2016 (4) TMI 864 - AT - Income Tax

Capital gain - transfer of shares - applacability of section 50C - Held that - What in law has transpired is the transfer of shares, and not of land and, accordingly, section 50C will not come into picture. This consideration, which appears to have prevailed with the Revenue authorities, is not valid. Find no infirmity in the assessee s claim for legal expenses u/s.48(i), and uphold the same, in principle. However, it is not clear if the takeover agreement dated 13.4.2006, evidencing the transaction, and which constitutes the prime evidence, was before the Revenue authorities, whose finding as to the sale of land being the prime motive and the driver of the transaction has been affirmed by us. The said agreement would however have to be examined, if only to verify if the transaction as executed is in agreement therewith. The same states the total consideration (in the hands of both the assessee-transferors) at ₹ 890 lacs, while we observe the stated price, which is with reference to and in terms of unit of land, works to ₹ 925.75 lacs (88,843 sq. ft. x ₹ 1042 per sq. ft.). Subject to the A.O. s verification, returning positive findings, we confirm the deductibility of the impugned expenses. We may however clarify that any apparent mistake/s, if any, could be rectified following the due process of law.

Summary

Issues Involved:
1. Disallowance of brokerage expenses.
2. Disallowance of legal expenses.
3. Validity of enhancement power exercised by CIT(A).
4. Levy of interest under section 234B.

Issue-wise Detailed Analysis:

1. Disallowance of Brokerage Expenses:
The brokerage paid to M/s. Hanu Reddy Realty India Pvt. Ltd. was disallowed by the Assessing Officer (A.O.) on the grounds that the subject matter of the sale was shares, not land. However, the CIT(A) allowed the brokerage expenses, stating the broker had rendered services in relation to the transfer of shares. The Tribunal observed that the services of the real estate broker were indeed in respect of acquiring land, as the buyer was interested in the land held by the companies. Therefore, the brokerage expenses were rightly allowed by CIT(A).

2. Disallowance of Legal Expenses:
The legal expenses paid to M/s. Fox Mandal Services Private Ltd. were disallowed by CIT(A) on the grounds that the services were related to the transfer of land, not shares. The Tribunal noted that the transaction, in substance, was for the transfer of interest in land through the medium of share transfer. The legal services were necessary for verifying title and other documentation related to the land, which was crucial for the transaction. Therefore, the legal expenses were considered allowable under section 48(i) of the Income Tax Act, as they were incurred wholly and exclusively in connection with the transfer of shares.

3. Validity of Enhancement Power Exercised by CIT(A):
The Tribunal examined whether the enhancement power exercised by CIT(A) was proper. The assessees were show caused, and the case was discussed with their Authorized Representative. The Tribunal found no infirmity in the exercise of CIT(A)'s power of enhancement, as it was within the jurisdiction and did not extend to a new source of income. The enhancement was related to the same issue of deductibility of expenses against capital gains.

4. Levy of Interest Under Section 234B:
The assessees raised a ground regarding the levy of interest under section 234B. The Tribunal noted that the ground was not pressed before them and, in view of the decision in CIT vs. Anjum Ghaswala [2001] 252 ITR 1 (SC), found the ground without merit. The Tribunal upheld the levy of interest as per the provisions of the law.

Conclusion:
The Tribunal allowed the appeal on the merits, subject to verification of the quantum of legal expenses. The brokerage expenses were upheld as deductible, and the legal expenses were also allowed under section 48(i) after verifying the transaction details. The enhancement power exercised by CIT(A) was found to be valid, and the levy of interest under section 234B was upheld. The order was pronounced in the open court on February 29, 2016.