TMI Blog2017 (6) TMI 1156X X X X Extracts X X X X X X X X Extracts X X X X ..... - Shri Bhagchand, AM And Shri Kul Bharat, JM Assessee by : Shri Manish Agarwal O.P. Agrwal, CA Revenue by : Shri O.P. Bhateja ORDER Per Bhagchand, AM Both these appeals have been filed by the assessee against two separate orders of the ld. CIT(A)-II, Jaipur dated 17-10-2014 for the assessment years 2006-07 and 2008-09 respectively raising therein following grounds of appeal. ITA No. 886/JP/2014 A.Y. 2006-07 1. On the facts and in the circumstances of the case the ld. CIT(A) has grossly erred in upholding the addition of ₹ 49,63,278/- made by the AO by enhancing the capital gain declared by the assessee at ₹ 1,39,80,454/- without any basis and without pointing out any specific defect in the capital gain computed by the assessee, thus the consequent addition so upheld deserves to be deleted. 1.1 The ld. CIT(A) has further erred in failing to appreciate that the AO has miscomputed the capital gain by wrongly calculating the indexed cost of acquisition inasmuch as he has not applied the prescribed formula for calculating the indexed cost of acquisition but has considered imaginary figures for arriving at the reduced indexed cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asset sold and removal of encumbrances created thereon, thus the payments being made for removing the encumbrance over the asset sold without which the sale of the assets was impossible, hence the amount so paid is eligible for deduction u/s 4(1) of the I.T. Act, 1961. 3. On the facts and in the circumstances of the case the ld. CIT(A) has erred in upholding an addition of ₹ 2,30,671/- made on account of disallowance of genuine expenses claimed by the on account of car expenses, depreciation on car and interest paid on car loan without appreciating that the claim of depreciation is a statutory deduction available to assessee and other expenses claimed were exclusively incurred for business expenses. Thus the disallowance so sustained deserves to be deleted. 2.1 First of all, we take up the grounds of appeal of the assessee for the assessment year 2006-07 which has been dismissed by the ld. CIT(A) by observing as under:- 2.5 I have perused the facts of the case, the assessment order and the submissions of the appellant. In this case, the appellant has purchased a new building (at C96) which has been given on a 99 years lease to tenant (RFC) for a lease re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been specified u/s 48 of the Income Tax Act, according to which entire cost of acquisition incurred in respect of property sold has to be reduced from Sale Consideration, whereas Ld. AO without any reason has denied the claim of indexed cost of acquisition to the tune of ₹ 12,01,265/- resulting into inflated capital gain. All the expenses were duly recorded in the books of accounts and such books were not rejected by Ld. AO. Thus, the addition made by Ld. AO does not hold good on facts as well as on law and the same deserves to allow the assessee as claimed. Grounds of appeal No. 2 and 2.1 In these grounds of appeal, assessee has challenged the action of Ld. CIT(A) in confirming the denial of Cost of ₹ 1,01,97,208/- of the property leased out to RFC in lieu of getting physical possession of the property C-18, Bhagwan Das Road, Jaipur, which was developed and part of the area has been sold and resultant capital gain on which was declared by the assesseein the return of income filed for the year under consideration after claiming such cost. Briefly stated the facts of the case are that assessee company was in possession of a property Surya Niwas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . will be 30% of the then prevailing market rate. Thus, assessee searched out certain properties to accommodate RFC which were referred to it vide letter dated 24.06.2000 and after physical inspection and considering the various aspects of the matter, RFC agreed to shift their office to following two premises:- (i) 67, Gopalbari, Ajmer Road, Jaipur, and (ii) D-13, Meera Marg, Bani Park, Jaipur All the formalities, i.e. fixing the rent, drafting the lease deed etc. were done and in fact advance payment of rent was made.RFC further desired that a bank guarantee should be given in favour of it for due performance of the agreement, which was also executed. However, subsequently on 12.09.2000, assessee was intimated that Board of RFC did not approve the agreement and thus denied to vacate the property. Since, RFC committed the breach of agreement, assessee filed the writ petition (APB 21-32)before Hon ble Rajasthan High Court in the year 2000 requesting to direct RFC to vacate the premises. All the facts as narrated above are duly borne out of in the said writ petition filed by assessee, copy of which was duly filed before the lower authorities. