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2015 (9) TMI 999 - ITAT MUMBAI

2015 (9) TMI 999 - ITAT MUMBAI - TMI - Disallowance of deduction of compensation paid to the tenant against capital gain within the ambit of section 48 - Held that:- There was clear cut clause in the agreement that on 30th November, 2000, the tenant will hand over the business asset to the assessee. It has not been shown before us that the assessee had entered into a further such agreement or such an agreement subsisted at the time of selling of the property. As noted by the CIT(A) before the da .....

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se when the main Director of both the companies is common. Under facts and circumstances as noted by the AO & CIT(A), we find that such a compensation amount paid by the assessee cannot be claimed as deduction while computing the long-term-capital-gain, therefore, finding given by the CIT(A) is confirmed and accordingly ground raised by the assessee are dismissed. - Decided against assessee.

Disallowance of interest - Held that:- The assessee’s interest income has already been held to .....

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herefore, in the interest of justice, we feel that out of the balance administrative expenses (after the disallowance by the Assessing Officer as well as CIT(A) at ₹ 7,48,108/-), we further allow the expenses of ₹ 2 lakhs, which can be held to be sufficient for the earning of the interest income. Accordingly, the balance amount of expenses of ₹ 5,46,000/- is confirmed - Decided partly in favour of assessee. - ITA No. : 4887/Mum/2010 - Dated:- 28-8-2015 - SHRI B R BASKARAN AND S .....

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48, amounting to ₹ 38,45,000/-. In the ground no. 4, the assessee has challenged the disallowance of interest of ₹ 7,46,108/-. 3. Brief facts are that, the assessee in the computation of capital gain has claimed an amount of ₹ 38,45,000/- on account of compensation paid to tenant as cost of transfer of capital asset. On the verification of the details filed by the assessee, the Assessing Officer noticed that the assessee has given its factory building along with Plant and mach .....

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ximate. This company in its computation of income has adjusted this entire amount of ₹ 38,45,000/- claimed as compensation revenue against business loss . In this however assessee has reduced its tax liability and other related entity has set off against losses, hence no taxes paid. In response to the show cause notice as to why the compensation claimed should not be disallowed, the assessee submitted as under :- the indenture of conductorship was in force till 30.11.2010 and M/s Tax Tube .....

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amount of compensation . 4. The Assessing Officer held that there was no need to pay such a huge amount of compensation when monthly rent was only ₹ 9,000/-(Rs. 9,500/-). Further, there was a common Director who was signing the Balance sheet of both the company and assessee was also sharing its office with M/s Tex-Tube and also shared common expenses in the Profit & Loss Account. The Income-tax Inspector, who was sent to make local enquiry regarding place of working of both the entity .....

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which compensation of ₹ 38,45,000/- was given. (The property was allegedly given on rent to M/s Tex-Tube Mfg. Co. P. Ltd. vide Indenture of Conductorship dated 1.12.1995 and renewed on 20.11.2000 till 30.11.2010. Dated 18-2-2005 ii Agreement for sale with M/s. Pravin Wipers & Anciliaries P Ltd. Dated 1-5-2005 iii Conveyance deed with M/s Pravin Wipers & Anciliaries P. Ltd. Dated 7-10-2005 The aforesaid sequence of events clearly shows that vacant possession had already been receiv .....

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greement for sale/conveyance deed were entered into subsequently when the appellant already had the vacant possession of the premises. As such, the amount of ₹ 38,45,000/- paid by the appellant to M/s Tex-Tube Mfg. Co. P. Ltd. can t be termed as cost of transfer for purposes of capital gain on sale of land & building. The appellant already had the vacant possession of the premises on the date on which the agreement for sale dated 1-5-05/conveyance deed dated 7- 10-05 took place. Accord .....

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a result of transfer of capital asset, viz. (i) expenditure incurred wholly and exclusively in connection with such transfer and (ii) the cost of acquisition of the asset and the cost of improvement thereto. The maintenance expenses are not in nature of cost of improvement/wholly and exclusively in connection with transfer - the same are not allowable . 6. Before us, the Ld. Counsel submitted that there is only one common Director between the two companies and very few shareholders have a commo .....

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M/s Tex-Tube. This payment of compensation is thus flowing from the Deed of Cancellation. The transaction has to be seen between the two independent entities; one who wanted the premises to be vacated and other who was occupying the premises as a tenant who was running its business there and has to vacate. This damage to the tenant is in the form of compensation for vacating the premise. Thus, such a deduction while computing the capital gain has to be allowed. In support of his contention, he .....

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e noted that the assessee s only source of income was capital gain and interest income and no business was carried out by the assessee for last several years. The surplus funds have been invested for earning of interest income and no business activity as such was carried out. The Assessing Officer has already allowed certain expenses, which have nexus with the earning of interest income . Thus, the Assessing Officer has already allowed certain expenses which have direct nexus with the earning of .....

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On the other hand, Ld. DR strongly relying upon on the order of the CIT(A) on both the counts, submitted that entire surrounding facts/circumstances has to be seen in the case of the assessee like, there was huge losses in other concern and having common director. Such a huge compensation of amount when the annual rental income was merely ₹ 1,08,000/- seems to be make-belief-arrangement. Hence such a compensation has rightly been held to be not allowable as deduction. 9. We have heard the .....

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onductorship basis as per the Indenture of Conductorship dated 01.12.1995 for the period of five years. This agreement was uptil 20.11.2000. Thereafter, it is not borne out from the records as to whether this indenture of conductorship was continued or renewed further on paper. Thereafter, on 18.02.2005, the assessee had entered into cancellation of tenancy agreement dated 18.02.2005, wherein, the assessee agreed to pay ₹ 38,45,000/- for vacating the premise. Thereafter, the assessee enter .....

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is very difficult to terminate the tenancy; or there is some contractual obligation for which the premises cannot be terminated; or termination of tenancy can lead to huge loss to the tenant which needs to be compensated. Here, in this case, the indenture of conductorship for running a factory building was only uptil the period of 30th November, 2000 on monthly rent of ₹ 9,500/-. There was clear cut clause in the agreement that on 30th November, 2000, the tenant will hand over the busines .....

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