2010 (11) TMI 677 - AT - Income Tax

Cost of improvement of capital assets - Estimation of cost - section 48(ii)- Held that - the amount incurred by the assessee along with co-owner for conversion of agricultural land into plots seems to be on high side and therefore considering totality of facts and the circumstances of the case and in the absence of proper evidence, estimate the expenditure incurred by the assessee jointly with the co-owner for conversion of plots from agricultural land at Rs.12 lakhs as against Rs.22, 19, 900 claimed by the assessee - Therefore the assessee appeal is allowed in part. Payment to the previous owners for securing uninterrupted right over the land - Held that - the assessee paid additional consideration to the previous owners for acquiring uninterrupted right over the said land for which the assessee produced copies of receipts issued by the sons of previous owners and they have admitted that their fathers have received full sale consideration from the purchasers and paid the said amount in view of their poor financial condition - the assessee has paid Rs.4, 50, 000 to the sons of the previous owners towards improving the title of the land and to avoid further litigation - Thus decided in favour of assessee. Stamp duty and Registration fee - As per the terms and conditions mentioned in the copies of the sale agreements the vendee had to bear the stamp duty and registration fees. Hence we are not inclined to accept the contention of the assessee that he has borne the stamp duty and registration fees while selling the lands to different persons - Decided against of assessee. Deduction on brokerage - It is common and general practice to incur some expenditure on account of brokerage for sale of plots - To meet the ends of justice it ia estimate that the expenditure on account of brokerage at 2% of the total sale consideration in the absence of any supporting evidence of such expenditure claimed. Hence assessee appeal is allowed in part.

Issues Involved:
1. Disallowance of expenditure incurred on laying of roads, drainage system, electrification, and plantation.
2. Disallowance of payment to previous owners for securing uninterrupted right over the land.
3. Disallowance of stamp duty and registration fee.
4. Disallowance of brokerage expenses.

Detailed Analysis:

1. Disallowance of Expenditure on Laying of Roads, Drainage System, Electrification, and Plantation:
The assessee claimed an expenditure of Rs.22,19,900 towards the development of plots, including laying of roads, drainage system, and electrification, which was disallowed by the assessing officer due to lack of proper evidence. The assessee argued that these expenses were necessary to secure a better price for the property and should be allowed as cost of improvement under section 48(ii) of the Act. The Tribunal acknowledged that the expenditure was indeed incurred to enhance the value of the property but found the claimed amount to be on the higher side. In the absence of proper vouchers and bills, the Tribunal estimated the allowable expenditure at Rs.12 lakhs, thereby partially allowing the assessee's claim.

2. Disallowance of Payment to Previous Owners for Securing Uninterrupted Right Over the Land:
The assessee claimed Rs.4,50,000 paid to the previous owners for securing uninterrupted right over the land, which was added to the indexed cost of acquisition. The assessing officer disallowed this claim due to lack of details regarding the mode and particulars of payment. The Tribunal, however, found that the assessee provided photocopies of receipts and that such payments are common practice to avoid litigation and secure title. The Tribunal allowed the claim, recognizing the payment as an expenditure incurred to improve the title of the land.

3. Disallowance of Stamp Duty and Registration Fee:
The assessee claimed Rs.17,00,387 for stamp duty and Rs.68,365 for registration fees, stating that these were borne on behalf of the purchasers as per the terms agreed. The assessing officer disallowed these claims, asserting that such expenses should be borne by the purchaser. The Tribunal upheld this view, noting that the confirmation letters from purchasers were undated and only bore the assessee's signature. As per the sale agreements, the purchasers were responsible for these costs. Therefore, the Tribunal rejected the assessee's claim for these expenses.

4. Disallowance of Brokerage Expenses:
The assessee claimed Rs.9,36,650 as brokerage expenses for the sale of plots, which was disallowed by the assessing officer due to lack of supporting evidence. The Tribunal acknowledged that incurring brokerage expenses is a common practice in such transactions. To ensure fairness, the Tribunal estimated the allowable brokerage expense at 2% of the total sale consideration, thereby partially allowing the claim in the absence of concrete evidence.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal provided relief by estimating reasonable expenditures for development and brokerage while upholding the disallowance of stamp duty and registration fees. The payment to previous owners for securing uninterrupted rights was also allowed, recognizing it as a legitimate expense to improve the title of the land.

(Order was pronounced in the Court on 30.11.2010.)

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