TMI Blog2017 (10) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... making the proposed disallowance, the failure of the Ld. CIT (A) to specifically adjudicate on the issue of admissibility of assessee’s claim u/s 48 of the Act coupled with the AO not examining the sale agreement to test its veracity, we are of the considered opinion that the entire issue needs to be restored to the file of the AO for re-examining the issue in light of the evidences filed by the assessee as well as the settled judicial precedents. Accordingly, we restore the issue of determination of the deductibility as an admissible deduction to the file of the AO to be decided in terms of our observations above after giving a proper opportunity to the assessee. Addition towards the cost of improvement - Held that:- To meet ends to justice, taking into account holistic consideration of all the facts, we are of the opinion that half of the amount claimed may be treated as allowed as the factum of improvement by incurring expenses is not doubted and we accordingly sustain 50% of the same. - ITA No. 4209/Del/2013 - - - Dated:- 29-9-2017 - Shri Sudhanshu Srivastava, Judicial Member And Shri Prashant Maharishi, Accountant Member Appellant by : Shri Kapil Goel, CA Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the said land. However, the AO was of the opinion that the claim of the assessee could be accepted in the light of the legal provisions. According to the AO, what the law permitted to be deducted from the sale consideration, while computing long term capital gain, was the cost of improvement whereas the assessee had deducted the compensation paid for the cancellation of agreement for sale of property. As per the AO, the assessee had neither made any alteration nor any additions to the asset. The sum paid by the assessee was on account of compensation due to cancellation of agreement by the assessee himself which was not at all deductible from the capital gain. The AO relied on the case of Ambat Echkutty Menon vs CIT (1978) 111 ITR 880 (Ker) wherein the Hon ble Kerala High Court has held that sum spent to clear encumbrance is not cost of improvement. The AO also relied on the case of CIT Vs Roshanbabu Mohammad Hussein Merchant (2005) 275 ITR 231 (Bom) wherein the Hon ble Bombay High Court has held that expenditure incurred by an assessee to remove an encumbrance created by the assessee himself (on a property which was acquired by him without any encumbrance) shall not be allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT (A) was of the opinion that the explanation offered by the assessee as very cursory, devoid of much logic and also devoid of the requisite documentary evidence. The Ld. CIT (A) opined that the entire explanation regarding purchase agreement with M/s U.P. Bone Mills (P) Ltd., subsequent termination of any such agreement, the payment of such a huge compensation etc. were all without any piece of requisite document, so as to lend even reasonable credence to such explanation. The Ld. CIT (A) observed that the entire story of any such apprehension of forceful possession and payment of compensation, were all cooked up story for the purpose of camouflaging payments made on some other projects or for some other purpose business-or non business, legal or illegal and that the entire explanation was worth rejecting at the first instance itself. The Ld. CIT (A) further observed that in the present case, neither the fact of any real threat or title has been evidenced, nor any such compensation/claimed in respect of M/s U.P. Bone Mills (P) Ltd. which could require such huge compensation, been adduced. The Ld. CIT (A) upheld the action of the A.O. in disallowing the claim of ₹ 1,56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t/Loss account (paper book pages 22). 3.1 The Ld AR further submitted that once no doubt was cast on the said agreement by the AO during assessment, the only question requiring consideration at this stage was the allowability of the payment under section 48 of the Act made to the proposed buyer as per the agreement. It was the submission of the Ld. AR that the burden to establish that the said agreement was sham or bogus was on the revenue and the same has not been discharged. It was further submitted that the lower authorities have not been able to controvert, by any positive material, the agreement on record. Ld AR further submitted that no enquiry u/s 131/133(6) of the Act was conducted by any of the lower authorities before rejecting the claim of the assessee. 3.2 The Ld AR further submitted that the Hon ble Kerala High Court s decision in the case of Ambat Enchkuty Menon reported in 111 ITR 880 and relied upon by the AO while making the disallowance, was no longer a good law as the same had been overruled by the Hon ble Apex Court in the case of RM Arunachalam reported in 227 ITR 229 wherein the aforesaid judgment of the Hon ble Kerala High Court has been expressly disap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. in financial year 2001-2002 towards land levelling, earth filling, boundary wall etc. It was also submitted that as per the statutory prescription of Rule 6F (5) of the Income Tax Rules, 1962, the limitation to keep the books and records expired for the previous year 2001-2002(AY 2002-2003) on 31.3.2009 i.e. before the return filing date u/s 139 of the Act on 30.09.2009 and also before the issuance of statutory notice u/s 143(2) which was dated 22.09.2010. In the alternate, the Ld AR pleaded that a suitable view may be taken in the overall factual situation. 4. The Ld. DR opposed the arguments of Ld AR. Ld DR argued that the assessee did not establish his claim for cost of improvement of ₹ 156,37,380/- on tenable legal grounds. Ld DR argued that mere agreement was not good enough to establish assessee s case qua the claim of ₹ 156,37,380/-. Ld DR countered the argument of the Ld AR that the AO was incorrect in disallowing the assessee s claim. It was submitted that the claim was not maintainable u/s 48 at all. Ld DR relied on orders passed by the AO and the Ld. CIT (A). On the second issue of ₹ 19,28,859/-, Ld DR reiterated that nothing concrete was filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even hinted at the possibility of the assessee having fabricated the story to suit his ends. However, these observations of the Ld. CIT (A) are not backed by any cogent evidence but are more in the realm of surmises and conjectures. Even the Ld DR, during the course of arguments before us, did not put any sort of argument to remotely doubt the genuineness of the agreement. The Ld. DR could not refute the assertion of the Ld. AR that the payee had duly accounted/disclosed the said amount as income in its hands. However, a perusal of the assessment order shows that this aspect has not been looked into at all by the AO. Thus, the findings by the AO and the Ld. CIT (A) are based on two different footings. Further, the AO, while disallowing the assessee s claim has relied upon the Hon ble Kerala High Court s decision in the case of Ambat Enchkuty Menon reported in 111 ITR 880. However, this judgment of the Hon ble Kerela High Court is no longer a good law as the same has been overruled by the Hon ble Apex Court in the case of RM Arunachalam reported in 227 ITR 229 wherein the aforesaid judgment of the Hon ble Kerela High Court has been expressly disapproved. It remains undisputed that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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