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TMI Blog2014 (8) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) grossly erred in failing to appreciate that there was not even a mention of the so-called Memorandum of Understanding (MOU) dt. 26.09.2007, which was neither registered nor notarized, in the Sale Deeds which were executed subsequently on 06.11.2007 and 10.03.2008. This clearly indicates that the so-called MOU was an after-thought and a self-created, self-serving document. 4. The Learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the total expenses of Rs. 2,47,65,600/- (Rs.1,62,33,447/- + Rs. 85,32,153/-) was a mere estimate which had neither been quantified in the Sale- Deed or in the MOU and, in the circumstances, the same could not be treated as expenditure incurred only and exclusively in connection with the transfer of assets u/s. 48(1) of the Income-tax Act, 1961. 5. The Learned Commissioner of Income-tax (Appeals) grossly erred in allowing the assessee's claim of deduction of Rs. 1,62,33,447/- even though the assessee had not furnished any evidence either before the Assessing Officer or in the course of the appellate proceedings in support of the expenses actually incurred. 6. Without prejudice to the above, the Learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s partner of different firms. The assessee filed his return of income for the A.Y. 2008- 09 on 29-09-2008 declaring total income of Rs. 1,22,93,880/-. In respect of the computation of Short Term Capital Gain on the sale of the land situated at Fursungi in Pune, the Assessing Officer has observed that the assessee has claimed deduction of Rs. 2,47,65,600/- in respect of provision for expenses to be incurred as per MOU towards development of land. He has further observed that as per the provisions of Sec. 48, the deduction of Rs. 2,47,65,600/- in respect of provision for expenses to be incurred as per MOU towards development of property is not an allowable deduction for the purposes of computation of Capital Gains. The Assessing Officer, therefore, rejected the claim of deduction of the assessee of Rs. 2,47,65,600/- and then worked out the Short Term Capital Gain (STCG) on the sale of Fursungi land at Pune which in consequence increased the taxable Capital Gain in the hands of the assessee. 3. The assessee challenged the action of the Assessing Officer before the Ld. CIT(A). The Ld. CIT(A) considered the submissions of the assessee and he came to the conclusion that out of Rs. 2,47, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07. The copy of the said MOU has also been furnished during the appellate proceedings and subsequently executed the sale deed in favour of the developer M/s D.S. Kulkarni Developers Ltd. as under: Sr. No. Date of Sale Gat No. of Land Consideration received Area of Land 1. 06.11.2007 46/1 /1B 4,94,00,000 152R 2. 10.03.2008 48/2B/1 48/5/2 1,69,00,000 52R 6,63,00,000 204R The market value for stamp duty u/s 50C of the aforesaid land was only Rs. 31,32,000/- against the total consideration received of Rs. 6,63,00,000/- by the appellant. Thus, the appellant out of the total land of 234.50 R sold 204R and retaining about 30.5R with him. The appellant, thereafter, while computing the short-term capital gain claimed expenses of Rs. 2,47,65,600/- to be incurred on the said land as per the MOU dated 26.09.2007 and had made a detailed estimate for the development work on the basis of which the expenses of Rs. 2,47,65,600/- was worked out. The appellant after claiming the deduction on account of expenses to be incurred offered Rs. 1,21,27,745/- as short-term capital gains on the sale of land for A.Y. 2008-09. During the assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred prior or subsequent to the passing of title. It is also submitted that as per the MOU dated 26.09.2007 the appellant promised and took responsibility to carry out the development work on the said land as per the understanding and based on the same the consideration was fixed which included the said cost of the development work. It is also contended that the estimate of expenditure to be incurred on the said land was also approved by the company and was intrinsically linked with the transfer though the same has been incurred subsequent to the execution of the sale deed. It has, therefore, been contended that the A.O. had failed to consider that the development work was appellant's contractual obligation and if the said work was not carried out, the company would have recovered the said amount. It is also submitted that the contention of the A.O. that provision for expenses in short term capital gain cannot be allowed as per the provisions of section 48 is not correct as various authorities have held that expenditure wholly and exclusively incurred in connection with transfer has to be allowed and it is immaterial that the said expenditure was incurred subsequent to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2007. Had