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TMI Blog2023 (4) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... ith specific rate of interest, if the envisaged time limit exceeds". 4. The CIT(A) erred in not appreciating the fact that there was no mention of any building in the sale deed executed by the assessee and hence no deduction on account of cost of such building was allowable in the computation of income under the head 'Capital Gain' as the consideration had been received solely for the transfer of land. 5. The CIT(A) was not right in not considering that clause 12 of the JDA dated 17.10.2007 clearly mentions that the owners shall get the hostel building premises vacated at their own cost within 180 days from the date of signing the JDA and till then, access to the property shall be through specified pathway only. 6. The CIT(A) erred in not appreciating the fact mentioned in para 3.1(a)(ii) of the JDA, wherein it is mentioned that an amount of Rs.2.5 crores will be paid to the owners within 30 days of fulfilling the three conditions, which also includes getting the hostel premises vacated. 7. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. However, this agreement was mutually cancelled on 06.09.2013 and the assessee firm refunded the amount of Rs.2,75,00,000/-. In addition to this the assessee firm paid Rs.2,50,00,000/- to the purchaser as compensation as per the settlement deed dated 06.09.2013. (iii). The expenses incurred towards cancellation of purchase agreement dated 17.10.2017: The assessee firm entered into another sale/purchase agreement with M/s Orlanda Realty Pvt. Ltd on 17.10.2007 and received a refundable deposit of Rs.l,50,00,000/- as per the terms of the agreement. This agreement was also cancelled on 06.09.2013 mutually by the assessee and the purchaser. The assessee firm refunded the amount of Rs.1,50,00,000/- along with the compensation of Rs.1,25,00,000/- to M/s Orlanda Realty Pvt.Ltd as per the cancellation deed dated 06.09.2013. The AO found that the terms of agreement of the JDA and the two sale agreements do not provide for payment of compensation to the builder. Instead, there was the provision of payment of interest @ 15% on the outstanding amount if the agreements are cancelled. The AO found that section 48 provided for allowance of (i) Expenditure incurred wholly and exclusively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y but shall not be entitled to terminate this Agreement for any reason except as mentioned in clauses 4. The quantum of damages shall be decided by the Arbitrator as envisaged in this agreement. ' This clause refers to clause 4 of JDA dated 17.10.2007 and the clause 4.5 of JDA dated 17.10.2007 says; '4.5 should there be any problem in progressing the project because of the Authorities and or non receipt of any approval and or consent for the project or any part thereof as envisaged in the Development Agreement then, at the option of the Developers the entire Rs.6,00,00,000/- (Rupees Six Crores Only) or any amount till then paid under the said clauses 3.1(a) (i) and (it) will be refunded by the Owners to the Developers within 45 days of the Developers notifying the problem to the owners in writing, falling which the owners shall pay interest at the rate of 15% per annum on any of the outstanding amounts. In such event on refund to the developers of the total amount paid under clauses 3.1 (a) (i) and (ii) received till such time by the owners the developers shall quit the said property with the construction made thereon without any claim for cost, and in that event this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As per the deed of cancellation of the purchase agreement dated 06.09.2013 both the Land owner and the Purchaser mutually agreed to cancel the agreement dated 17.10.2007 and the assessee firm paid back Rs.1,50,00,000/- refundable deposit. In addition to this, the assessee paid Rs.1,25,00,000/- to the Purchaser as per cancellation deed dated 06.09.2013. In the said cancellation deed it is stated that the owners have agreed to pay the Developers Rs. 1,25,00,000/- by way of monetary compensation for termination of the said purchase Agreement dated 17.10.2007. 3.4 The ld. CIT(A) observed from the order of the AO that he has verified the genuineness of the claim of payment of compensation and there is no doubt that the assessee has indeed made payments to the builder/purchaser. 