2017 (12) TMI 1259 - AT - Income Tax

Computation of capital gains - claim of compensation to tenants as allowable expenditure u/s. 48(1) - Held that - Assessee has paid certain amounts by way of cheque and certain amounts withdrawals from bank, much before the assessment year, the facts of which was also confirmed during the course of survey in the statements. Therefore, payment to tenants cannot be doubted. To that extent, we are not in agreement with the order of Ld.CIT(A), wherein he did not allow the amount stating that the agreements were entered in 18-07-2007 and there was no basis for claiming the expenses as compensation paid to tenants in the year 2009. If capital gains are to be taxed in the AY. 2008-09 on the basis of the sale agreement, the compensation could not have been paid, but assessee would be within her rights to claim that as a deduction from the sale value. Since assessee offered capital gains in the impugned assessment year the actual sale is in the next assessment year and agreement of sale in previous assessment year then, the compensation paid to tenants in the year 2009 would be relevant claim in AY. 2009-10. Looking at any aspect, the claim of compensation to tenants is allowable expenditure u/s. 48(1). Therefore, reversing the findings of CIT(A), since the capital gains were taxed in the impugned assessment year, the claim is allowable in this assessment year. For the reasons stated above, assessee s grounds are allowed. Coming to Revenue appeal, as seen from the facts of the case, assessee has not sold the property ultimately. GPA holder registered the document and difference in price was accounted by the company as income . On that reason, the order of CIT(A) cannot be faulted and there is no merit in Revenue s contentions. Like-wise, the payments of commission to the parties is also established and nothing was brought on record to counter the findings of Ld.CIT(A) on the issue. Even with reference to indexed cost of acquisition, it is purely a matter of fact and Ld.CIT(A) has analysed in detail in para 8.4 and 8.5 of the order which was extracted above. The entire order was passed by CIT(A) after giving due opportunity to AO on all the issues and after obtaining a report through the Addl.CIT, Range-11, Hyderabad, being forwarded on 23-07-2013. When due opportunity was given to AO, it is not understandable how Revenue could contend that CIT(A) has not given opportunity under Rule 46A. We do not find any merit in any of the grounds raised by Revenue, accordingly all the grounds of Revenue are rejected.

Summary

Issues Involved:
1. Addition on account of disallowance of moneys paid to the confirming party ?1,15,00,000.
2. Disallowance of payments to tenants.
3. Disallowance of commission payments claimed at ?20,05,000.
4. Disallowance of indexed cost of acquisition.

Issue-wise Detailed Analysis:

1. Addition on account of disallowance of moneys paid to the confirming party ?1,15,00,000:
The assessee entered into an agreement of sale cum GPA with M/s. Emami Nirman Pvt. Ltd. for ?4,01,04,000, which was the amount received by her. The property was later sold by M/s. Emami Nirman Pvt. Ltd. as GPA holder to M/s. Emami Constructions Pvt. Ltd. for ?5,16,04,000. The AO included the difference of ?1,15,00,000 as part of the assessee's sale consideration. However, the CIT(A) deleted this addition, stating that the net sale consideration received by the assessee was ?4,01,04,000 and the difference was accounted for by M/s. Emami Nirman Pvt. Ltd. The CIT(A) emphasized that the amount not received by the assessee cannot be considered as her sale consideration. The Revenue's appeal on this issue was rejected.

2. Disallowance of payments to tenants:
The assessee claimed ?50 Lakhs as expenses for tenant eviction, which the AO disallowed due to lack of verification of the parties. The CIT(A) upheld the disallowance, stating that the possession was given in July 2007 and there was no indication of tenant disputes at that time. However, the Tribunal found that the existence of tenants was not in dispute and the payments were made through cheques and bank withdrawals. The Tribunal reversed the CIT(A)'s decision, allowing the claim as a deductible expense under Section 48(i).

3. Disallowance of commission payments claimed at ?20,05,000:
The AO disallowed the commission payments due to un-served summons to the recipients and lack of established services. The CIT(A) allowed the claim after verifying the payments through banking channels and confirming that the amounts were offered for tax by the recipients. The Tribunal upheld the CIT(A)'s decision, noting that the payments were made through the bank and were related to the sale transaction.

4. Disallowance of indexed cost of acquisition:
The assessee claimed ?91,85,357 as the indexed cost of acquisition based on a valuation report. The AO disallowed the claim, allowing only ?4,50,300 for stamp duty paid. The CIT(A) allowed the claim, noting that the property was acquired in 1978 and the valuation report was not rejected by the AO. However, the CIT(A) adjusted the valuation for an arithmetical mistake, reducing the indexed cost to ?81,52,307. The Tribunal upheld the CIT(A)'s decision, confirming the reworked indexed cost.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, providing relief on the disallowed payments to tenants and upholding the CIT(A)'s decisions on the other issues. The order was pronounced on 20th December 2017.