2020 (6) TMI 534 - AT - Income Tax

Computation of long term capital gains - transfer of land - case of the assessee is that there being a breach of contract in terms of non-discharge of the sale consideration and thus, no valid contract and no transfer of impugned land - where the full value of consideration has not been discharged by the purchaser of the impugned land as per the sale deed and there is violation of terms of the sale deed? - whether the impugned transaction would still qualify as transfer and liable for capital gains tax given that the same is evidenced by the registered sale deed? - HELD THAT - In the instant case, as we have noted above, the ld CIT(A) has returned a finding that possession of the said land was never handed over land is still in the possession of appellant himself - transferee, Shri Rajeev Singh has not taken possession of the property. Secondly, he has not discharged the sale consideration nor there is any willingness on his part to discharge the sale consideration as can be gauged by the fact that he himself has ordered and instructed his bank for stop-payment of cheques issued earlier by him towards the sale consideration in respect of both the sale deeds. Therefore, in the instant case, the transferee has not taken possession of the land and also, he has neither performed nor there is any willingness to perform his part of the sale deed and thus, the provisions of section 55A of the Transfer of the Property Act cannot be attracted and there is no transfer even in terms of section 2(47)(v) - Decided in favour of assessee. Proportionate expenses claim out of total expenses towards brokerage and other expenses while computing the long term capital gains in respect of third transaction of sale of land - HELD THAT - DVO has acknowledged the existence of roads, wells, Baories and boundary walls on the impugned land and therefore, the factual position is that the land has been transferred along with these constructed structures. The claim of the assessee is towards the development expenses in relation to these structures as well as leveling of land which has been examined by the ld CIT(A) and we donot see any infirmity in the said findings of the ld CIT(A) where he has allowed these expenses towards cost of improvement. In the result, the ground of appeal is dismissed. Addition of various expenses claimed by the assessee against the interest and remuneration received from various firms wherein the assessee is a partner - HELD THAT - As decided in own case 2016 (8) TMI 1037 - ITAT JAIPUR whether the AO erred in allowing the expenditure against the interest and remuneration earned by the assessee and relying on the decision of Hon ble Jurisdictional High Court in the case of CIT vs. Jabarmal Dugar 1971 (7) TMI 17 - RAJASTHAN HIGH COURT and CIT vs. S.B. Ghose 1980 (6) TMI 27 - CALCUTTA HIGH COURT held that the expenses are duly allowable. Addition of expenses claimed by the assessee u/s 57 of the Act for earning interest income - HELD THAT - Mere passive nature of income can t be a sole criteria for disallowance of expenses and before arriving at such a conclusion, there are certain matters which need appropriate consideration such as pool of funds which have been invested in multiple savings and fixed deposits accounts maintained by the assessee with banks in Delhi and Kota, the periodicity of transactions and period of holding such deposits, current occupation and availability of the assessee to personally manage such funds and his desire and need to appoint a person with appropriate skill and functional knowledge of banking and allied areas who can handle and monitor the deployment of such funds on his behalf. A parallel may be drawn to family offices set up by HNI individuals where these individuals appoint a group of finance and accountancy professionals who are entrusted with managing the funds of these individuals. The assessee may be a conservative investor and may not have invested in mutual funds, stock market or private equity, however, the same cannot be held against him unless the considerations as stated above are examined in detail. Given that these considerations have not been taken into consideration and examined by the lower authorities, we deem it appropriate to remand the matter back to the file of the Assessing officer to examine the same afresh. Cost of acquisition - CIT(A) not accepting the value of wells, Baories and roads as on 01.04.1981 and thereby not allowing the cost and corresponding indexed cost while computing the capital gains in respect of third transaction of sale of land - AO referred the matter for valuation to the DVO u/s 55A - HELD THAT - The DVO has acknowledged the existence of roads, wells, Baories and boundary walls on the impugned land. Being an old construction, one may question the utility of such structures during current times and consequentially, the value to these structures which the purchaser of the property may have determined, however, the factual position is that the land has been transferred along with these constructed structures, howsoever; the insignificant value may have been attached to these structures. The assessee has also submitted an affidavit that these structures have been transferred along with sale of land as part of the sale deed and the land area so reflected in the sale deed includes the area occupied by these structures, therefore, we find that the title and possession over the said structures along with underlying land is no more with the assessee and has been transferred to the purchaser, Shri Neeraj Sawalka. In absence of anything contrary on record, we allow the proportionate cost of these structures (after indexation) against the full value of consideration in terms of sale deed executed with Shri Neeraj Sawalka. In the result, the ground of appeal is allowed. Disallowance of legal and other expenses - claim by the assessee as expenses incurred in connection with transfer of the impugned land - HELD THAT -We find that the assessee has claimed stamp duty, court fee and other charges in respect of two court cases namely Case No. 1./12-13 dated 10.12.2013 and Case No. 2/12-13 dated 10.12.2013. Further, consultancy charges have been paid to Sr. Advocate and advocates for filing of suits and other related legal and miscellaneous expenses. These court cases are apparently in respect of two sale deeds entered into with Shri Rajeev Singh which the assessee claimed to be invalid sale deeds. Given our aforesaid findings in context of these two sale deeds that these transactions are not subject to capital gains tax, the corresponding expenses cannot be allowed while computing capital gains in respect of other sale transaction which has been brought to tax. In the result, the ground of appeal is dismissed.

