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The ITAT held that compensation paid by the assessee to the first purchaser for cancellation of an agreement to sale qualifies as cost of improvement or expenditure incurred wholly and exclusively in connection with the transfer of the capital asset under Section 48 of the Act. The tribunal rejected the Revenue's contention that such compensation does not constitute cost of improvement merely because no physical enhancement was made to the property. It was observed that improvement includes any act that enhances the asset's value, including clearing title and legal encumbrances. The payment was deemed necessary to enable a sale free from litigation, thereby increasing the asset's marketability and value. Consequently, the compensation was held to be deductible from the sale consideration for capital gains computation, and the assessee's appeal was allowed.
The ITAT held that compensation paid by the assessee to the first purchaser for cancellation of an agreement to sale qualifies as cost of improvement or expenditure incurred wholly and exclusively in connection with the transfer of the capital asset under Section 48 of the Act. The tribunal rejected the Revenue's contention that such compensation does not constitute cost of improvement merely because no physical enhancement was made to the property. It was observed that improvement includes any act that enhances the asset's value, including clearing title and legal encumbrances. The payment was deemed necessary to enable a sale free from litigation, thereby increasing the asset's marketability and value. Consequently, the compensation was held to be deductible from the sale consideration for capital gains computation, and the assessee's appeal was allowed.
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