3.4 According to the ld. CIT(A), the terms of settlement/cancellation deed shows that amount of compensation has been paid by the assessee to the builder/purchaser and it is also a fact that without the cancellation of the deed the assessee would not have been able to sell the property to a third party. The AO has not brought any material on record to show that the payment was made for something else and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90,50,00,000.00 15.00% 48,92,465.75 01.03.07 31.08.07 06.09.2013 2198 1,00,00,000.00 21,98,00,00,000.00 15.00% 90,32,876.71 31.08.07 11.01.08 06.09.2013 2065 2,00,00,000.00 41,30,00,00,000.00 15.00% 1,69,72,602.74 11.01.08 08.07.08 06.09,2013 1886 65,00,000.00 12,25,90,00,000.00 15.00% 50,37,945.21 08.07.08 20.03.09 06.09.2013 1631 25,00,000.00 4,07,75,000.00 15.00% 1,69,72,602.74 20.03.09 7,90,00,000.00 7,25,08,150.68 3.7 The assessee argued before the ld. CIT(A) that instead of paying interest to the Builder /Purchaser it has paid the amount in the form of compensation, which is less than the amount of interest. 3.8 The ld. CIT(A) after considering the argument of ld. A.R. and the observation of the AO has observed that the AO has not disputed the payment of compensation to the Builder. All payments have been made through banking channels on which TDS has also been made. On the cancellation of the deeds the assessee was required to pay interest on the outstanding amount @ 15%; instead, it has paid compensation to M/s Orlando Realty. The purchaser M/s Titan Company had put a condition to free th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der) is not true. In the entire assessment order, nowhere the Assessing Officer has observed as such. This false allegation of the assessee was relied by the learned CIT(A) while giving relief to the assessee (refer page no.20 para 5.2.9 of the CIT(A) order). This observation and consequential action of the learned CIT(A) is perverse. Hence, the allegation of the assessee, observation and consequential relief given by the ld. CIT(A) is to be reversed. 4.4 The ld. D.R. further submitted that going by the merits of the case, vide ground No. 14 of the assessee before the ld.CIT-(A), reference is made about encumbrance of property (refer CIT(A) order in Page No.20 para 5.2.9) play a vital role in the context of the observation of the Assessing Officer that the payment of Rs.7 Crs is not incurred wholly and exclusively in connection with the transfer of the property. The ld. D.R. drew our attention to Ground No. 14 made by the assessee before the CIT(A) which is as follows: "The Assessing Officer is not justified in disallowing the compensation which is in the nature of interest on cancellation of Joint Development Agreement/ purchase agreement, as the said compensation was paid aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rced by the facts narrated by the ld. CIT(A) in para 5.2.9 of his order, where he stated that the assessee created an encumbrance of the property with M/s. Orlanda Realty. The same is reproduced for the sake of convenience, The A/R brought to my notice the condition laid down in the agreement between the appellant and the purchaser, M/s. Titan Company Ltd which speaks of making an advance to the appellant for clearing the property from all encumbrances. He pointed out that the purchaser put a condition that the land should be free from all encumbrances including the cancellation of the deeds entered into with M/s. Orlanda Realty. Relevant portion of the agreement is reproduced below: Agreement for sale (copy of the same enclosed as Annexure 15): Page No,8; AND WHEREAS the certificate Encumbrance issued by the jurisdictional Sub Registrar in respect of the aforesaid Schedule 'C' properties bearing Survey No. 4,5 and 8/2 reveals two transaction (I) A Development Agreement executed between L Orlanda Realty Private Limited (Developer), 2. K S M Shabbir (Vendor) and 3. Sher Banu Shabbir registered as document No. BAL-1-03234-20Q7-08 dated 02.11.2007\ and (2) mortgage of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the JDA. This interest at the most can be stated to be paid against the mortgage. The interest paid for mortgage is not eligible expenditure u/s.48(l)(i) of the Act. 5. On the other hand, the ld. A.R. submitted that the assessee has filed detailed written submissions before the learned CIT(A) and filed documents in support of its contentions that the registered cancellation agreement was in pursuance to the settlement arrived mutually between the parties and further buttressed by the payments after deduction of TDS, to demonstrate that the claim of expenditure of Rs. 7 Crores was incurred to enable the assessee to perfect the title and remove any impediment by the developer, without which the property could not have been sold. 5.1 In support of his submissions the A/R has relied on judgments of various courts before the ld. CIT(A). The gist of some of the judgements relied on by the A/R is mentioned below: (i) In the case of Sasson J. David 85 Co. P.Ltd. v. CIT (1979) 1 18 ITR 261, the Hon'ble Supreme Court observed as follows: "It has to be observed here that the expression "wholly and exclusively" used in section 10(2)(xv) of the Act does not mean "necessarily". Ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction of the revenue is confined to deciding reality of the expenditure, namely, whether the amount claimed as deduction was factually expended or laid down and whether it was wholly and exclusively for the purpose of the business. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount spent. Once it is established that there was a nexus between the expenditure and the purpose of business, the revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of the case. (vi) In the case of CIT vs. Smt. Shakuntala Kantilal, [1991] 190 ITR 56 the Hon'ble Bombay High Court held as follows: The section broadly contemplates three amounts for the purpose of computing income chargeable under the head 'Capital gains'. The first is the full value of consideration for which the capital asset has been transferred. The second is the expenditure incurred wholly and exclusively in connection with such transfer and the third and the last is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he observed that he has verified the genuineness of the claim of payment of compensation and there is no doubt that the assessee has indeed made payments to the Builder/purchaser and accordingly, the learned CIT(A) upon appreciation of the detailed written submissions, documents filed, judgements relied on by the assessee, etc. deleted the disallowance of Rs. 7 Crores as being spent to perfect the title and held that it was an allowable deduction in computing the capital gains. In a nutshell the ld. CIT(A) has granted relief for the following reasons; i) The AO has not disputed the payment of compensation to the builder. ii) All payments have been made through banking channels on which TDS also has been made. iii) On the cancellation of the deeds the assessee was required to pay interest on the outstanding amount @ 15%, instead it has paid compensation to M/s. Orlando Realty. iv) The purchaser M/s. Titan Company Ltd. had put a condition to free the property from all encumbrances including cancellation of the deeds entered into with M/s. Orlanda Realty. v) Without cancellation of the deed, the assessee would not have been able to sell the property to M/s. Titan Company Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty transferred is free of encumbrance and transfer a good title to the purchaser. Therefore, the amounts paid towards the cancellation of the agreements were essential for the transfer is wholly and exclusively incurred in connection with the transfer of property and consequently, the same is required to be allowed as cost as per the provisions of section 48 of the Act. In so far as the submission of the learned Department representative is concerned, the ld. A.R. submitted that the authorities filed are in respect of encumbrance created by way of mortgage, which is not the case of the respondent assessee and thus is not applicable. Findings:- 6. We have heard the rival submissions and perused the materials available on record. In this case assessee sold the property vide sale deed measuring 254.43 gunas in survey nos.4,5,6,8/1, 8/2, 9/2, 9/3, 9/4, 10/1, 10/2, 14/1 & 14/2 at Veerasandra Village, Attibele Hobli, Anekal Taluk Bangalore District, Bengaluru for a consideration of Rs.51,43,40,778/-. Against this assessee claimed deduction towards sales expenses at Rs.7 crores, which are as follows:- 1. Cancellation of JDA dated 17.10.2007 -Rs.3.25Cr. 2. Cancellation of purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint development agreement. 