such improvement upon the land not taken place the sale price of the land would have been much less. The word 'Improve' has various shades of meaning and it includes everything by doing in which there is enhancement in value of the asset or there is a rise in its price or the asset is made to grow better. In the case of Valliammal Vs CIT (1981) 127 ITR 713 (Mad)(TB), betterment charges paid to municipality was held to constitute cost of improvement for the purpose of clause (i) of section 48 of the Act, as it contributed to the increase in potential value of land in a real sense. In the present case also the appellant has carried out a diverse set of development work on the land such as construction of road network in concrete, removing bund, old huts, houses and cleaning grass, shrubs, debris etc., build the compound wall, which has indeed added value to the land for which the sale consideration received by the appellant was much more than the existing price as per the stamp duty valuation 4.4 Sections 48 and 50 of the Act clarify that capital gain can be correctly worked out only if cost of acquisition or improvement of the asset is deducted from the full va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which it was incurred will not be quite appropriate in the context of computation of the capital gains in view of the language of section 45 r / w s. 48. Courts have observed that the crucial words in the provision are "in connection with transfer". The expression means intrinsically linked with transfer. Such expenditure has to be wholly and exclusively in connection with the transfer. Even if such expenditure has some nexus with the transfer it does not qualify for deduction unless it is wholly and exclusively in connection with the transfer. Further, the expression "wholly and exclusively" does not mean that the expenditure should be a 'necessary' expenditure because the expression 'wholly and exclusively' does not mean 'necessary'. Thus in the computation of capital gains, in order to qualify for deduction under section 48, the expenditure should be "wholly" in terms of quantum in connection with transfer and the motive for such expenditure should also be the transfer of the capital asset in order that expenditure comes within the ambit of the word "exclusively". The allowability has to be examined from this angle. 4.5 The development work or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he brokerage of Rs. 1,50,000/- which details were submitted before the Assessing Officer. He submits that D.S. Kulkarni Developers Ltd., which is renowned builder and developer in Pune was desirous to purchase about 100 to 120 acres of contiguous lands for development of their SEZ project at Village-Fursungi, Tal.-Haveli, Distt.-Pune. The assessee approached D.S. Kulkarni Developers Ltd. and offered to assign the assessee's rights of the agricultural lands acquired in Village-Fursungi. The D.S. Kulkarni Developers Ltd. (in short "DSKDL") offered handsome consideration for sale of lands provided the assessee undertakes the work of basic development of the property as the lands were used for agricultural purposes and were not suitable for SEZ project. He submits that as per understanding between the assessee and developer, the said DSKDL was interested in purchasing the developed land subject to - 1) Removing & disposing bunds, old huts, cow sheds and houses. 2) Removing grass, shrubs, debris, disposing carting away and cleaning. 3) Government & private measurement of land (Mojani) 4) Construction of entire road network. 5) Construction of retaining/compound wall 6) Plumbing de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and DSKDL dated 26-09-2007. He argues that even presuming the assessee has incurred the expenditure to the extent of Rs. 1,62,33,447/- but so far as reducing an amount of Rs. 85,32,153/- from the sale consideration is not proper as admittedly the assessee has not incurred the said expenditure. He pleaded for restoring the order of the Assessing Officer. 8. On perusal of the assessment order, we find that the Assessing Officer has not discussed the issue in detail but adopted shortcut by disallowing the entire claim of expenditure by writing 5-6 lines. We find that the Ld. CIT(A) has in detail dealt with the issue and also narrated the relevant facts. In this case nowhere it is disputed that the assessee has sold the lands to the DSKDL but the solitary controversy is in respect of contractual liability on the assessee for carrying out development works on the said land as those lands were agricultural land, whereby the said land would be compatible for the project of the DSKDL which was initially SEZ project. It is stated that subsequently the DSKDL decided not to go with the SEZ project but decided to go with the Special Township Project and hence, the assessee was requested to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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