Tribunal rules payment to agreement holder as legitimate acquisition cost, no income addition required

The Tribunal allowed the appeal, ruling that the payment to the agreement holder was a legitimate part of the cost of acquisition, crucial for the property purchase to proceed. As the appellant had paid more than the market value determined by the Registration Department, no income addition was warranted under Section 56(2)(vii) of the Income-tax Act, 1961. The Tribunal set aside the lower authorities' orders, deleting the disputed amount addition, emphasizing the importance of the payment to the agreement holder in determining the property's cost and rejecting the income addition under the Act.

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Issues: Disallowance of payment to agreement holder while computing capital gain.

Analysis:
1. The appellant claimed the amount paid to the agreement holder as cost of acquisition while computing capital gain. The Assessing Officer, however, considered it as brokerage not eligible under Section 56(2)(vii) of the Income-tax Act, 1961.
2. The appellant argued that the payment to the agreement holder was part of the purchase consideration, necessary to clear the title and enable the purchase of the property. The appellant contended that the agreement holder had a pre-existing right to purchase the property, making the payment integral to the acquisition.
3. The Departmental Representative countered, stating that only the amount paid to the landowners should be considered as the cost of the property, not the payment to the agreement holder. The discrepancy between the guideline value and the consideration paid led the Assessing Officer to treat the difference as income under Section 56(2)(vii).
4. The Tribunal analyzed the situation, noting the pre-existing right of the agreement holder to purchase the property. It concluded that the payment to the agreement holder was indeed part of the cost of acquisition, essential for the purchase to proceed. As the appellant had paid more than the market value determined by the Registration Department, no income addition was warranted under Section 56(2)(vii).
5. Consequently, the Tribunal set aside the orders of the lower authorities, deleting the addition of the disputed amount. The appeal by the assessee was allowed, emphasizing the significance of the payment to the agreement holder in determining the cost of the property and negating the income addition under the Act.

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