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2016 (1) TMI 608 - ITAT MUMBAI

2016 (1) TMI 608 - ITAT MUMBAI - TMI - Computation of Long term capital gain - disallowance of amount paid by the assessee out of the sale proceeds of the flat to her son, Mr Ketan C Shah can be allowed as deduction u/s 48(i), being expenditure incurred wholly and exclusively in connection with the transfer of an asset? - Held that:- If the assessee himself has created a mortgage or encumbrance and then same consequence shall not follow. Thus, if the assessee acquires a property in inheritance f .....

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ch could have led to long-drawn–litigation within the family and the subsequent purchases would not have got the clear title. This dispute has been resolved through Arbitral Award which itself goes to show that the encumbrance has to be discharged by making the payment to her son from the sale proceed of the flat and this had been eventually done after the property was sold. Thus, in our opinion the payment made by the assessee to her son was purely on account of discharge of the encumbrance on .....

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e are in agreement with the finding and conclusion of the CIT(A), as the assessee has failed to furnish any concrete evidence with regard to any of the expenditure or payment made by the assessee which has been claimed towards cost of acquisition. Even before us, the position remains the same, therefore on these two disallowances of Indexed Cost of Improvement and Amount paid through the builder to BDP enterprise as reinvestment in flat the addition gets confirmed. - Decided partly in favour of .....

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lenged the following disallowance of claim aggregating ₹ 53,22,444/- made by the assessee out of sale proceeds of flat while computing the long term capital gain :- a) Indexed Cost of Improvement of ₹ 8,27,844/-; b) Sum paid to her son Mr Ketan C Shah for surrender of occupancy rights on the flat of ₹ 40,00,000/- in terms of the Arbitration Award and the Family Arrangement; and c) Amount paid through the builder to BDP enterprise as reinvestment in flat ₹ 4,94,600/-. 2. T .....

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f flat, the assessee submitted that unless the said compensation was paid to her son Ketan C Shah, the sale would not have been effected as there was a dispute with regard to the rights in the said flat and he was not agreeing for sale. In support copy of Family Arrangement in respect of said compensation paid was filed. However, the AO rejected the assessee s contention and noted that, the assessee had also given sum of ₹ 65 lakhs has gift to same son, therefore, it was a some kind of app .....

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ah cannot be claimed as expenditure incurred wholly and exclusively in connection with the sale of flat. Accordingly, the Ld. AO added the said amount in the computation of LTCG. He further added a sum of ₹ 8,27,844/- on account of index cost of improvement, because it was claimed that assessee had incurred additional cost in the financial year 1983-84 for which assessee could not submit any evidence and also disallowed the claim of ₹ 4,94,600/- on account of sum paid to the builder .....

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was incorporated merely as second holder and in society s record the name of her husband was only for the sake of convenience. After the death of her husband, the assessee in any case had become absolute owner. From the perusal of the sale deed dated 11.06.2008, he noted the following facts :- 1) The assessee is well sufficiently seized and possessed of the said premise and the of the shares (in society). (page 3 & 4) 2) The assessee is entitled to the said premise and no one except herself .....

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the said shares (page 10 of sale deed dated 11.06.2008). He further observed that, the family arrangements other agreements only substantiates the fact of appropriation of sale proceeds. The assessee had also given gift of ₹ 65 lakhs from the appropriation of sale proceeds, therefore, compensation of ₹ 40 lakhs is also towards appropriation of sale proceed and hence, the same cannot be allowed as deduction u/s 48. Regarding disallowance on unsubstantiated cost of improvement on accou .....

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er right from the date of the purchase agreement and later on at the time of execution of purchase of flat situated in Navgaytri Building 80-A at Walkeshwar Road, Mumbai. Not only that he was a co-owner in the purchase deed but in the Society s records also his name was shown. After the demise of Chandrakant Shah on 30th May, 2005, the name of both the sons were shown as co-owner in the records of the society. Since his sons were his legal heirs they claimed their rights in the flat along with t .....

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hat their already exist, right, title and interest in the said the flat which was acquired a joint name and they contend that it will be transferred in the name of Mrs. Hiraben Chandrakant Shah after father s death for convenient sake without crystalising rights of all members of family X X X that parties are not in agreement with each other as to what extent each members has his/her right, title, interest in the said flat although the flat is in the name of Mrs. Hiraben C Shah . Thereafter, as .....

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who are living together, shall have certain claims and right in the said flat under dispute. 2. … 3. … 4. We have confirmed after taking into consideration various factors that Mrs. Hiraben Chandrakant Shah will make payment of ₹ 40,00,000 (Rupees Fourty Lakhs only) to Mr. Ketan Chandrakant Shah to purchase and acquire new premises either out of saving of the family or out of borrowed funds or by selling the flat no. 21, 6th floor, navgaytri building, 80A Walkeshwar Road, Mu .....

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s arrived at to clear the property for Family peace and harmony. As per the Family Arrangement, it was again agreed that, Mr. Ketan Shah should be paid the money as he wanted to stay separately along with his wife away from his mother and brother. Even in the sale deed, the assessee has been referred as vendor, whereas her two sons have been referred as confirming party which shows that they had a right, title, interest or claim in the flat. Thus, the Ld. Counsel submitted that both the son had .....

