TaxTMI 
TaxTMI 
2022 (10) TMI 658
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....al Gain as worked out at Rs.14,580/- arising from the sale of land at 207, Moje Tandalja was declared by the assessee. The said land was purchased by the assessee on 20.06.2007 and the same was initially agreed to be sold vide an agreement to sale on 19.09.2008. Due to some reasons, the said banakhat, however, could not be executed and the agreement to sale was cancelled on 22.02.2010 subject to payment of Rs.36 lakhs by the assessee in the form of compensation to the prospective buyers. Thereafter, the land was sold by the assessee to another buyer during the year under consideration and while computing the capital gain arising from the said sale, the amount of Rs.36 lakhs paid as compensation for cancellation of agreement to sale executed earlier was claimed by the assessee as cost of improvement to the property and deduction for the same was claimed after applying inflation index. According to the Assessing Officer, the amount of Rs.36 lakhs paid by the assessee as compensation for cancellation of the agreement to sale executed earlier did not constitute cost of improvement and the assessee, therefore, was not entitled to claim indexation for the same. He held that the said amou....
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....to that extent was wrong. He accordingly issued a notice proposing to enhance the income of the assessee by Rs.36 lakhs and giving the assessee an opportunity to offer his explanation in the matter. In reply to the said notice, following submission in writing was made by the assessee before the learned CIT(A). "I refer to your above mentioned notice. In reply to the same I have to state as under: The facts of the case are rightly stated in Para-2 of the above notice which is reproduced hereunder: "A land was purchased at S.NO 207, Moje Tandalja on 20.06.2007. Further agreement of sale was made on 19.19.2008. However, the agreement was cancelled on 22.02.2010 and compensation of Rs. 36,00,000/- had to be paid to prospective buyers with whom the agreement was cancelled. It is contended that the compensation should be treated as cost of improvement and indexation be allowed on the same. In the submission before me it is submitted that this being the cost incurred for making defective, incomplete or imperfect title as complete and perfect is an allowable deduction as cost of improvement u/s 48 of the Income Tax Act." Further in Para-2 of the notice, ....
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....n Hon'ble Supreme Court has ruled that the payment made by person for the purpose of clearing of the mortgage created by the previous owner to be treated as cost of acquisition of the interest of the mortgagee in the property and is so deductible u/s. 48 of the Act. I request your honour to kindly afford an opportunity for personal hearing by fixing the date of hearing convenient to your honour." 4. The learned CIT(A) did not find merit in the submission made by the assessee and proceeded to enhance the income of the assessee by Rs.36 lakhs for the following reasons given in paragraph Nos. 10 to 10.6 of his impugned order:- "10. Ground No. 2 relates to not allowing indexed cost of compensation paid of Rs. 36,00,000/- on account of cancellation of agreement for sale of land. AR vehemently argued that expenses incurred were not in dispute. AR disputed applicability of order of the Hon'ble Bombay High Court in the case of CIT Vs. Roshanbabu Mohammad Hossain Merchant (2005) 144 Taxmann.720 (Bombay). Instead, AR has relied upon rulings of the Andhra Pradesh HC in case of Naozar Chemoy Vs. CIT. I have considered the rulings of the Hon'ble Andhra Pradesh H....
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....nducted by Inspector and also information received from police station at Tandalja did not reveal any police report or any complaint filed in respect of the land at S. No. 207, Moje Tandalja. These facts are bizarre which go to the root of the argument of the appellant/AR. Certainly, expenses incurred were on account of self calculation/ estimation only with an intention to evade legitimate taxes on capital gain. Therefore, I can easily conclude that land was saleable without any encumbrance warranting no expenses to be incurred. 10.3 Once the appellant was made aware of the fact that expenses incurred was not genuine, as per section 101 of the Indian Evidence Act, 1972, the onus was on the appellant to prove that he had claimed was genuine, I find that in the case of Shri Charan Singh vs. Chandra Bhan Singh (AIR 1988 SC 6370), the Hon'ble Supreme Court have clarified that the burden of proof lies on the party who substantially asserts the affirmative of the issue and not upon the party who denies it. It has been further held that the party cannot, on failure to establish a prima facie case, take advantage of the weakness of his adversary's case. The party must suc....
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....is affairs as to avoid taxation but the arrangement- must be real and genuine and not a sham or make believe. 10.5 Appellant in its own submission before AO and also before me has claimed that compensation of Rs.36,00,000 was paid to prospective buyers. But identity of prospective buyers has not been disclosed after my repeated request. Neither it has submitted a copy of ITR to show that the said buyer has accounted for Rs.36,00,000 in their RoI. In view of the aforesaid discussions, I am of the view that documents submitted as evidences to prove the genuineness of expenses incurred in the form of compensation transaction are themselves found to serve as smoke screen to cover up the true nature of the transactions in the facts and circumstances of the case as it is revealed that "agreement to sale without possession" which was later cancelled are arranged transactions to reduce tax from capital gain by well organised network with the sole motive to enable the beneficiary to account for such easy income for a consideration or commission or even routing back the money into own account. 10.6 I note that the landmark decision of the Hon'ble Supreme Court in the ca....
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....tion of Rs.61,01,192/- during F.Y.2009-10 and 2010-11. Generally, commission is paid when he/she brings a party for sale and not after the sale or entire sale consideration is received. AR/appellant could not advance any reason as to why and under which circumstances or what necessitated him to pay brokerage of Rs.1,50,000/- in F.Y.2012-13. Appellant's argument that commission was paid almost 2 years after receiving the entire sale consideration is imaginary. When agreement to sale itself is dated June, 2010 and in fact almost entire sale consideration is seen to have received during the F.Y.2009-10 & 2010-11 and also the sale / purchase agreement parties are same then commission payment to third party was not required. This is a tactic to reduce capital gain anyway in the garb of provisions of the Act. I remain unconvinced with AR's imaginary argument. Expense on account of brokerage of Rs.1,50,000/- paid to Vithhalbhai Ranpura deserves to be disallowed. AO's action is hereby upheld. Appellant fails on this ground as well. Ground No. 3 is dismissed." 6. Aggrieved by the order of the learned CIT(A), the assessee has filed this appeal before the Tribunal on t....
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....has contended that the learned CIT(A), therefore, had no reason to doubt the genuineness of the compensation paid by the assessee on cancellation of banakhat on the ground that the identity of the prospective buyers was not established. He has submitted that the compensation of Rs.36 lakhs on cancellation of banakhat was paid as per the mutual understanding between both the sides and the same was evidenced by the cancellation deed executed on 22.02.2010. As rightly contended by the learned Counsel for the assessee, the factum as well as the quantum of compensation paid on cancellation of banakhat as per the mutual understanding between both the sides was duly established and since the same was duly supported by the cancellation agreement executed between both the sides on 22.02.2010, there was no justifiable reason for the learned CIT(A) to dispute the genuineness of the compensation paid by the assessee and to disallow the deduction claimed by the assessee for the same while computing the capital gain by enhancing the income of the assessee to that extent. 9. As regards the claim of the assessee that the compensation charges of Rs.36 lakhs paid on cancellation of banakhat being....