6.3 Thus, the assessee has finally entered finally into registered sale deed on 23.1.2014 with M/s. Titan Company Ltd. In our opinion, unless assessee had settled the dispute with M/s. Orlanda Reality Pvt. Ltd. in respect of impugned property by paying compensation to them, the sale transaction with Titan company limited would not, have materialized. In our opinion, full value of consideration has contemplated both additions as well as deduction from the apparent value. What it means is the real and effective consideration, that apart, was far as clause - (i) of section 48 is concerned, we find that the expression "for the transfer". The expression used is "the expenditure incurred wholly and exclusively in connection with the transfer". The expression "in connection with such transfer" is, in our view, certainly wider than the expression "for the transfer". Here again, we are of the view that any amount of payment of which is absolutely necessary to effect the transfer will be an expenditure covered by this clause. In other words, if any other removing any encumbrances including encumbrances of the type involved in this case, sale or transfer could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarity, we extract the property covered in MOU cancellation dated 6.9.2013, cancellation JDA dated 6.9.2013 and cancellation purchase agreement dated 6.9.2013 along with the sale deed dated 23.1.2014 as below:- Accordingly, the AO has to go through the records and to grant the cost of transfer only in respect of corresponding properties covered in sale deed dated 23.1.2014 and not the entire amount of Rs.7 crores, which cannot be allowed. Accordingly, this ground of revenue is partly allowed. Disallowance of Indexed Cost of Improvement Rs.26,52,22,757/- 7. Next ground for our consideration in ground Nos.4 to 7 which are with regard to allowability of Rs.26,52,22,757/-, which represent indexed cost of improvement of building. 7.1 Facts of the case are the assessee owned a property at Veerasandra village, Attibele Hobli, Anekal Taluk, Bangalore District, Bangalore which was sold to M/s Titan Company Ltd. for a consideration of Rs.51,43,40,778/-. The AO found that there was a construction on the plot of land but the sale deed does not mention the construction on the land and therefore he arrived at the conclusion that the price has been paid by the purchaser for the piece of land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building and also demolished the building, which was taken into consideration by the commission and the tribunal, while arriving at a conclusion that section 50 of the Act, is not attracted, as Under the facts and circumstances of the case, it is that the sale consideration made by the purchase is only for the land, since the building had no value and therefore got demolished. Finding no error in the order of the authorities below, the appeal stands discussed.' In the assessee case also, the assessee has not considered any value for the building at the time of entering into JDA with M/s Orlanda Realty Pvt. Ltd to develop the said land. Similarly, the assessee firm itself has not considered and thought of value for the existing building at the time agreement for sale and execution of sale deed with M/s Titan Company Ltd,. This is because no value is attached to the building at the time of JDA and also at the time of sale. Hence, it is evident that the sale consideration received solely for sale of land only and not to the Building. Again, in view of the decision "of the Hon'ble High Court of Madras cited above the building has no value in the assessee case at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are attracted and the assessee is eligible to claim indexed cost of improvement i.e., the indexed cost of the construction of the building. 7.4 The ld. A.R. submitted that the decisions which are relevant for the adjudication of this issue are as under: (i) Charu Agarwal v DCIT [2022] 194 ITD 478 (Delhi) (ii) Prabhandam Prakash v. ITO (2008) 22 SOT 58 (Hyd.) iii) D Ranga Rao v ITO, in ITA No. 1234 & 1235/Hyd/20l2, dated 7/06/2013 7.5 The ld. CIT(A) observed that the assessee has entered into a sale agreement with M/s. Titan Company Ltd. and in the sale deed there is no mention of any construction on the land. Thus, the AO is of the opinion that the assessee has received sale consideration for the piece of land only and not for the construction thereon. However, from the sale deed it does not appear that the assessee has not transferred the building to the purchaser. If the land is sold to someone, it cannot be said that any construction on it has not been sold unless there is specific provision in the deed. The AO has relied on the judgement in the case of CIT v/s Union Co Motors Pvt Ltd (283 ITR 445 (Madras) 2006). However, the said judgement is related to the provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly land was transferred, the cost of the house cannot be allowed as deduction. On the other hand, f the stand of the assessee is that as per the agreement, both were to be transferred and in any case, the building of the house on the land amounts to improvement of land and hence the cost thereof should be allowed as deduction. In order to appreciate the rival contentions, it would be necessary to refer to the agreement entered into by the assessee with the promoter. 