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2016 (10) TMI 803 - ITAT HYDERABAD

2016 (10) TMI 803 - ITAT HYDERABAD - TMI - Revision u/s 263 - Computation of capital gains - Deduction u/s 48 - land vacation expenses - Held that:- There is no doubt that assessee has claimed the expenditure as part of cost of improvement and the proportionate expenditure was examined by the AO and allowed. Therefore, the observation of the CIT that AO has not verified all the details cannot be sustained. Moreover, we are unable to understand the view of CIT that the expenditures are not allowa .....

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DHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Shri V. Raghavendra Rao, AR For The Revenue : Shri J. Siri Kumar, CIT-DR ORDER PER B. RAMAKOTAIAH, A.M. : This is an appeal by assessee against the order of the Principal Commissioner of Income Tax-7, Hyderabad, dated 23-02-2015 invoking the provisions of Section 263 of the Income Tax Act [Act] to set aside the order of the Assessing Officer (AO). 2. In the course of present appeal, assessee has raised addi .....

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as withdrawn. 3. The regular grounds of appeal are with reference to proceedings u/s. 263 and all the eight grounds pertain to the same issue. 4. Briefly stated, assessee, an individual had filed her return of income admitting an income of ₹ 40,640/- besides the agricultural income of ₹ 95,000/-. Proceedings u/s. 147 were initiated, having come to know by the AO, that assessee had entered into a development cum General Power of Attorney in favour of M/s. Vertex Homes Pvt. Ltd., on 09 .....

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, Balanagar Mandal. (a) Cost of acquisition as on 09.01.2006: Sale consideration ₹ 50,000 Add: Stamp duty & other charges 20,440 Total cost ₹ 70,440 Assessee s share of investment 1/6X70,440= 11,740 Add: Cost of improvement worked out as per the annexure enclosed (Rs. 50,68,132 X 1593/7764 = 10,39,868) 10,39,868 Total cost of acquisition as on the date of transfer 10,51,608 As the assessee has transferred only 57% of the landed property, thus the cost of acquisition of the same w .....

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omputation of long term capital gains from the transfer of landed property admeasuring Ac 1.11 gts located in survey 77/B, Hydernagar Village, Balanagar Mandal. (a) Cost of acquisition as on 15.02.2006 Sale consideration ₹ 32,000 Add: Stamp duty & other charges 8,531 Total cost ₹ 40,531 Indexed cost of acquisition (Rs. 40,531 X 497/172) ₹ 1,17,116 Add: Cost of improvement worked out as per the annexure enclosed (Rs. 50,68,132 X 6171 X 7764) 40,28,264 41,45,380 Proportionate .....

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st of improvements claimed by assessee should not have been allowed without verification and has issued a show cause notice as under( as extracted in the order at Para 4): (1) On perusal of assessment record, it is noticed that while computing the Capital Gains an expenditure of ₹ 10 Lakhs; ₹ 11.20 Lakhs; and ₹ 29.47 Lakhs was allowed as a deductions towards improvement as the same are not allowable expenditure. In view of this, short computation of Short Term Capital Gains and .....

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DPR Divya Sai Constructions agr. Dated 28-5-2003 (20-10) (2003-04) 10,00,000 20,00,000 b) Land Vacation expenses paid to VVS Murthy on 17-01-2006 (2005-06) 82,974 3,00,000 c) Land Vacation expenses paid to VV Subba Rama Sastry (2005-06) 5,53,161 20,00,000 d) Land Vacation expenses paid to MV Rama Raju (2005-06) MV Rama Raju (2006-07) 3,22,677 1,61,343 11,66,667 5,83,350 e) Amount paid to K Krishna and K Gnaneshwar for land comprise on 04- 01-2006 (2005-06) 29,47,977 1,00,00,000 Total 50,68,133 .....

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Hydernagar Village. The assessee also executed another development agreement with M/s. Vertex Homes Pvt Ltd on 15.02.2006 in respect of another property at Hydernagar Village. While calculating the Short Term Capital Gains and Long Term Capital Gains, the AO allowed cost of improvements of ₹ 10,39,868/- and ₹ 40,28,264/- respectively. 'Cost of improvements' includes i) Cancellation of development agreement with GPR Divya Sai Constructions dated 28.05.2003 ₹ 10,00,000/- .....

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e amount paid as and by way of settlement of a claim to the person who disputed the title of the assessee cannot be said to be an expenditure by way of any improvement to the asset as such. In the present, case, the assesse along with the co-owners entered memoranc.um of compromise on 04.01.2006 with K Krishna and K Gnaneswar (who file suit in the court) and paid ₹ 29,47,977/-. Regarding land vacation expenses, the assessee paid ₹ 11,20,155/- to the dwellers to look after the propert .....

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e before the AO, submissions made before the CIT and the order of the CIT, it was submission that assessee has claimed correctly the proportionate amount out of the sums spent for : a. Cancellation of the earlier agreement; b. Vacation of tenants; and c. compromise amounts paid to various people which was evidenced by respective receipts/agreements of sale/cancellation of deeds which were all furnished to the AO; 7.1. It was the submission that Ld. CIT wrongly considered that AO has not enquired .....

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46] (Mad); v. K.P. Varghese Vs. ITO [131 ITR 597] (SC); vi. CIT Vs. Shakuntala Kantilal [190 ITR 56] (Bom); vii. CIT, Delhi VIII Vs. Shakuntala Rajeshwar [160 ITR 840] (Del); viii. Miss Dhun Dadabhoy Kapadia Vs. CIT, Bombay [63 ITR 651] (SC); 8. Ld. DR relied on the order of the CIT. 9. We have considered the rival contentions and perused the order of the AO and CIT. There is no doubt that assessee has claimed the expenditure as part of cost of improvement and the proportionate expenditure was e .....

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e computing the capital gains, such loss is certainly allowable and so, no prejudice is caused to the Revenue. As submitted before the authorities, assessee had entered into an earlier agreement and by virtue of agreement dt. 28-05-2013, the development agreement with earlier builder was cancelled, for which there was a cost, which was proportionately apportioned to assessee as per the table extracted above. This expenditure was part of the transaction for new development and certainly takes the .....

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dwellers, the value of the land increases. Therefore, the expenditure incurred for vacating the lands certainly amounted to cost of improvement. Accordingly, the expenditure incurred on payment of compensation was an allowable deduction. By the time the AO completed the assessment, this judgment of Hon'ble CIT Vs. Miss Piroja C. Patel [242 ITR 582] (Bom) (supra) was available wherein the Hon'ble Bombay High Court has followed earlier two decisions in the case of CIT Vs. Shakuntala Kanti .....

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diture u/s. 48(i). The Hon'ble Madras High Court followed the principles laid down by the Hon'ble Supreme Court in the case of K.P. Varghese Vs. ITO [131 ITR 597] (SC). Thus, the expenditure incurred for removal of encroachment/lessees are to be allowed as a deduction, which the Ld.AO has allowed after due examination. Therefore, the opinion of the CIT on this issue cannot be sustained. 9.1. Coming to the issue of compensation paid to K. Krishna and K. Gnaneswar , there was a Memorandum .....

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