2014 (1) TMI 101 - AT - Income Tax

Cost of acquisition - Held that - The assessee has acquired the property on on account of succession, the cost of acquisition would get restricted only to that in the hands of his ancestors, which excludes the cost of any encumbrance created by them - Following Salay Mohamad Ibrahim Sait v. ITO 1994 (5) TMI 18 - KERALA High Court - Encumbrance created by the earlier owner was clearly not a part of such of cost of acquisition - The cost of improvement includes - The expenditure incurred in making any additions or alterations to the capital asset that was originally acquired by the previous owner and if the previous owner had mortgaged the property and the assessee and his co-owners cleared off the mortgage so created, it could not be said that they incurred any expenditure by way of effecting any improvement to the capital asset that was originally purchased by the previous owner - Decided against assessee. Applicability of section 50C - Held that - The properties got registered only after 01/04/2003 i.e. after the provisions of section 50C were brought on the statute - The contention that the land has been sold away by way of an agreement of sale in 2000 and 2001 itself, has not been substantiated by the assessee with enough evidence and documents - It cannot be concluded that the agreement had actually acted upon - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of expenditure incurred for releasing property rights.
2. Application of section 50C for determining market value of properties.

Issue 1: Disallowance of Expenditure:
The appeal challenged the disallowance of Rs. 25 lakhs expenditure incurred by the assessee to release property rights. The AO reopened assessment due to discrepancies in property sale value. The assessee argued the payment was to perfect title, hence part of acquisition cost. The CIT(A) upheld AO's decision, stating encumbrances by ancestors don't qualify as acquisition cost. Legal precedents were cited, emphasizing that payments to clear encumbrances are not part of acquisition cost. The ITAT concurred, citing judgments that affirmed the exclusion of encumbrances from acquisition cost. Thus, the appeal was dismissed, affirming the disallowance of the expenditure.

Issue 2: Application of Section 50C:
The AO applied section 50C to determine property market value at Rs. 95,11,180 against recorded Rs. 54 lakhs. The CIT(A) upheld AO's decision, stating transactions were registered post-enforcement of section 50C. The assessee argued transactions occurred before section 50C enforcement, citing a legal precedent. However, the CIT(A) found insufficient evidence to support the claim. The ITAT upheld the CIT(A)'s decision, emphasizing lack of evidence to prove pre-enforcement transactions. Consequently, the appeal was dismissed, affirming the application of section 50C to determine market value.

In conclusion, the ITAT upheld the decisions of the CIT(A) on both issues, dismissing the appeal of the assessee in its entirety. The judgment highlighted the legal principles regarding the disallowance of expenditure related to encumbrances and the application of section 50C for determining property market value, emphasizing the importance of providing concrete evidence to support claims in tax assessments.