Court mentioned above, came to the conclusion the assessee was not able to prove that the expenditure on payment of loan liability of M/s. Mehta Construction Co. against the mortgage of property was a direct cost of transfer of the property, and accordingly, rejected the assessee s cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developer did not carry out the construction and ultimately the assessee cancelled the Development Agreement on 06-05-2005 and withdrew all the development rights granted to the developer. The assessee has filed the copy of the deed of mortgaged which was executed by the developer with the Bank as per the authority given to him in the irrevocable Power of Attorney. The developer mortgaged the assessee s property and borrowed the loan but subsequently it was revealed by the co-owners that the developer was unable to continue with the development work and the assessee recovered the rights from the developer and took the responsibility of the repayment of the loan which was borrowed by M/s. Mehta Construction Co. from Shri Warna Sahakari Bank Ltd. The assessee was paid ₹ 8,00,000/- and the total liability in respect of loan got sanctioned by M/s. Mehta Construction Co. against the mortgage of the property was to the extent of ₹ 65,00,000/- from Shri Warna Sahakari Bank Ltd. and out of sanctioned loan, he withdrew the amount of ₹ 45,00,000/-. The bank initiated proceedings for recovery of the outstanding loan as the developer defaulted the repayment of loan by invokin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68 ITR 277 (Del). 9. Per contra, the Ld. DR submits that it was the voluntary act of the assessee and other co-owners giving the concession to the developer even though there was no necessity and hence, it was the charge of the assessee his and hence, Ld. CIT(A) has rightly held that the assessee cannot claim the deduction. 10. We have gone through the copy of Development Agreement which is placed in the Compilation as well as the copy of the mortgage deed which is also filed before us. It is true that the mortgage deed was not available before the authorities below. We have examined the mortgage deed which is registered with the Sub-registrar, Kolhapur and we find that even though the owners are impleaded as a party nos. 1 to 3 but they have not personally signed the mortgage deed but mortgage deed is signed and executed by the Proprietor of M/s. Mehta Construction Co. with whom the owners entered into a Development Agreement. If we see the sequence of the facts of this case admittedly when the property was acquired there was no encumbrance except one tenant i.e. M/s. Kumar Automobiles and to that extent there is no dispute about it. The only dispute is in respect of the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld get ₹ 5,62,980/- and from the said amount sum of ₹ 1,29,020/- towards due to kist and interest was recovered and balance amount was paid to the assessee. The assessee claimed the deduction of ₹ 1,29,020/- which was recovered by the state on account of his kist dues. The said recovery was made which was having the nexus of the assessee s business and it was the tax liability of the assessee in nature of kist . In our humble understanding the facts are totally distinguishable. In the light of our above reasons and discussions, we are inclined to allow the grounds taken by the assessee and direct the Assessing Officer to allow claim in respect of bank liability of the developer repaid by the assessee and other co-owners, to extend of assessee s share u/s. 48(i)/(ii) of the Act. 13. Now, we take up the appeal filed by Madhavrao Ramchandra Pandit being ITA No. 924/PN/2011. The assessee has taken the following original grounds in the appeal: 1. On the facts and circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) is not justified in confirming the addition made by Assessing Officer holding the expenditure incurred by asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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