TMI Blog2022 (10) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... d that compensation paid to earlier buyer to cancel the agreement is an expenditure incurred wholly and exclusively in connection with transfer because without removing any encumbrance the sale or transfer of property could not be effected. As held by the Hon ble Bombay High Court, such compensation, therefore, cannot be treated as cost of improvement to the capital asset so as to allow deduction at index value while computing the capital gain. We uphold the order of the Assessing Officer allowing deduction to the assessee on account of compensation paid for cancellation of banakhat to the extent of Rs.36 lakhs. Ground No.2 of the assessee s appeal is thus partly allowed. Disallowance of brokerage expenses - said disallowance was made AO and confirmed by CIT(A) mainly on the ground that brokerage was paid by the assessee to the concerned broker in the year under consideration while the agreement to sale was executed on 01.06.2010 and almost the entire sale consideration was received by the assessee in the FYs 2009-10 and 2010-11. There is, however, nothing brought on record by the authorities below to dispute the services rendered by the concerned broker in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellation of agreement to sale executed earlier was claimed by the assessee as cost of improvement to the property and deduction for the same was claimed after applying inflation index. According to the Assessing Officer, the amount of Rs.36 lakhs paid by the assessee as compensation for cancellation of the agreement to sale executed earlier did not constitute cost of improvement and the assessee, therefore, was not entitled to claim indexation for the same. He held that the said amount represented expenditure incurred by the assessee wholly and exclusively in connection with the transfer of the property and the assessee, therefore, was entitled for deduction of the same to the extent of Rs.36 lakhs. As regards the other deduction of Rs.1,50,000/- claimed by the assessee on account of commission paid to one Shri Vitthalbhai Ranpura, the Assessing Officer found that the said amount was paid by the assessee only in the year under consideration whereas the agreement to sale was entered into in the year 2010 and even the sale consideration was received by the assessee in FY 2010-11 itself. He held that the commission of Rs.1,50,000/- paid by the assessee thus was not related to the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- had to be paid to prospective buyers with whom the agreement was cancelled. It is contended that the compensation should be treated as cost of improvement and indexation be allowed on the same. In the submission before me it is submitted that this being the cost incurred for making defective, incomplete or imperfect title as complete and perfect is an allowable deduction as cost of improvement u/s 48 of the Income Tax Act. Further in Para-2 of the notice, it is also rightly observed that the assessing officer has not accepted your assessee's claim of cost of compensation as cost of improvement of the property but allowed this cost to be reduced from the sale consideration without indexation for the reasons not elaborated by him. In turn your honor intends to hold that not only the contention treating compensation paid is cost of Improvement appears untenable even the action of assessing officer in allowing deduction of cost of compensation is also perhaps not correct. The facts of this case is: The Appellant has purchased a land at S.No. 207, Moje Tandalja on 20.06.2007. The appellant had entered into Agreement to Sale on 19.09.2008 for the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of agreement for sale of land. AR vehemently argued that expenses incurred were not in dispute. AR disputed applicability of order of the Hon'ble Bombay High Court in the case of CIT Vs. Roshanbabu Mohammad Hossain Merchant (2005) 144 Taxmann.720 (Bombay). Instead, AR has relied upon rulings of the Andhra Pradesh HC in case of Naozar Chemoy Vs. CIT. I have considered the rulings of the Hon'ble Andhra Pradesh High Court. Facts are different in that case, as such tenants were paid for vacating the premise. In other words, assessee used to get rent from that property which was duly disclosed in ITR. Once property fetches income then expenses incurred while sale for vacating that property was considered favourably by Hon'ble HC. Hence, encumbrance was non-intentional. However, in present case, title of the land was absolutely clear. The appellant himself entered with agreement for sale on 19.09.2008. Subsequently, agreement was cancelled on 22.02.2010 Admittedly, appellant/AR did not bring cogent reason or unavoidable circumstances forcing appellant to incur expenses towards making title clear which was in fact already without encumbrance. Moreover, agreement