2014 (3) TMI 58 - AT - Income Tax

Disallowance as deduction while computing LTCG - Expenditure incurred in connection with the transfer elocation of hutment dwellers - Held that - The genuineness of payment has not been disputed by the authorities below and even the purpose of payment is also not question by the AO as well as CIT(A) - The disallowance has been made on the ground that the transfer/development agreement does not speak about such payment - When the payment is undisputedly made towards relocation of hutment dwellers then it is certainly for the purpose of removing the encumbrances in the title of the owners in respect of the land in question it is obligatory on the part of the owners/transferers of the land to ward off any charge and encumbrances arises in the property thus, there was no substance in the argument of the revenue that in the absence of any specific mention in the agreement such payment is not allowable deduction - The payment has been made for removal of encumbrances in respect of the property in question being relocation of the hutment dwellers - this falls under the category of expenditure incurred in connection with transfer of the property Decided in favour of Assessee. Benefit of indexation of cost of acquisition Held that - The decision in CIT Vs Manjula J. Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT followed The AO has not disputed the fact that the property in question has been inherited by the assessee from his father - for the purpose of determine the indexed cost of acquisition it has to be computed by applying the deeming fiction contained in Explanation 1(i)(b) to Section 2(42A) as well as provisions of section 49(1) of the Income Tax Act - thus, the order of the CIT(A) set aside Decided partly in favour of Assessee.

Summary

Issues:
1. Disallowance of Rs.5,00,000/- as deduction of expenditure incurred in connection with the transfer.
2. Treatment of Rs.5,00,000/- as cost of improvement.
3. Calculation of indexed cost of acquisition of inherited asset.

Analysis:

Issue 1: Disallowance of Rs.5,00,000/- as deduction of expenditure incurred in connection with the transfer:
The case involved an appeal against the disallowance of Rs.5,00,000/- claimed as a deduction for expenditure incurred in connection with a transfer. The Commissioner of Income Tax (Appeals) confirmed the disallowance made by the Assessing Officer. The appellant contended that the payment was made towards development charges as per the development agreement and was necessary for removing encumbrances on the property. The appellant argued that the payment was allowable as it was related to the transfer of the asset. The authorities below, however, disagreed, stating that the agreement did not mention such a liability or payment. The Tribunal found that the payment was made to remove encumbrances, as required by the development agreement, and thus allowed the claim as it was incurred in connection with the transfer.

Issue 2: Treatment of Rs.5,00,000/- as cost of improvement:
The appellant also raised an alternate contention that the Rs.5,00,000/- should be treated as a cost of improvement. However, this argument was not specifically addressed by the authorities in their orders. The Tribunal focused on the primary issue of disallowance of the expenditure incurred in connection with the transfer and did not delve into the treatment of the amount as a cost of improvement.

Issue 3: Calculation of indexed cost of acquisition of inherited asset:
Regarding the calculation of the indexed cost of acquisition of the inherited asset, the Assessing Officer had taken the cost as on the date of the father's demise. The CIT(A) did not adjudicate on the issue of indexation. The Tribunal noted that the property was inherited by the assessee from his father and should be computed based on the provisions of the Income Tax Act. Citing a relevant High Court decision, the Tribunal directed the issue to be reconsidered by the CIT(A) in accordance with the law.

In conclusion, the Tribunal partly allowed the appeal, permitting the deduction of Rs.5,00,000/- as expenditure incurred in connection with the transfer and remanding the issue of indexed cost of acquisition for further consideration based on legal provisions.