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2014 (9) TMI 419 - AT - Income TaxIndexed cost of improvement disallowed Computation of LTCG on sale of property Held that - In order to ascertain as to whether at the time of sale or transfer of the said property, any improvement to the property was in existence, when the property was purchased by the assessee on 25.11.1981 the property was agricultural land with no structure as admitted - according to the sale deed the property continued to be agricultural land, but however notably find no mention of any bungalow / building being or any details of improvements made thereto as claimed - this was made in regard to complaints and FIR s lodged with the Police Department by the father of the assessee and the valuation is stated to have been made based on documents and information furnished to the valuers by the owner - assessee has not brought on record any evidence to establish that he had in fact incurred any expenditure on improvement as claimed - the question of allowing any deduction u/s 48(ii) of the Act for indexed cost of improvement as claimed by the assessee is not warranted the order of the CIT(A) is upheld Decided against assessee. Restriction of expenses on sale of property Held that - The assessee claimed to have incurred amounts aggregating to ₹ 40 lakhs in connection with the sale / transfer of the property - CIT(A) rightly disallowed the payment of ₹ 5 lakhs paid to Sri M.S. Narayan, only on the ground that there was no rationale in making the payment on 12.3.2008, almost six months after the sale of the asset - the 4 payments of ₹ 5 lakhs each made by the assessee to Sri M.S. Narayan, Advocate aggregating to ₹ 20 lakhs are incurred in connection with the sale / transfer of the property and are to be allowed as a deduction u/s 48 of the Act while computing the LTCG on sale of the property - these persons were neither a party to the civil suit nor were connected with the original owners of the land and that merely by making payments by cheque and producing receipts for the same are not sufficient to establish that these expenses were incurred wholly and exclusively for the purpose of transfer of the property - the assessee has failed to adduce any evidence to establish that payments to the 4 persons @ ₹ 5 lakhs each were incurred wholly and exclusively in connection with the transfer of the said property the order of the CIT(A) is upheld Decided against assessee. Professional charges paid to CA disallowed Held that - CIT(A) rightly was of the view that the expense on payments to chartered accountants is not allowable as a deduction u/s 48 of the Act while computing LTCG as it is clear that the expense is not incurred in connection with the cost of improvement or in connection with the transfer of the said property Decided against assessee. Claim of exemption on investment made in NHAI Bonds u/s 54EC Held that - Following the decision in Aspi Ginwala Versus Assistant Commissioner of Income-tax, Circle-5, Baroda 2012 (4) TMI 195 - ITAT AHMEDABAD - the assessee is entitled to total deduction u/s 54EC of the Act spread over a period of two financial years @ ₹ 50 lakhs each on investments made in specified instruments within a period of six months from the date of sale of the property. The assessee was unable to invest in Bonds within a period of six months as the issue was not open and did so the moment the same was made open to public and thus the allotment was made after the statutory period of six months relying upon Ram Agarwal Vs. JCIT 2001 (9) TMI 233 - ITAT BOMBAY-G - the assessee therein was prevented by sufficient cause from investing within the statutorily permitted period of six months and allowed the assessee exemption under section 54EC of the Act in respect of the said investment - the assessee has made payment for the investment in NHAI which was encashed on 9.6.2008 well within the statutorily permitted period of six months from the date of sale of the property - the date of payment is to be reckoned for calculating the six month period and since here the date of payment/encashment being well within the period of six months, the assessee is entitled to exemption u/s 54EC of the Act even on the second investment of ₹ 50 lakhs made in Bonds issued by NHAI Decided in favour of assessee.
Issues Involved:
1. Disallowance of indexed cost of improvement. 2. Restriction on expenses incurred on the transfer of property. 3. Disallowance of professional fees paid to the Chartered Accountant. 4. Disallowance of exemption under section 54EC of the Income Tax Act, 1961. Detailed Analysis: 1. Disallowance of Indexed Cost of Improvement: The assessee challenged the disallowance of Rs. 55,47,235 claimed as indexed cost of improvement while computing LTCG on the sale of property. The assessee argued that improvements were made to the property, supported by a valuation report. However, the Tribunal found no evidence of such improvements in the sale deed dated 14.12.2007 and noted that the property was agricultural land without any structures. The Tribunal upheld the findings of the CIT(A) and the Assessing Officer, concluding that no deduction under section 48(ii) of the Act for indexed cost of improvement was warranted. 2. Restriction on Expenses Incurred on the Transfer of Property: The assessee claimed Rs. 40 lakhs as expenses incurred for the transfer of the property, including Rs. 20 lakhs paid to an advocate and Rs. 20 lakhs as commission to four individuals. The CIT(A) allowed Rs. 10 lakhs out of the Rs. 20 lakhs paid to the advocate but disallowed the remaining Rs. 5 lakhs paid after the sale. The Tribunal allowed the entire Rs. 20 lakhs paid to the advocate, stating that the time lag of three months should not affect the claim. However, the Tribunal upheld the disallowance of Rs. 20 lakhs paid to the four individuals, as there was no evidence to prove these expenses were incurred wholly and exclusively for the transfer of the property. 3. Disallowance of Professional Fees Paid to the Chartered Accountant: The assessee claimed Rs. 1,96,630 paid to a Chartered Accountant for advising on the transfer of the property. The Tribunal agreed with the CIT(A) that this expense was not allowable under section 48 of the Act, as it was not incurred in connection with the cost of improvement or the transfer of the property. 4. Disallowance of Exemption under Section 54EC: The assessee invested Rs. 50 lakhs in REC Ltd bonds and another Rs. 50 lakhs in NHAI bonds within six months of the sale of the property. The Assessing Officer restricted the exemption to Rs. 50 lakhs, interpreting the proviso to section 54EC as limiting the exemption to Rs. 50 lakhs in a financial year. The CIT(A) agreed but disallowed the second investment, claiming it was made outside the six-month period. The Tribunal, relying on judicial precedents and CBDT Circular No.3/2008, held that the restriction was on the investment per financial year, not the exemption amount. The Tribunal also ruled that the date of payment (encashment of cheque) should be considered for the six-month period, allowing the exemption for the second investment. Conclusion: The Tribunal partially allowed the appeal, granting relief on certain expenses incurred on the transfer of property and the exemption under section 54EC but upheld the disallowance of the indexed cost of improvement and professional fees paid to the Chartered Accountant.
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