10. the assessee owns a piece of land admeasuring 500 sq. yds. at Sri Krishna nagar, Hyderabad. The assessee is the absolute owner and possessor of the impugned land. It further mentions that the assessee is desirous of developing the said property and for the purpose has approached the promoter. In the preamble itself it is declared that the promoter shall demolish the existing structure and construct thereon a new complex. This will be at the cost of the promoter only. This clearly indicates that unless the superstructure is also transferred, the promoter cannot take possession and demolish the same. The view of the CIT(A) that it is not an asset but a liability for the promoter has no basis. In fact, it is more a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of Rs.24,68,26,761/- from the total sale consideration of Rs.51,43,40,778/-. Against this revenue is in appeal before us. 7.8 In a nutshell the CIT(A) has granted relief for the following reasons i) The agreement does not mention that the superstructure is not transferred to the purchaser and it was retained by the assessee. (ii) The assessee has relinquished its right on the building with the transfer of the piece of land to M/s. Titan Company Ltd. The purchaser is free to demolish the building as per its wish and the assessee has no say in the same. 7.9 The assessee submitted that the learned Department representative has not made any observations on the above grounds and the submissions are restricted to ground No. 2 and No.3, alone. The assessee requested to hold that: i. The compensation paid by way of interest was necessary to perfect the title, without which the property- could not be sold. ii. The interest has arisen on account of a special event, being the cancellation of the JDA and that the entire interest was allowable as an expenditure in the year it was paid. iii. The building was fixed to the land and there could be no transfer of only land. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . from 27 to 34 of sale agreement dated 26.08.2013.Therefore the assessee cannot claim Improvement Cost i.e for construction of building on the sale consideration received in respect of land only. iii) The assessee firm entered into Joint Development agreement with the developer M/s. Orlanda Realty Pvt. Ltd on 17.10.2007 to develop the property mentioned above as per Schedule of property at page no.s 35 to 40 of the said JDA, to be developed is also land only. On verification it is found that there is no mention of building in this Joint Development Agreement also. The assessee firm entered into serious of agreements mentioned above for the land portion only and there is no mention of building in all of these agreements. 8.3. The ld. D.R. placed reliance n he judgement of Hon'ble High Court of Madras in the case of CIT v/s Union Co Motors Pvt Ltd (283 ITR 445 (Madras) 2006) wherein held that 'it is therefore, a settled law that even though the transaction involved land and building, once the land of the assets of the undertaking, the transfer is of the entire undertaking as a whole and it is not possible to bifurcate same, as suggested by the Assessing Officer in the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asuring 254.43 gunas in survey nos.4,5,6,8/1, 8/2, 9/2, 9/3, 9/4, 10/1, 10/2, 14/1 & 14/2 at Veerasandra Village, Attibele Hobli, Anekal Taluk Bangalore District, Bengaluru. The assessee is claiming the indexed cost of building as a deduction out of sale consideration. The sale consideration received by assessee is only with regard to sale of land. It is not relating to the sale of any building thereon. The building cost of acquisition claimed by assessee has not at all transferred by assessee vide sale deed dated 23.1.2014. The assessee all along claiming the cost of building, which is not at all transferred by assessee as such the cost of such building cannot be allowed out of the sale consideration of the land as a deduction. The claim of assessee that the building is already existing in the said land and it has been let out to M/s. Edutech NTTF Pvt. Ltd and the rental income of said building has been offered for taxation from year to year. On this basis assessee is claiming cost of building as a deduction out of the sale consideration received from M/s. Titan Company Ltd. The assessee ought to have claimed this deduction only if the sale consideration received by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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