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Bhagwan Das Road, Jaipur. On vacation of property at C-18, Bhagwan das Road by RFC, assessee on 31.10.2003 entered into a Development agreement with M/s Silver Sands Builders Private Limited to develop the said plot of land, and accordingly construction of new commercial complex was completed in the year under consideration. During the year under consideration,assessee sold total built up area admeasuring to 22860.09 sq.ft. and offered Capital Gain of ₹ 1,39,80,454/- (APB 56) on the same. While computing Capital Gain, assessee claimed the deduction towards the cost of property leased to RFC (C- 96, Chomu House) i.e. ₹ 1,01,97,208/- u/s 48(1) of the Income Tax Act, 1961 being incidental and unavoidable expenses without which as stated above, assessee could not get the physical possession over the premises sold during the year. However, Ld. AO rejected the claim of assessee. Also, Ld. AO denied to give benefit of cost incurred on account of following:- (i) Expenses on Building ₹ 2,16,932/- incurred in 31.03.1999 (ii) Reduced expenses incurred for the year ended 31.03.2004 by ₹ 9,84,333/- During the course of assessment proceedings t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire set of facts narrated above, it is evident that the new property was leased out to RFC solely for the purpose of getting vacationandphysical possession of another property which later on stood developed and sold by the assessee. Thus expense towards the cost of new property provided on lease to RFC are incurred wholly and exclusively in connection with transfer and deserve to be allowed in view of specific provisions of clause (i)of section 48(1). However, neither Ld. AO nor Ld. CIT(A) allowed the deduction towards the cost of new property as expenses from the sale consideration while working out the capital gains for the sole reason that assessee had the ownership title over the said property though no doubts whatsoever was raised to the facts that the subject property given to RFCon irrevocable lease of 99 years for the getting possession of other property. In this regard reliance is placed on various judgements wherein it has been held that expenses incurred for getting property vacated for its further development and sale are to be treated as expenses wholly and exclusively in connection with transfer and thus to be allowed against Capital Gain. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase tenure can be extended for a further period of 99 years or more at the option of lessee and lease money is payable annually with the stipulation that lessee will not vacate the property. Also, looking to the past experience with RFC at the time of getting property vacated, it is for sure that the property would not be vacated by RFC ever. Further, it is to be noted that had the property be like any other rented property, the same would not be leased at such a nominal rent, which is not at all in commensurate with the market rates and also on the conditions which all are against the rights of a owner. Further recently CBDT vide circular No. 35/2016 (pages 27-28) has held that the land allotted by the state institutions for a long term lease would character as deemed sale and thus no TDS could be deducted on the lease charges paid for it. With this it can be said that in the present case when the assessee leased out the property to the RFC for minimum period of 99 years, it is deemed sale i.e. the ownership right would be transferred to RFC. In other words, if the cost of property is not allowed as deduction in accordance with section 48(1)(i), it would amount to undu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and 1.1 of the assessee are allowed for statistical purposes. 2.4.1 As regards Ground of appeal No. 2 to 2.1, we have also considered the facts of the case and case laws relied on by both the sides. Brief facts as gathered from the records are that the assessee had purchased a property at C-18, Bhagwan Das Road, Jaipur on 19.02.1996 which was occupied by Rajasthan Financial Corporation (in short RFC) since past several years. Assessee in order to develop a commercial complex on the said property requested the RFC to vacate the property however RFC denied for the same and on repeated persuasion required a heavy consideration of vacation had asked for an alternative accommodation at the cost of the assessee. Thereafter disputes continued between the assessee and RFC and the matter went up to the Hon ble Rajasthan High Court. During the pendency of the writ before the Hon ble High Court, a settlement was reached between the parties and accordingly it was decided that the assessee would provide a new property to RFC on 99 years lease against the vacation of property i.e. C-18, Bhagwan Das Road, Jaipur occupied by RFC. Accordingly assessee offered another property owned by it whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atres wherein vide orders dated 21.12.2011 in ITA No. 1287/2011, it has been held by the Hon ble Court as under: 10. In the present case, as per the facts found by the tribunal and the CIT (Appeals), there was a canteen / refreshment stall in the cinema hall which was in occupation of a tenant / licensee since 1971. The property was to be sold. In order to procure and get proper value and effectuate the sale, the respondent assessee paid ₹ 1.48 crores to the tenant / licensee to vacate the property. These are the factual findings recorded by the tribunal and have been noticed above. We fail to understand why the said sum cannot be set of from the sale consideration as it was incurred solely and exclusively in connection with the transfer. We, therefore, need not examine and go into the question whether the amount paid was towards cost of improvement . The said amount has to be allowed because it was incurred in view of facts found, wholly and exclusively connected and linked with transfer / sale. In similar circumstances, the Andhra High Court in Naozar Chenoy Vs. Commissioner of Income Tax [1998] 234 ITR 95 (AP) has observed as under: As regards the expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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