TaxTMI 
TaxTMI 
2017 (6) TMI 1156
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....l gain by wrongly calculating the indexed cost of acquisition inasmuch as he has not applied the prescribed formula for calculating the indexed cost of acquisition but has considered imaginary figures for arriving at the reduced indexed cost of acquisition and thus enhancing the capital gain. Therefore, the addition so made deserves to be deleted. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has grossly erred in confirming the disallowance of const./expenses of Rs. 1,01,97,208/- claimed u/s 48(1) of the I.T. Act, 1961 arbitrarily, without appreciating the nature of expenses, incurred vis-a-vis the contractual obligation and special circumstances attached to the asset sold, thus the disallowance so made and upheld deserves to be deleted. 2.1 That the ld. CIT(A) has further erred in ignoring the fact that the amounts were paid for taking over possession of the asset sold and removal of encumbrances created thereon, thus the payments being made for removing the encumbrance over the asset sold without which the sale of the assets was impossible, hence the amount so paid is eligible for deduction u/s 4(1) of the I.T. Act, 1961. ITA No. ....
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.... ''2.5 I have perused the facts of the case, the assessment order and the submissions of the appellant. In this case, the appellant has purchased a new building (at C96) which has been given on a 99 years lease to tenant (RFC) for a lease rent of Rs. 2,500/- per annum. However, the ownership rights of the new property still vest with the appellant. In the case laws cited by the appellant, money was paid to the tenant (case of Eagle Theaters, supra) or compensation was paid to the hutment dwellers (case of Piroja Patel, supra) to vacate the premises being transferred. In all these cases, the assessee parted with the property (money) which was given to tenants or hutment dwellers. In the instant case, the ownership rights of this property remain vested with the appellant. By giving a 99 years lease and other terms and conditions of the lease agreement enumerated by the appellant, it has transferred some rights in the new property to RFC but not the ownership rights. Therefore, it my view the cost of acquisition of the new property cannot be allowed as cost of improvement of the property transferred or expenditure incurred in connection with the transfer of property. Therefore,....
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....which was declared by the assesseein the return of income filed for the year under consideration after claiming such cost. Briefly stated the facts of the case are that assessee company was in possession of a property "Surya Niwas"located at C-18, Bhagwan Das Road, Near Raj Mandir Cinema, C-Scheme, Jaipur, which was purchased by it in terms of Purchase deed dated 19.02.1996. At the time of purchase, the said property was occupied by Rajasthan Finance Corporation (RFC) a state financial institution as tenantwho was tenant since 1972, i.e. more than 28 years.The said building was around 40-45 years old and due to the fact of being occupied by Government department, was under heavy wear and tear, therefore, the assessee decided to rebuilt the property in the shape of a commercial complex and accordingly it had approached to RFC to vacate the property which request of vacate the property was turned down by RFC. Thereafter a notice dated 01.09.1999 was given to Chairman and Managing Director, RFC giving a proposal that RFC shift its office to some alternative accommodation and once the construction of property is over (i.e. in around 2- 3 years) , RFC would be provided with aro....
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....High Court in the year 2000 requesting to direct RFC to vacate the premises. All the facts as narrated above are duly borne out of in the said writ petition filed by assessee, copy of which was duly filed before the lower authorities. During the pendency of writ before the Hon'ble High Court, RFC in accordance with earlier proposal of assessee, agreed to vacate property in lieu of another property situated at Plot No.C-96, Jagan Path, Chomu House, Jaipuron irrevocable lease of 99 years which could be further extended for 99 years or more and during the lease period assessee could not get loan over the said property nor allowed to hypothecated the same. Thereafter the possession of new premises was handed over to RFC and assessee got possession of old propertyvide lease deed dated 13.03.2003(APB 6-17). Accordingly, RFC agreed to withdraw revision petition No.927/2001 and assessee filed application under Article 326 of Constitution to withdraw writ petition (APB 46-47). The new property which is given to RFC on lease is located at C-96, Chomu House, Jaipur and was acquired by assessee for a total consideration of Rs. 1,01,97,208/- in terms of purchases deed dt. 5.8.....
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....curred on account of following:- (i) "Expenses on Building" Rs. 2,16,932/- incurred in 31.03.1999 (ii) Reduced expenses incurred for the year ended 31.03.2004 by Rs. 9,84,333/- During the course of assessment proceedings the Ld. AO directed the assessee to furnish the revised calculation of capital gain by reducing the cost of acquisition to the extent stated above, in response to which assessee provided the details of revised capital gain (APB62-67). After receiving this submission, Ld. AO completed the assessment after making addition of Rs. 49,63,278/- and further wrongly observed in para 2 at page 4 of the order that "......assessee has agreed and filed the revised cost of acquisition/ indexed cost of acquisition of the property".Thisobservation of the ld. AO is not correct at all rather contrary to the facts of the case and the bonafide made compliance by the assessee of AO's direction was used against it without their being any admission of any kind made by assessee. When these facts were brought before the ld. CIT(A) and contention was raised, he proceeded to decide the issue on merits and department has not preferred any appeal before the hon'ble ....
