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TMI Blog2014 (8) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... aid land would be compatible for the project of the DSKDL which was initially SEZ project. It is stated that subsequently the DSKDL decided not to go with the SEZ project but decided to go with the Special Township Project and hence, the assessee was requested to withhold the further development. The assessee has produced the details of the expenditure on the said land before the Ld. CIT(A) to the extent of ₹ 1,62,33,447/- which has not been controverted before us only argument of the Revenue is that the said expenditure is incurred by the assessee not during the assessment year. It is true that the said MOU was not registered but at the same time it is also not disputed that the said MOU executed on the non-judicial stamp paper of ₹ 100/- “copy placed at Page Nos. 46 to 52 of the Compilation”. We also find that the Ld. CIT(A) has given the categorical finding that there was contractual obligation on the assessee to do the development and hence, to the extent of ₹ 1,62,33,447/- which were spent by the assessee up to 24- 01-2011, the Ld. CIT(A) allowed the claim of deduction to the assessee. In respect of the balance amount of ₹ 85,32,153/-, the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in allowing the assessee's claim of deduction of ₹ 1,62,33,447/- even though the assessee had not furnished any evidence either before the Assessing Officer or in the course of the appellate proceedings in support of the expenses actually incurred. 6. Without prejudice to the above, the Learned Commissioner of Income-tax (Appeals) grossly erred in allowing the above claim also without enquiring as to when the expenses were actually incurred, more so when the assessee himself had submitted during the appeal proceedings that expenses incurred upto to 24/01/2011 were ₹ 1,62,33,447/-. The Learned Commissioner of Income-tax (Appeals) grossly erred in taking cognizance of expenses incurred beyond the relevant previous year. 7. Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the expenditure of ₹ 1,62,33,447/-claimed to have been incurred on a work such as removing of bunds, huts, grass, shrubs, construction of wall and road, plumbing works etc. was unreasonably high. 8. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the agreed sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked out the Short Term Capital Gain (STCG) on the sale of Fursungi land at Pune which in consequence increased the taxable Capital Gain in the hands of the assessee. 3. The assessee challenged the action of the Assessing Officer before the Ld. CIT(A). The Ld. CIT(A) considered the submissions of the assessee and he came to the conclusion that out of ₹ 2,47,65,600/- the expenses actually incurred by the assessee to the extent of ₹ 1,62,33,447/- are to be allowed as a cost of asset u/s. 48 of the Act. In respect of the balance amount of ₹ 85,32,153/-, the Ld. CIT(A) held that as the said amount is as per terms of the MOU and the assessee could not spend on the development as the nature of the project was changed hence to that extent the amount is to be reduced. For allowing the claim of the assessee, the reasons and findings of the Ld. CIT(A) are as under: 4. In ground no. 2, the appellant has contested the disallowance of deduction u/s 48 claimed of ₹ 2,47,65,600/- in computing the short-term capital gain with respect to the sale of land at Fursungi, Pune. The fact of the case is that the appellant purchased agricultural land at Village Fursungi, Tal.: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly ₹ 31,32,000/- against the total consideration received of ₹ 6,63,00,000/- by the appellant. Thus, the appellant out of the total land of 234.50 R sold 204R and retaining about 30.5R with him. The appellant, thereafter, while computing the short-term capital gain claimed expenses of ₹ 2,47,65,600/- to be incurred on the said land as per the MOU dated 26.09.2007 and had made a detailed estimate for the development work on the basis of which the expenses of ₹ 2,47,65,600/- was worked out. The appellant after claiming the deduction on account of expenses to be incurred offered ₹ 1,21,27,745/- as short-term capital gains on the sale of land for A.Y. 2008-09. During the assessment proceedings the A.O. held that the deduction of ₹ 2,47,65,600/- in respect of provisions for expenses to be incurred as per the MOU towards the development of the land was not an eligible deduction for purpose of computation of income by way of short term capital gain. The A.O. held that as per the provisions of section 48 of the I.T. Act, 1961, the capital gains had to be completed by deducting from the face value of consideration received on accruing as a result of capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the company and was intrinsically linked with the transfer though the same has been incurred subsequent to the execution of the sale deed. It has, therefore, been contended that the A.O. had failed to consider that the development work was appellant's contractual obligation and if the said work was not carried out, the company would have recovered the said amount. It is also submitted that the contention of the A.O. that provision for expenses in short term capital gain cannot be allowed as per the provisions of section 48 is not correct as various authorities have held that expenditure wholly and exclusively incurred in connection with transfer