2017 (12) TMI 568 - AT - Income Tax

Computation of capital gain - expenses claimed by the assessee for acquiring property and for sale of the property - Held that - The assessee had declared the cost of acquisition of the property at ₹ 98,07,120/- in the case of 328 sq.yds and ₹ 87,12,470/- in the case of 369 sq.yds. Since the assessee had already declared the cost of acquisition in the assessment year 2007-08 and furnished the relevant balance sheet along with return of income, we do not see any reason to disturb the cost of acquisition declared by the assessee in the return of income. The fact that the cost of acquisition declared by the assessee was not disputed by the assessing officer. Having declared the cost of acquisition by the assessee in the year of acquisition and filed the relevant balance sheet it is not correct to revisit the issue again in the year under consideration. Therefore, we set aside the order of the Ld.CIT(A) and direct the assessing officer to allow the cost of acquisition of properties as declared in the balance sheets and the return of income relating to the year in which it was acquired. This ground of the appeal of the assessee is allowed. Payment of commission for sale of the property - Held that - As observed by the CIT(A) that from the bank account of the assessee with the ING Vysya Bank account no.716010022199 shows that the assessee had received an amount of ₹ 5 lakhs from D. Srinivas on 8.1.2007, which indicates that impugned payment may not be towards commission. During the appeal hearing, the Ld. A.R. did not bring any evidence to show that the payment in fact was made for the commission. However the assessee has furnished the addresses and the AO should have verified the genuineness of payment of commission. When the addresses were given without making enquiries taking adverse view is unjustifiable. Therefore we are of the considered opinion that the issue should go back to the file of the assessing officer to make the necessary enquiries with regard to the payment of commission and decide the issue afresh on merits. Accordingly we set aside the orders of lower authorities and remit the, matter back to the file of the AO for fresh consideration. Expenditure incurred towards the stamp duty expenses - Held that - Stamp duty and registration charges forms part of the cost of acquisition of the property, which is required to be borne by the buyer. As per the provisions of section 48 of the Act, the expenditure incurred wholly and exclusively in connection with the transfer of property is allowed as deduction. Since the stamp duty and registration cost is not considered as expenses in relation to transfer in the hands of the transferor, the same is not allowable. Further, as rightly observed by the Ld. CIT(A), the arrangement of incurring stamp duty and registration charges by the vendor effectively reduces the value of the consideration received by the vendor and also violates the mandate specified in the section 50C of the Act. In such case, while determining capital gains, the value as per the stamp valuation authorities has to be adopted for the purpose of computing the capital gains. Payment of interest - whether transaction was not a loan transaction ? - Held that - the assessee has not taken any loan for acquiring the property and the compensation was not in the nature of interest. - From the agreement it is observed that there was no clause of payment of any compensation. However, the assessee stated that the he had to pay ₹ 6 lakhs as compensation because the sale transaction did not go through. When the assessee has received the entire amount what are the reasons for not concluding the sale transaction was not explained by the assessee. When there was no fault with the assessee in sale of the property, there is no valid reason and for payment of compensation. No agreement for cancellation was furnished by the assessee. In any case the compensation was not relatable to acquiring the property and it was with regard to the sale of agricultural land. The same cannot be linked with the sale of the impugned property. Further, the asset is capital asset and taxed under the head Capital Gains but not business income. Under the head Capital gains only direct expenses relatable to transfer of property are allowed as deduction. Therefore, the cancellation expenses should not be held to be incurred either for acquiring the property or for transfer of property and accordingly, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld. This ground of appeal raised by the assessee is dismissed.

Summary

Issues Involved:
1. Disallowance of commission paid for acquiring property.
2. Disallowance of commission paid for selling property.
3. Disallowance of stamp duty expenses.
4. Disallowance of interest payment claimed as compensation.

Detailed Analysis:

1. Disallowance of Commission Paid for Acquiring Property:
The assessee claimed the commission paid for acquiring two properties as part of the cost of acquisition. The Assessing Officer (A.O.) disallowed ?5 lakhs for each property and ?30,000/- salary paid to the watchman, reducing the cost of acquisition. The CIT(A) confirmed the disallowance, stating that the properties were purchased from Visakhapatnam Cooperative House Building Society, where no intermediaries were involved. The assessee argued that the commission was paid for services rendered in facilitating the purchase process. The Tribunal noted that the cost of acquisition, including the commission, was declared in the balance sheet for FY 2006-07 and accepted in the assessment year 2007-08. The Tribunal held that revisiting the issue was not justified and directed the A.O. to allow the cost of acquisition as declared by the assessee.

2. Disallowance of Commission Paid for Selling Property:
The assessee claimed ?12 lakhs as commission for selling the properties but failed to furnish confirmation from the recipients. The A.O. disallowed the commission due to lack of evidence. The CIT(A) upheld the disallowance, noting that the assessee did not prove the genuineness of the payment. The Tribunal observed that the addresses of the recipients were provided, and the A.O. should have verified the genuineness of the payments. The Tribunal remitted the matter back to the A.O. for fresh consideration and necessary enquiries, directing the A.O. to provide a reasonable opportunity to the assessee.

3. Disallowance of Stamp Duty Expenses:
The assessee claimed stamp duty expenses of ?13,42,785/- and ?13,32,575/- for two properties, arguing that these were borne by the vendor due to litigation and tenant issues. The A.O. disallowed the expenses, stating they should be borne by the buyer. The CIT(A) confirmed the disallowance, highlighting that the expenses reduce the consideration received by the seller and violate Section 50C of the Act. The Tribunal upheld the CIT(A)’s order, noting that stamp duty and registration charges are not considered expenses related to the transfer of property in the hands of the transferor.

4. Disallowance of Interest Payment Claimed as Compensation:
The assessee claimed ?6 lakhs as interest paid to M/s. VPL Projects for cancellation of a sale agreement. The A.O. disallowed the claim due to lack of proper evidence. The CIT(A) confirmed the addition, noting no nexus between the payment and the sale of the impugned property. The Tribunal observed that the compensation was not related to acquiring the property and was instead linked to the sale of agricultural land. The Tribunal upheld the CIT(A)’s order, stating that the compensation was not a direct expense related to the transfer of property and thus not allowable under the head Capital Gains.

Conclusion:
The Tribunal allowed the appeal regarding the cost of acquisition but remitted the issue of commission for selling the property back to the A.O. for fresh consideration. The disallowances of stamp duty expenses and interest payment claimed as compensation were upheld. The appeal was partly allowed.