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....rious judgements wherein it has been held that expenses incurred for getting property vacated for its further development and sale are to be treated as "expenses wholly and exclusively in connection with transfer" and thus to be allowed against Capital Gain. 1.147 Taxman 629 (Cal)Gopee Nath Paul & Sons Vs. DCIT, (pages 1- 7) "Section 48 of the Income Tax Act, 1961 - Capital gains - Computation of - Assessment Year 1992-93 - Whether if without removing any encumbrance, sale or transfer could not be effected, amount paid for removing that encumbrance will fall under clause (i) of section 48(1) - Held, yes." 2. CIT Vs. Eagle Theatres (Del) ITA 1287/2011 (Pages 8-12) 3.242 ITR 582 (Bom) CIT Vs. Miss Piroja C. Patel (pages 13-14 4. 218 ITR 598 (Bom) Hardiallia Chemicals Ltd. Vs. CIT (pages 15- 20) 5.161 ITD 211 (ITAT, Ahd.)Nanubhai Keshavlal Chokshi HUF vs. ITO (pages 21-26) As regards observation of Ld. CIT(A) that assessee has not parted with the asset, kind attention of Hon'ble bench is invited to various clauses of Lease deed,(APB 8-17) which provides that leaseis"Irrevocable for 99 years". On perusal of Lease Deed following impo....
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....resent case when the assessee leased out the property to the RFC for minimum period of 99 years, it is deemed sale i.e. the ownership right would be transferred to RFC. In other words, if the cost of property is not allowed as deduction in accordance with section 48(1)(i), it would amount to undue hardship to assessee as it has purchased a property, which can :- (i) not be used by it in the manner it wishes, (ii) not be let out at a rent at market rates, (iii) not be mortgaged for raising finance, and further, chances of getting it back after completion of Lease term are negligible. Thus, the property leased cannot be treated at par with other leased properties, wherein lessor:- (i) gets a handsome amount as down payment, (ii) charges lease rent in accordance with market rates, (iii) and still option of extension of Lease completely lies at the will of lessor. In view of above facts, it is submitted before your honour that property given to RFC was leased under compulsion for vacation of property without which development/ sale of subject property was not possible and since the same being incurred whol....
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.... before the Hon'ble High Court, a settlement was reached between the parties and accordingly it was decided that the assessee would provide a new property to RFC on 99 years lease against the vacation of property i.e. C-18, Bhagwan Das Road, Jaipur occupied by RFC. Accordingly assessee offered another property owned by it which is situated at C-96, Chomu House, Jaipur purchased by the assessee on 05.08.2002 for the total cost at Rs. 1,01,97,208/-. Thereafter a lease agreement was entered into between the assessee and RFC on 15.03.2003, copy of which is available in the paper book filed by the assessee. As per this lease deed, assessee has provided newly purchased property to RFC for an annual lease rent of Rs. 2,500/- for a period of 99 years which is further extendable on the option of the RFC for another 99 years or more on the choice of RFC. It was also decided between the parties that this lease would be irrevocable and also contained certain terms and conditions according to which except the legal title, RFC would enjoy all rights and easements over the said property including alteration, improvement, development and further construction and also would be having a right to sub....
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.... amount has to be allowed because it was incurred in view of facts found, wholly and exclusively connected and linked with transfer / sale. In similar circumstances, the Andhra High Court in Naozar Chenoy Vs. Commissioner of Income Tax [1998] 234 ITR 95 (AP) has observed as under: "As regards the expenditure incurred by the assessee towards payment of the amount to the tenants for vacating the premises, which is the subject matter of the sale transaction, we are of the view that it has nexus with the transaction as without the tenants vacating the premises, the building cannot be sold. Therefore we are of the view that the said expenditure was incurred for effecting the transaction and therefore he is entitled for deduction of the amounts incurred towards vacation of the tenants, in computing the capital gain of the building sold. The stand of the Revenue cannot be accepted on the second contention.'' Further Hon'ble Mumbai High Court in the case of CIT Vs. Piroja C. Patel reported in 242 ITR 582 has also expressed the same view and held that payment made to hutment dwellers for vacation of property amounted to cost of improvement and accordingly allowable as e....