has to be allowed and it is immaterial that the said expenditure was incurred subsequent to the sale deed. The appellant has relied on the following judicial contentions: 1. V.A. Vasumati Vs. CIT (1980) 123 ITR 94 (KER) 2. CIT Vs. Dr. P. Rajendran (1981) 127 ITR 810 (Ker) 3. Kalpataru Construction Vs. DCIT (2007) 13 SOT 194 (Mum) 4. S.S. Jhaveri Vs. Union of India (2006) 286 ITR 428 (Bom) 4.3.1 In the case of V.A. Vasumati, cited supra, the Kerala High Court held that all the expenditure wholly and exclusively incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held to constitute cost of improvement for the purpose of clause (i) of section 48 of the Act, as it contributed to the increase in potential value of land in a real sense. In the present case also the appellant has carried out a diverse set of development work on the land such as construction of road network in concrete, removing bund, old huts, houses and cleaning grass, shrubs, debris etc., build the compound wall, which has indeed added value to the land for which the sale consideration received by the appellant was much more than the existing price as per the stamp duty valuation 4.4 Sections 48 and 50 of the Act clarify that capital gain can be correctly worked out only if cost of acquisition or improvement of the asset is deducted from the full value of consideration received. Therefore, to entitle the assessee to any deduction in terms of the said provisions on account of any improvement it is required that a claim for such deduction is made before the assessing authority failing which the A.O. shall be entitled to proceed on the assumption that no such improvement was actually made. In the present case the claim of the said improvement of the land was made before the A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus with the transfer it does not qualify for deduction unless it is wholly and exclusively in connection with the transfer. Further, the expression wholly and exclusively does not mean that the expenditure should be a 'necessary' expenditure because the expression 'wholly and exclusively' does not mean 'necessary'. Thus in the computation of capital gains, in order to qualify for deduction under section 48, the expenditure should be wholly in terms of quantum in connection with transfer and the motive for such expenditure should also be the transfer of the capital asset in order that expenditure comes within the ambit of the word exclusively . The allowability has to be examined from this angle. 4.5 The development work or expenses incurred on the improvement of the land has been wholly and exclusively incurred in relation with the land sold by the appellant to M/s DSK Kulkarni Ltd. The expenses incurred to the extent of ₹ 1,62,33,447/- out of the total expenses estimated by the appellant of ₹ 2,47,65,600/- will have to be allowed as cost of asset u/s 48. In the submission dated 29.12.2011 made by the appellant it has been stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered to assign the assessee s rights of the agricultural lands acquired in Village-Fursungi. The D.S. Kulkarni Developers Ltd. (in short DSKDL ) offered handsome consideration for sale of lands provided the assessee undertakes the work of basic development of the property as the lands were used for agricultural purposes and were not suitable for SEZ project. He submits that as per understanding between the assessee and developer, the said DSKDL was interested in purchasing the developed land subject to 1) Removing disposing bunds, old huts, cow sheds and houses. 2) Removing grass, shrubs, debris, disposing carting away and cleaning. 3) Government private measurement of land (Mojani) 4) Construction of entire road network. 5) Construction of retaining/compound wall 6) Plumbing development works. 7) External drainage development work, storm water development work etc. 5. After deal was finalized there was a MOU between the assessee and DSKDL dated 26-09-2007 and it was the contractual obligation of the assessee to complete the entire development work mentioned herein- above. He submits that for doing all these works and after development the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8. On perusal of the assessment order, we find that the Assessing Officer has not discussed the issue in detail but adopted shortcut by disallowing the entire claim of expenditure by writing 5-6 lines. We find that the Ld. CIT(A) has in detail dealt with the issue and also narrated the relevant facts. In this case nowhere it is disputed that the assessee has sold the lands to the DSKDL but the solitary controversy is in respect of contractual liability on the assessee for carrying out development works on the said land as those lands were agricultural land, whereby the said land would be compatible for the project of the DSKDL which was initially SEZ project. It is stated that subsequently the DSKDL decided not to go with the SEZ project but decided to go with the Special Township Project and hence, the assessee was requested to withhold the further development. The assessee has produced the details of the expenditure on the said land before the Ld. CIT(A) to the extent of ₹ 1,62,33,447/- which has not been controverted before us only argument of the Revenue is that the said expenditure is incurred by the assessee not during the assessment year. 9. We find that the id ..... X X X X Extracts X X X X X X X X Extracts X X X X
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