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se of the flat bought in the name of the assessee. In support of his contention, he has referred to the various documents placed in the paper book. Besides this, he has made several arguments with regard to the various evidences filed and all his arguments have been given in the form of written submissions before us. As regards the disallowance of amount earned on unsubstantiated Indexed Cost of Improvement of ₹ 8,27,844/-, he submitted that in the financial year 1983-84, a sum of ₹ .....

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A) and submitted that, name of the assessee s husband at the time of purchase was only added for the purpose of convenience and for the name sake. The mention of her husband s name in the society s certificate also has no relevance. In either case, the assessee was sole owner and her sons did not had any right in the said flat. Once that is so, any amount paid is not on account of any encumbrance but pure utilization of sale proceeds. He thus submitted that, it is a purely a colorable device for .....

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allowed as deduction u/s 48(i), being expenditure incurred wholly and exclusively in connection with the transfer of an asset. From the facts on record, it is seen that the flat was purchased in the year 1976 and in the copy of purchase agreement dated 31st August, 1976 the assessee s name Smt Hiraben C Shah along with her husband, Shri Chandrakant V Shah has been referred as transferees . The said property was purchased for sum of ₹ 1,10,000/-. In the Society s records of Navgayatri CHS , .....

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erest in the said flat after demise of father. To resolve the family dispute, Arbitrators were appointed and Arbitration Agreement was entered into on 26th December, 2006 between the assessee, Mr. Samir C Shah and Mr. Ketan C Shah. The important terms of recitals of the said agreement has already been referred above. In pursuance of such an Arbitration Agreement award was given by the arbitrators on 25th Mach, 2008, the relevant clauses of the award highlighting the dispute and the terms of awar .....

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thers and their family in relation to this flat since some time. The said parties by writing arbitration agreement dated 26th December, 2006 nominated and appointed 1. MR. HARESH PRAVINCHANDRA SHAH having address at 19, Western Court Building, 5th Floor, 83, Marine Drive, Mumbai -400 002, and (2) MR. NAVIN N. MEHTA having address at 27, Mahavir Darshan Opp. Bhandari Street Post Office, Masjid Bunder, Mumbai -400 003. To act as arbitrators and settled the said matter in disputes between the parti .....

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cuments, materials which were produced by them. And whereas the parties led documentary and oral evidence before us and parties hereto have presented their representative before us with the utmost care and fairness which lightened our taste; AND WHEREAS we have considered all the pros and cons of the matter and the relevant circumstances brought to our notice (and of which we were cognizant by our personal knowledge and observations) Now we, the said arbitrators, having considered the matters in .....

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andrakant Shah and (B) Mr. Ketan Chandrakant Shah along with their family as Joint Hindu Family. The flat under dispute is accepted as family house and each one has a right or claim of occupation. All parties who are living together, shall have certain claims and right in the said flat under dispute. 2. That Mrs. Hiraben Chandrakant Shah, shown as owner in the Flat No. 21, 6th Floor, Navgaytri Building 80 A Walkeshwar Road, Mumbai -400 006, on the records of the society, admeasuring 1050 sq. ft. .....

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he Flat No. 21, 6th Floor, Navgaytri Building, 80 A Walkeshwar Road, Mumbai - 400 006, after taking into consideration various factors and we further direct that payment of ₹ 40,00,000/- (Rupees forty lakh only) should be made within one year as consideration to Mr. Ketan Chandrakant Shah towards the purchase cost of the new flat so as to enable him to settle his family and thereafter to acquire the premises in the name of mother Mrs. Hiraben Chandrakant Shah and Mr. Samir Chandrakant Shah .....

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elong to Samir Chandrakant Shah. 5. And we further award that the mother Mrs. Hiraben Chandrakant Shah and Mr. Samir Chandrakant Shah also will not have any right, title, interest in the flat to be purchased or acquired by Mr. Ketan Chandrakant Shah . 7. From the above, it is evidently clear that in terms of the award, the assessee was required to pay sum of ₹ 40 lakhs to Mr. Ketan C Shah to get clear right and title in the Flat. Thereafter, the sale deed for sale of the flat was entered i .....

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ssee s husband, Mr. Chandrakant V Shah had a right and interest in the flat for the reason that the entire source of acquisition of the flat was completely made by him; Secondly, he was the co-owner in the said flat which is evident from the purchase agreement and also from the records of the society; Lastly, he died entestate, that is, without will; in such a situation, his surviving legal heirs, his wife and his two sons get the right in his share. Thus, his two sons Mr. Samir Shah and Mr. Ket .....

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ght should be settled once for all and it was decided that a sum of ₹ 40 lakhs would be given to him as and when the flat would be sold. Accordingly, the Arbitral Award as incorporated above was given. Later on, when the flat was sold at a very high price, then some more amount in the form of a gift was given which here is not an issue of dispute albeit it has been adversely viewed by the AO and CIT(A) for disallowing the claim of deduction of ₹ 40 lakhs. 8. If the assessee inherits .....

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sified that, if the assessee had inherited the property along with mortgage or any encumbrance, then the assessee would be entitled to the deduction of the amounts spent in discharge of such encumbrance or mortgage as cost of acquisition u/s 48. However, if the assessee himself has created a mortgage or encumbrance and then same consequence shall not follow. Thus, if the assessee acquires a property in inheritance fully or partially with any kind of encumbrance therein, then any obligation amoun .....

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