2015 (4) TMI 10 - HC - Income Tax

Computation of capital gain - Reduction of Cost of improvement - payment of compensation to tenant - AO treating the same as not an expense incurred in connection with the transfer of the capital asset in question but payments made with a motive to avoid taxes - Held that - The provisions of sec.40A(2)(b) cannot be made applicable on a transaction claimed as deduction against capital gain. Revenue did not produce any material to controvert the findings of fact recorded. Whether the transaction could be termed as dubious or not? would essentially require the exercise of fact finding inquiry. The material appears to have been re-appreciated by the C.I.T. (Appeals) and the finding of fact was recorded that the transaction of payment of compensation was genuine and disallowance was not proper. When the Revenue did not produce any material to controvert the said findings of fact before the Tribunal and if the Tribunal has confirmed the said finding, it cannot be said that such finding of fact is perverse, as sought to be canvassed nor it can be said that any substantial question of law would arise, as sought to be canvassed on behalf of the Revenue. - Decided against revenue.

Summary

Issues:
- Whether the Income-tax Appellate Tribunal's order is perverse in fact and in law in upholding the decision of the CIT(A) in deleting the addition of Rs. 57,20,000 claimed by the assessee towards cost of improvement and added by the AO treating the same as not an expense incurred in connection with the transfer of the capital asset but payments made to avoid taxes?

Analysis:
1. The Appellant raised an issue regarding the deletion of the addition of Rs. 57,20,000 by the CIT(A) in connection with the cost of improvement claimed by the assessee. The AO treated this amount as not an expense incurred for the transfer of the capital asset but as payments made to avoid taxes.

2. The CIT(A) found that the payment of compensation to tenants was genuine based on specific facts. The tenant had incurred expenses on construction and shifting after being asked to vacate the land before the lease period expired. The appellant paid Rs. 65,00,000 as compensation based on an MOU, which was deemed reasonable considering the tenant's expenses. The CIT(A) held that the disallowance of Rs. 57,20,000 was not justified and deleted it.

3. The Tribunal upheld the CIT(A)'s findings, stating that the Revenue did not present any contrary material to challenge the factual findings. Therefore, the Tribunal found no infirmity in the CIT(A)'s order and rejected the Revenue's appeal, leading to the dismissal of the appeal.

4. The High Court noted that the Revenue failed to produce any material to dispute the factual findings regarding the payment of compensation. The Court emphasized that determining whether the transaction was dubious required a fact-finding inquiry. Since the Tribunal confirmed the factual findings without any contradictory material from the Revenue, it was held that the finding was not perverse. Consequently, no substantial question of law arose for consideration.

5. The Court concluded that there was no basis for interfering with the Tribunal's order. As the appeal lacked merit, it was dismissed. The decision highlighted the importance of presenting contrary material to challenge factual findings and emphasized the significance of a genuine transaction in tax matters.