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TMI Blog2018 (8) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... ents made towards ‘Long term capital gain’ derived from sale of property to the book profit computed u/s 115JB of the Income-tax Act, 1961. - Decided in favor of assessee. - I.T.A No. 5155/Mum/2017 - - - Dated:- 10-8-2018 - Shri Joginder Singh ( Judicial Member) And Shri G Manjunatha ( Accountant Member ) Appellant by : Shri Hiro Rai Respondent by : Shri Virender Singh ORDER Per G Manjunatha, AM This appeal filed by the assessee is directed against order of the CIT(A)-4, Mumbai dated 23-05-2016 and it pertains to AY 2012-13. The assessee has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in sustaining the Order of the Assessing Officer on irrelevant and inconsequential grounds by holding that the payments made to former tenants, M/s. Balkrishna Pujari of ₹ 40,50,0007- and M/s. Instavac Engg. Pvt. Ltd. for obtaining vacant possession of the property belonging to the appellant was not a permissible deduction allowable in computation of Capital Gains as an expenditure incurred wholly and exclusively in connection with transfer of capital asset within the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed long term capital gain. It is noted from the computation of long term capital gain that the assessee has claimed compensation of ₹ 1,20,50,000 stated to be paid for removing illegal occupants. The assessee claims to have paid compensation of ₹ 80 lakhs to M/s Instavac Engg Pvt Ltd to vacate the occupation of the premises. The assessee also claims to have paid a sum of ₹ 40 lakhs to one Mr. Balkrishna T Poojari, the tenant for termination of agreement and vacating the said premise. The AO disallowed compensation claimed by the assessee as expenses incurred exclusively for transfer of property on the ground that the said two occupants have illegally occupied the premises and hence, any compensation paid to remove illegal occupation is inadmissible as deduction while computing capital gains. The AO has taken support from the decision of ITAT, Mumbai in the case of ITO vs Narendra S Kapadia (1996) 58 ITR 329. 4. The Ld.AR for the assessee submitted that the lower authorities were failed to appreciate the facts in right perspective in the light of evidences filed by the assessee to prove payment of compensation to two tenants, who occupied the building to han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered as compensation paid for getting vacant possession of the property from the tenants. The Ld.DR further submitted that the Ld.CIT(A) has discussed the issue at length in the light of various case laws as per which the claim of the assessee that it has paid compensation to get property vacated from tenants is not supported by any evidence. The assessee, except furnishing certain self serving documents in the form of declaration cum indemnity bond and MOU between parties, failed to explain how amount paid for premature termination of leave and licence agreement comes within the meaning of compensation paid for vacating illegal occupants of the premises. Therefore, the lower authorities were right in disallowing compensation paid by the assessee and their order should be upheld. 6. We have heard both the parties and perused the material available on record. The AO has disallowed compensation claimed to have paid to two tenants, M/s Instavac Engg. Pvt Ltd and Shri Balkrishna T Poojari, prop of Rupa Hotel of ₹ 1,20,50,000 on the ground that the said amount is not allowable as deduction while computing capital gain from transfer of property. The assessee has fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with transfer of property while computing capital gains. The Hon ble Delhi High Court in the case of CIT vs Eagle Theaters (2012) 205 taxman.449 has taken a similar view and held that amount paid to the tenants for vacating the premises for facilitating the sale of building is required to be deducted in computing capital gain of the building sold as incurred solely and exclusively in connection with the transfer. 7. Considering the facts and circumstances of the case and respectfully following the case laws discussed above, we are of the considered view that compensation paid by the assessee to two tenants for getting vacant possession of the property is deductible as an expenditure incurred wholly and exclusively in connection with transfer of the property while computing capital gains. Therefore, we direct the AO to allow compensation paid by the assessee as an expenditure of transfer while computing capital gain from transfer of property. 8. The next issue that came up for our consideration is computation of book profit u/s 115JB of the Income-tax Act, 1961. During the course of assessment proceedings, the AO has re-computed book profit u/s 115JB of the Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, there is no scope for the AO to make adjustments towards book profit u/s 115JB, except as provided under Explanation 1 to section 115JB of the Income-tax Act, 1961. 10. Having heard both the sides and considered material on record, we find that the Hon ble Supreme Court in the case of Apollo Tyres Ltd vs CIT (supra) has considered the issue in the light of provisions of section 115JB of the Income-tax Act, 1961 and Parts II and III of Schedules VI to the Companies Act, 1956 and held that the AO does not have the jurisdiction to go beyond the net profit shown in the P L Account except to the extent provided in the Explanations. The use of the words, in accordance with the provisions of Parts II and III of Schedules VI to the Companies Act, 1956 , in section 115J was made for the limited purpose of empowering the AO to rely upon authentic statement of the accounts of the company. While so, looking into the accounts of the company, the AO has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its books of account in a manner provided by that Act, and same to be scrutinized and certifie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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