Summary

Issues Involved:
1. Validity of two sale deeds and their tax implications.
2. Allowability of proportionate expenses related to land sale.
3. Deletion of addition on account of various expenses claimed against interest and remuneration from firms.
4. Deletion of addition on account of expenses claimed under Section 57 for earning interest income.
5. Acceptance of the value of wells, Baories, roads, and boundary wall in the computation of Long Term Capital Gains (LTCG).
6. Disallowance of legal and other expenses claimed as incurred in connection with the transfer of land.

Detailed Analysis:

1. Validity of Two Sale Deeds and Their Tax Implications:
The primary issue revolved around the validity of two sale deeds executed by the assessee with Shri Rajeev Singh. The assessee claimed these sale deeds as invalid due to non-receipt of full consideration and dishonor of cheques. The Assessing Officer (AO) included the consideration from these deeds in the computation of LTCG. However, the CIT(A) accepted the assessee's revised return, excluding the invalid deeds from LTCG computation. The Tribunal upheld the CIT(A)'s decision, emphasizing that the transfer of land is not complete without the full consideration being received, as per the legal precedents and the real income principle.

2. Allowability of Proportionate Expenses Related to Land Sale:
The AO disallowed the entire expense claim of ?8,45,000 towards brokerage and development expenses, finding them unsubstantiated. The CIT(A) allowed ?4,55,953 as proportionate expenses. The Tribunal upheld the CIT(A)'s decision, noting the DVO's acknowledgment of existing structures and development on the land, justifying the expenses as cost of improvement.

3. Deletion of Addition on Account of Various Expenses Claimed Against Interest and Remuneration from Firms:
The AO disallowed ?3,50,536 claimed by the assessee against interest and remuneration from firms. The CIT(A) allowed these expenses, referencing consistency with previous years' assessments. The Tribunal upheld this decision, citing the Co-ordinate Bench's ruling in the assessee's favor for earlier years, thus maintaining the rule of consistency.

4. Deletion of Addition on Account of Expenses Claimed Under Section 57 for Earning Interest Income:
The AO disallowed ?14,32,160 claimed under Section 57 for earning interest income, citing a lack of nexus between the expenses and the income. The CIT(A) allowed the expenses, following earlier appellate decisions. However, the Tribunal remanded the matter back to the AO for fresh examination, emphasizing the need to establish a direct connection between the expenses and the interest income.

5. Acceptance of the Value of Wells, Baories, Roads, and Boundary Wall in the Computation of LTCG:
The AO excluded the value of these structures from the cost of acquisition, considering only the land value. The CIT(A) allowed only the boundary wall's cost. The Tribunal, however, allowed the proportionate cost of all structures after indexation, acknowledging their existence and inclusion in the sale.

6. Disallowance of Legal and Other Expenses Claimed as Incurred in Connection with the Transfer of Land:
The AO disallowed ?16,03,450 claimed as legal and other expenses, citing their incurrence post-transfer and lack of direct connection to the transfer. The CIT(A) upheld this disallowance. The Tribunal also upheld the disallowance, noting that these expenses related to invalid sale deeds, which were not subject to capital gains tax.

Conclusion:
The Tribunal's judgment provided a detailed examination of each issue, affirming the CIT(A)'s decisions on most points while remanding one issue for further examination. The judgment emphasized the principles of real income, consistency in tax treatment, and the necessity of substantiating expense claims with direct connections to the income or transfer in question.