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TMI Blog2016 (1) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute has been resolved through Arbitral Award which itself goes to show that the encumbrance has to be discharged by making the payment to her son from the sale proceed of the flat and this had been eventually done after the property was sold. Thus, in our opinion the payment made by the assessee to her son was purely on account of discharge of the encumbrance on the property which has to be reckoned and treated as expenditure in connection with the property, therefore, deduction of such cost has to be allowed as cost of acquisition while computing the long-termcapital- gain. Accordingly, disallowance of ₹ 40 lakhs as made by the AO and confirmed the CIT(A) is deleted. Disallowances of Indexed Cost of Improvement and Amount paid through the builder to BDP enterprise as reinvestment in flat - So far as other disallowances are concerned, we are in agreement with the finding and conclusion of the CIT(A), as the assessee has failed to furnish any concrete evidence with regard to any of the expenditure or payment made by the assessee which has been claimed towards cost of acquisition. Even before us, the position remains the same, therefore on these two disallowances of Index ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Neither the said payment of ₹ 40 lakhs to him was mentioned in the sale agreement nor there was any legal right of her son to make such a claim. After detailed reasoning and examination of various clauses of sale deed, he came to the conclusion that the payment of ₹ 40 lakhs given to Shri Ketan C Shah cannot be claimed as expenditure incurred wholly and exclusively in connection with the sale of flat. Accordingly, the Ld. AO added the said amount in the computation of LTCG. He further added a sum of ₹ 8,27,844/- on account of index cost of improvement, because it was claimed that assessee had incurred additional cost in the financial year 1983-84 for which assessee could not submit any evidence and also disallowed the claim of ₹ 4,94,600/- on account of sum paid to the builder in the reinvestment of value of new plan, again on want of any evidence. 3. The Ld. CIT(A) too has confirmed the said addition on the ground that there is no legal document to establish that Mr Ketan C Shah had any right in the said flat and even if he had some right then whether such an amount has been offered for taxation or not has not been brought on record. He observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o his name was shown. After the demise of Chandrakant Shah on 30th May, 2005, the name of both the sons were shown as co-owner in the records of the society. Since his sons were his legal heirs they claimed their rights in the flat along with the assessee. Due to the family dispute regarding rights, the Arbitration Agreement was entered into on 26.12.2006, wherein it was mentioned that flat was acquired in joint name of assessee and her husband and also referred to the following recitals in the Arbitration Agreement : whereas, the DIFFERENCE on account of disputes HAVE ARISEN between the Joint Family Members, as to their share, rights, interest, and claims above parties in the said flat and parties hereto confirm and claim and state that their already exist, right, title and interest in the said the flat which was acquired a joint name and they contend that it will be transferred in the name of Mrs. Hiraben Chandrakant Shah after father s death for convenient sake without crystalising rights of all members of family X X X that parties are not in agreement with each other as to what extent each members has his/her right, title, interest in the said flat although the fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n C Shah which has been given to her son. Said amount was given so that once for all he should not have any claim on the sale proceeds of the said flat or in future in the purchase of the flat bought in the name of the assessee. In support of his contention, he has referred to the various documents placed in the paper book. Besides this, he has made several arguments with regard to the various evidences filed and all his arguments have been given in the form of written submissions before us. As regards the disallowance of amount earned on unsubstantiated Indexed Cost of Improvement of ₹ 8,27,844/-, he submitted that in the financial year 1983-84, a sum of ₹ 1,65,000/- was incurred for the improvement, however, evidence could not be filed as it was from old records. Regarding disallowance of ₹ 4,94,600/- on account of unconfirmed payment to the builder, he submitted that, the assessee had furnished a bill of ₹ 4,94,600/- issued by BDP Enterprise to claim that this amount was paid for the newly purchased flat. This payment was on account of making new house habitable. 5. On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, 2008, the relevant clauses of the award highlighting the dispute and the terms of award are reproduced hereunder :- AND WHEREAS that disputes arisen between Mrs. Hiraben Chandrakant Shah party of the first part and Mr. Samir Chandrakant Shah party of the Second part and Mr. Ketan Chandrakant Shah party of the third part relating to rights, like, interest, claim in the property i.e. Flat No. 21, 6th Floor, Navgaytri Building, 80 A Walkeshwar Road, Mumbai-400 006, and we are convinced that disputes is likely to be aggravated in future and there were existing dispute between two brothers and their family in relation to this flat since some time. The said parties by writing arbitration agreement dated 26th December, 2006 nominated and appointed 1. MR. HARESH PRAVINCHANDRA SHAH having address at 19, Western Court Building, 5th Floor, 83, Marine Drive, Mumbai -400 002, and (2) MR. NAVIN N. MEHTA having address at 27, Mahavir Darshan Opp. Bhandari Street Post Office, Masjid Bunder, Mumbai -400 003. To act as arbitrators and settled the said matter in disputes between the parties; AND WHEREAS that we the arbitrators respectively accepted the said appointments and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the family or out of borrowed funds or by selling the Flat No. 21, 6th Floor, Navgaytri Building, 80 A Walkeshwar Road, Mumbai - 400 006, after taking into consideration various factors and we further direct that payment of ₹ 40,00,000/- (Rupees forty lakh only) should be made within one year as consideration to Mr. Ketan Chandrakant Shah towards the purchase cost of the new flat so as to enable him to settle his family and thereafter to acquire the premises in the name of mother Mrs. Hiraben Chandrakant Shah and Mr. Samir Chandrakant Shah who intends to resides with her mother jointly in which Mr. Ketan Chandrakant Shah will have no right, title, interest in the said flat after the death of mother which would be acquired jointly by mother Mrs. Hiraben Chandrakant Shah and elder brother Mr. Samir Chandrakant Shah and Ketan will never claim, any right, title and interest in the said flat it will exclusively belong to Samir Chandrakant Shah and Ketan will never claim, right, title and interest in the said flat it will exclusively belong to Samir Chandrakant Shah. 5. And we further award that the mother Mrs. Hiraben Chandrakant Shah and Mr. Samir Chandrakant Shah also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or any debt on the property, then any expenditure incurred to discharge or remove such encumbrance or debt is to be regarded as expenditure connected with the transfer of the property as contemplated in section 48. This proposition has been elaborated and well settled by the Hon ble Supreme Court in the case of RM Arunachalam vs CIT reported in, [1997] 227 ITR 222 and VSMR Jagdish-chandran (Deed) V CIT, reported in [1997] 227 ITR 240. The Hon ble apex Court has classified that, if the assessee had inherited the property along with mortgage or any encumbrance, then the assessee would be entitled to the deduction of the amounts spent in discharge of such encumbrance or mortgage as cost of acquisition u/s 48. However, if the assessee himself has created a mortgage or encumbrance and then same consequence shall not follow. Thus, if the assessee acquires a property in inheritance fully or partially with any kind of encumbrance therein, then any obligation amount spent to remove that encumbrance has to be treated as an expenditure wholly connected with the transfer of the property. Here in this case, the encumbrance was in the form of a right and interest of one of her son Mr. Ketan C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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