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2015 (12) TMI 108 - ITAT BANGALORE

2015 (12) TMI 108 - ITAT BANGALORE - TMI - Computation of capital gains - Disallowance of cost of improvement - development of the property under joint development agreement (JDA) and subsequent cancellation as well as sale of the property - Held that:- One of the expenditure has already been allowed by the AO, therefore, we are of the view that the other than the interest expenditure no other expenditure can be allowed either as cost of the acquisition or cost of improvement of the land as per .....

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owed the same as cost of acquisition while computing the capital gain on the sale of land. - Decided in favour of assessee in part.

Disallowance of the indexed cost of expenses - CIT(A) has confirmed the action of the AO by holding that the assessee has failed to establish that the expenditure was incurred on land and that it has resulted in any improvement of the property - Held that:- The entire expenditure is claimed to have been incurred in cash. However, the assessee has not prod .....

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the developed property would be the business income of the assessee.

Therefore, any activity under the Joint Development Agreement was in the nature of business activity of the assessee. The expenditure incurred in pursuant to or as an obligation under the Joint Development Agreement can be claimed as business expenditure despite the fact that the said Joint Development project could not materialize. Therefore, the expenditure incurred subsequent to the Joint Development Agreement c .....

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NCH : These three appeals by the related assessee are directed against the respective orders dated 20/3/2014 and 28/3/2014 of Commissioner of Income-tax (Appeals), Mysore, for the assessment year 2008-09. 2. Since the identical issues are involved in these appeals relating to the transactions of development of the property under joint development agreement and subsequent cancellation as well as sale of the property therefore for the purpose of recording the facts we take the appeal in ITA No.792 .....

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received a refundable deposit of ₹ 11,70,00,000/- and was entitled to receive a specific parts of build up area in the project as its share. However, the agreement did not materialized and the joint agreement was consequently terminated vide settlement dated 29/8/2007 between the parties. Thereafter the assessee vide sale deed dated 29/9/2007 transferred the property to ITC Ltd., for a consideration of ₹ 16,62,80,172/- In the meanwhile survey u/s 133A was conducted on 5/6/2008 and su .....

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e CIT(A) who has granted part relief to the assessee by deleting the addition made on account of invoking sec. 50C of the Income-tax Act. However, the CIT(A) has confirmed the addition made by the AO in respect of the cost of acquisition and cost of improvement of the property. The Revenue has not challenged the order of the CIT(A) so far as the relief was granted by deleting the addition made on account of full value consideration u/s 50C. Thus, the assessee has raised the following grounds bef .....

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e allowed the sum as cost of acquisition. 3) a) The learned CIT(A) erred in confirming the disallowance of cost of improvement incurred during F.Y 2007-08 of an aggregate amount of ₹ 48,39,367/-being the interest on loans borrowed for purchase of the property and other administrative expenses incurred (in pursuance of the joint development agreement) and included in the work-in-progress (as reflected contemporaneously from year to year in the respective Balance Sheets) because she failed t .....

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377; 1,00,19,294/- between FY 1988-99 and F.Y 2006-07 despite recognizing the fact that the expenses were genuinely incurred for maintaining the property and securing the title from trespassers and to settle with claimants of title. She ought to have allowed the claim fully. b) The learned CIT(A) failed to appreciate that expenses incurred for sale guarding the title of property held by the appellant have to be allowed as capital cost of improvement against sale consideration and consequently er .....

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cost of maintaining the property in the past decade. Consequently, she erred in confirming the cost of improvement incurred over a period of about ten years. 5) For the above grounds and such other grounds that may be urged at the time of hearing, the appellant prays that the appeal be allowed. 4. Ground No.1 is general in nature and does not require any specific adjudication. 5. Ground No.2 is regarding disallowance of cost of improvement of ₹ 1,25,78,425/-. The assessee has claimed the .....

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p to ₹ 1,32,78,425/- till the financial year 2007-08. The AO found that except the amount of ₹ 1 lakh incurred had shown settlement, the other expenses are shown administrative expenses such as audit fee, professional charges, office rent, telecommunication and other misc. expenses. Thus, the AO was of the view that all these general administrative expenses has nothing to do with the improvement of the land in question. Accordingly, the AO has disallowed the cost of acquisition/impro .....