nowhere di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Charan Singh vs. Chandra Bhan Singh (AIR 1988 SC 6370), the Hon'ble Supreme Court have clarified that the burden of proof lies on the party who substantially asserts the affirmative of the issue and not upon the party who denies it. It has been further held that the party cannot, on failure to establish a prima facie case, take advantage of the weakness of his adversary's case. The party must succeed by the strength of his own right and the clearness of his own proof. He cannot be heard to say that it was too difficult or virtually impossible to prove the matter in question, hi the case under consideration, since it is the appellant who had made the claim that she had paid compensation to make Lad saleable/marketable, all the facts were especially within his knowledge. Section 102 of Indian Evidence Act makes it clear that initial onus is on person who substantially asserts a claim. If the onus is discharged by him and a case is made out, the onus shifts on to deponent. It is pertinent to mention here that the phrase burden of proof is used in two distinct meanings in the law of evidence viz, 'the burden of establishing a case', and 'the burden of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement to sale without possession which was later cancelled are arranged transactions to reduce tax from capital gain by well organised network with the sole motive to enable the beneficiary to account for such easy income for a consideration or commission or even routing back the money into own account. 10.6 I note that the landmark decision of the Hon'ble Supreme Court in the case of McDowell and Company Limited, 154 ITR 148 is squarely applicable in this case wherein it has been held that tax planning may be legitimate provided it is within the framework of the law and any colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that is honourable to avoid the payment of tax by dubious methods. However, the case laws cited by the Ld. counsel for the assessee are on distinguished facts, hence, not applicable in the instant case. The appellant has not raised any legal ground and argued only on merit for which appellant has failed to substantiate his claim before me. In view of above discussions, I am of considered view that appellant is not entitled for deduction on account of payment of compensation from capital gain withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Act. I remain unconvinced with AR's imaginary argument. Expense on account of brokerage of Rs.1,50,000/- paid to Vithhalbhai Ranpura deserves to be disallowed. AO's action is hereby upheld. Appellant fails on this ground as well. Ground No. 3 is dismissed. 6. Aggrieved by the order of the learned CIT(A), the assessee has filed this appeal before the Tribunal on the following grounds:- 1) The order passed by the Hon'ble CIT(A)-1 is bad in law, contrary to legal pronouncement and same be quashed. The addition confirmed by the Hon'ble CIT(A) is unwarranted and unjustified. It be held so now and addition made to be deleted. 2. The Ld CIT(A) has erred in enhancing the compensation paid in nature of cost of improvement due to right of another person in the impugned land under sale consideration for capital gain. It is submitted that amount paid of Rs.36,00,000/- to the party having right to receive / acquire the land be allowed as cost of improvement and indexation be allowed there on as a consequence thereof. 3. The Hon'ble CIT(A) has erred in passing the order under consideration without affording proper opportunity of hearing by issuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the learned CIT(A) to dispute the genuineness of the compensation paid by the assessee and to disallow the deduction claimed by the assessee for the same while computing the capital gain by enhancing the income of the assessee to that extent. 9. As regards the claim of the assessee that the compensation charges of Rs.36 lakhs paid on cancellation of banakhat being the cost of improvement of the property, he is entitled for deduction on index basis while computing the capital gain, it is observed that this issue is squarely covered by the decision of Hon ble Bombay High Court in the case of CIT vs. Shakuntala Kantilal, (1991) 190 ITR 56 (Bom), wherein it was held that compensation paid to earlier buyer to cancel the agreement is an expenditure incurred wholly and exclusively in connection with transfer because without removing any encumbrance the sale or transfer of property could not be effected. As held by the Hon ble Bombay High Court, such compensation, therefore, cannot be treated as cost of improvement to the capital asset so as to allow deduction at index value while computing the capital gain. Respectfully following the decision of Hon ble Bombay High Court in the case ..... 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