2015 (6) TMI 844 - AT - Income Tax

Computation of capital gains - co-owners - Addition on account of cost of improvement - CIT(A) deleted addition - Held that - On the transfer of his 1/5th share in the total area of land, what the assessee actually transferred was not only the lesser area under his exclusive ownership, but also the common area on which he had joint ownership rights. Sale consideration amounting to ₹ 27 crore received by the assessee is in respect of higher area of 44 Bighas, 15 Biswas and 4 Biswans. It is not the case of the Revenue that the assessee transferred his entire 1/5th share in the agricultural land and received ₹ 27 crore in respect of lesser area and some other amount of consideration for the remaining area which was commonly used. When there is a sale of the assessee s 1/5th share in total land area covering both the exclusive ownership/possession as well as the joint ownership/possession, the cost should also be taken for the both, including that of joint ownership. It is impermissible to take full value of consideration for the higher area and cost of acquisition for the lesser area. Insofar as the mention of a lesser area in the Registered valuer s report and Court decree is concerned, we find the Registered sale deed to be a more authentic document evidencing the details of the property transferred with the relevant khasra nos. etc. We, therefore, prefer to go with the Registered sale deed in preference to the other documents in so far as the question of determining the assessee s share in land is concerned. If we so proceed by taking the higher area of the land transferred, the assessee s claim for deduction for increase in the indexed cost of acquisition by a further sum of ₹ 38.76 lac merits acceptance. We countenance the impugned order on this issue - Decided against revenue.

Summary

Issues:
1. Deletion of addition of Rs. 12.5 lac (18 lac) as cost of improvement.
2. Deletion of addition of Rs. 38,76,181/- on account of difference in the 'Cost of acquisition'.

Issue 1: Deletion of addition of Rs. 12.5 lac (18 lac) as cost of improvement:
The case involved the assessee claiming a deduction for a sum of Rs. 25 lac towards 'Cost of improvement' related to a land transfer. The Assessing Officer (AO) disallowed the deduction based on the amount actually paid by the assessee to another party. The Appellate Tribunal observed that the amount paid to resolve a property dispute and remove encumbrances qualifies as expenditure incurred in connection with the transfer of a capital asset under section 48(i) of the Income-tax Act. The Tribunal cited relevant case laws to support this view. The Tribunal upheld the deduction of the net amount actually paid by the assessee to the other party at Rs. 12.50 lac under section 48(i), considering it as advance money received earlier. The Tribunal concluded that the assessee was entitled to relief under section 48(i) for the net sum of Rs. 12.50 lac, dismissing the Revenue's appeal against the deletion of the addition.

Issue 2: Deletion of addition of Rs. 38,76,181/- on account of difference in the 'Cost of acquisition':
The second issue revolved around the indexed cost of acquisition claimed by the assessee in relation to a land transfer. The assessee contended that the correct indexed cost of acquisition was Rs. 10.39 crore, whereas the Assessing Officer considered it to be Rs. 10.00 crore based on a lesser area mentioned in the valuation report and Court decree. The Appellate Tribunal analyzed the ownership structure of the land and the sale deed to determine the actual share of the assessee. It was established that the assessee's share included both exclusive ownership/possession and joint ownership rights in a common area. As the sale consideration was for the higher area, the Tribunal accepted the assessee's claim for an increased indexed cost of acquisition at Rs. 10.39 crore, leading to the deletion of the addition of Rs. 38.76 lac. The Tribunal upheld the Appellate Commissioner's decision on this issue.

In conclusion, the Appellate Tribunal dismissed the appeal by the Revenue, affirming the deletions of the additions made by the Assessing Officer. The Tribunal's detailed analysis considered the legal provisions under the Income-tax Act and relevant case laws to determine the deductibility of expenses and the correct indexed cost of acquisition in the context of the land transfer transactions.