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t the said expenditure which was capitalized to the investment is an allowable cost of acquisition or improvement of the capital asset while computing the capital gain u/s 48 of the Act. 7. The learned AR has pointed out that the claim of the assessee is comprising of interest paid to ITC for the period prior to the joint development agreement entered into in the year 2000, whereas the land in question was acquired in the financial year 1996-97. He has referred the TDS deduction on the interest .....

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urred for the purpose of acquisition of property. He has submitted that the AO has already allowed ₹ 7 lakh out of the total claim of the assessee which pertains to the payment made by the assessee in settlement of dispute regarding the property. The other expenditure incurred by the assessee has no connection with the cost of acquisition or improvement of property in question. 9. We have considered the rival submission as well as relevant material on record. The assessee claimed a total e .....

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otal Particulars 23,834.00 Audit Fees 7,274.00 Bank charges 52,993.00 Bank Interest on OD 500.00 Cap in Clsd Part Firm W/off (TNV Hsg) 250,110.00 Construction of Road 58,350.90 Conveyances 1,052,055.00 Depreciation (Fun & Fix) 258,430.00 Director Remuneration 27,984.40 Entertainment Charges 30,410.00 Filing Fees 9,640.00 Finance Charges 13,200.00 Furniture Shifting Charges 86,567.00 Hire Charges 5,421.55 Insurance Charges 69,376.34 Interest Charges 1,948,615.00 Interest on Car Loan 7,981.00 .....

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alary to Staff 700,000.00 Staff Welfare 563.00 Suit Settlement 563,634.00 TDS Penalty 1,310.20 Telephone Charges 24,500.00 Tiffin Allowance 774,348.93 Transfer charges for electric meter 10,531.00 Transfer from SUNCITY 78,231.19 Travelling Expenses Utilities ADD Previous Years B/f LESS Reimbursement of expenses (93,978.00) 10. It is clear from the details given above that the apart from the interest payment no other expenditure has any connection in relating to the improvement or cost of acquisi .....

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he interest paid by the assessee on amount borrowed for the purchase of the property. One of the expenditure has already been allowed by the AO, therefore, we are of the view that the other than the interest expenditure no other expenditure can be allowed either as cost of the acquisition or cost of improvement of the land as per the provision of sec. 48 of the Act. As regards interest expenditure, the same is allowable as cost of acquisition if paid on the amount used for acquisition of the lan .....

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Disallowance of the indexed cost of expenses 12. While computing the capital gain, the assessee reduced the sale consideration by index cost of acquisition and index cost of improvement. The details of the expenditure are reproduced by the AO at page 4 as under: Financial Year Cost of acquisition/improvement Indexed cost of acquition/improvement 1996-97 29556636 53395759 1997-98 2231765 3715113 1998-99 605775 950946 1999-00 929015 1315906 2001-02 660650 854503 2002-03 3250820 4007163 2003-04 549 .....

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e the claim of the expenditure for improvement of the land or cost of the land. The AO noted that during the course of survey proceedings u/s 133A of the Act, statements of directors of the assessee were recorded who have stated that no development work has been carried out on the said land except the boundary wall which was constructed by the ITC group at its cost and not by the assessee. Accordingly, the AO disallowed the claim of the assessee by rejecting this self made vouchers produced by t .....

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efore the assessment proceedings. Therefore genuineness of the expenses cannot be doubted. He has submitted that the entire expenditure was recorded in the books of account and capitalized being part of the work-in progress of the project. The assessee did not claim the said amount of expenditure until the land was sold the other parties to the joint development agreement have corroborated the expenditure incurred by the assessee. The assessee was the owner of the land and all risk and reward be .....

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ence the AO has doubted the genuineness of the expenditure and vouchers which are self made without any bills of details of the work executed by the 3rd party . Further, the voucher were produced after the gap of 18 days from the date of survey conducted. Therefore, the same are after thought and self serving record produced by the assessee. Even otherwise the expenditure does not result in any improvement of the asset and claim of the assessee is contrary to the statement of the directors of th .....

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