TaxTMI 
TaxTMI 
2023 (4) TMI 339
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....ct and the refund of amount to be paid by the developers alongwith specific rate of interest, if the envisaged time limit exceeds". 4. The CIT(A) erred in not appreciating the fact that there was no mention of any building in the sale deed executed by the assessee and hence no deduction on account of cost of such building was allowable in the computation of income under the head 'Capital Gain' as the consideration had been received solely for the transfer of land. 5. The CIT(A) was not right in not considering that clause 12 of the JDA dated 17.10.2007 clearly mentions that the owners shall get the hostel building premises vacated at their own cost within 180 days from the date of signing the JDA and till then, access to the property shall be through specified pathway only. 6. The CIT(A) erred in not appreciating the fact mentioned in para 3.1(a)(ii) of the JDA, wherein it is mentioned that an amount of Rs.2.5 crores will be paid to the owners within 30 days of fulfilling the three conditions, which also includes getting the hostel premises vacated. 7. For these and other grounds that may be urged at the time of hearing, it is prayed that....
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....se agreement dated 17.10.2017: The assessee firm entered into a sale/purchase agreement with M/s Orlanda Realty Pvt. Ltd on 17.10.2007 and received a refundable deposit of Rs.2,75,00,000/- as per the terms of the agreement. However, this agreement was mutually cancelled on 06.09.2013 and the assessee firm refunded the amount of Rs.2,75,00,000/-. In addition to this the assessee firm paid Rs.2,50,00,000/- to the purchaser as compensation as per the settlement deed dated 06.09.2013. (iii). The expenses incurred towards cancellation of purchase agreement dated 17.10.2017: The assessee firm entered into another sale/purchase agreement with M/s Orlanda Realty Pvt. Ltd on 17.10.2007 and received a refundable deposit of Rs.l,50,00,000/- as per the terms of the agreement. This agreement was also cancelled on 06.09.2013 mutually by the assessee and the purchaser. The assessee firm refunded the amount of Rs.1,50,00,000/- along with the compensation of Rs.1,25,00,000/- to M/s Orlanda Realty Pvt.Ltd as per the cancellation deed dated 06.09.2013. The AO found that the terms of agreement of the JDA and the two sale agreements do not provide for payment of compensation to the builder. In....
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....0.2010 says about termination of this agreement as under; '45. Termination: In the event either party commits any material breach of this agreement and fails to cure the same within 60 days then the other party shall be entitled to claim damages from the defaulting party but shall not be entitled to terminate this Agreement for any reason except as mentioned in clauses 4. The quantum of damages shall be decided by the Arbitrator as envisaged in this agreement. ' This clause refers to clause 4 of JDA dated 17.10.2007 and the clause 4.5 of JDA dated 17.10.2007 says; '4.5 should there be any problem in progressing the project because of the Authorities and or non receipt of any approval and or consent for the project or any part thereof as envisaged in the Development Agreement then, at the option of the Developers the entire Rs.6,00,00,000/- (Rupees Six Crores Only) or any amount till then paid under the said clauses 3.1(a) (i) and (it) will be refunded by the Owners to the Developers within 45 days of the Developers notifying the problem to the owners in writing, falling which the owners shall pay interest at the rate of 15% per annum ....
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.... firm entered into another sale/purchase agreement with M/s Orlanda Realty Pvt. Ltd. on 17.10.2007 and received refundable deposit of Rs.1,50,00,000/- as per the terms of the agreement. This agreement was also cancelled on 06.09.2013 mutually by both the assessee (Land owner) and M/s Orlanda Realty Pvt. Ltd, (Purchaser). As per the deed of cancellation of the purchase agreement dated 06.09.2013 both the Land owner and the Purchaser mutually agreed to cancel the agreement dated 17.10.2007 and the assessee firm paid back Rs.1,50,00,000/- refundable deposit. In addition to this, the assessee paid Rs.1,25,00,000/- to the Purchaser as per cancellation deed dated 06.09.2013. In the said cancellation deed it is stated that the owners have agreed to pay the Developers Rs. 1,25,00,000/- by way of monetary compensation for termination of the said purchase Agreement dated 17.10.2007. 3.4 The ld. CIT(A) observed from the order of the AO that he has verified the genuineness of the claim of payment of compensation and there is no doubt that the assessee has indeed made payments to the builder/purchaser. 3.4 According to the ld. CIT(A), the terms of settlement/cancellation deed shows that a....
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....nt Reed Date 27.11.06 28.08.2013 2466 1,00,00,000.00 24,66,00,00,000.00 15.00% 1,01,34,246.58 27.11.06 29.01.07 06.09,2013 2412 2,00,00,000.00 48,24,00,00,000.00 15.00% 1,98,24,657.53 29.01.07 07.02.07 06.09.2013 2403 50,00,000.00 12,01,50,00,000.00 15.00% 49,37,671.23 07.02.07 01.03.07 06.09.2013 2381 50,00,000.00 11,90,50,00,000.00 15.00% 48,92,465.75 01.03.07 31.08.07 06.09.2013 2198 1,00,00,000.00 21,98,00,00,000.00 15.00% 90,32,876.71 31.08.07 11.01.08 06.09.2013 2065 2,00,00,000.00 41,30,00,00,000.00 15.00% 1,69,72,602.74 11.01.08 08.07.08 06.09,2013 1886 65,00,000.00 12,25,90,00,000.00 15.00% 50,37,945.21 08.07.08 20.03.09 06.09.2013 1631 25,00,000.00 4,07,75,000.00 15.00% 1,69,72,602.74 20.03.09 7,90,00,000.00 7,25,08,150.68 3.7 The assessee argued before the ld. CIT(A) that instead of paying interest to the Builder /Purchaser it has paid the amount in the form of compensation, which is less than the amount of interes....
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....) The cost of acquisition of the property and the cost of any improvements thereto And stated that the amount of Rs. 7 Crores claimed by the assessee was not incurred wholly and exclusively in connection with the transfer of property and he disallowed the amount. 4.3 Before heading further the ld. D.R. submitted that it is necessary to make one thing clear that the allegations of the assessee that the Assessing Officer has stated that this payment was related to different business dealings (refer page no.11 para 2.6 of the CIT(A) order) is not true. In the entire assessment order, nowhere the Assessing Officer has observed as such. This false allegation of the assessee was relied by the learned CIT(A) while giving relief to the assessee (refer page no.20 para 5.2.9 of the CIT(A) order). This observation and consequential action of the learned CIT(A) is perverse. Hence, the allegation of the assessee, observation and consequential relief given by the ld. CIT(A) is to be reversed. 4.4 The ld. D.R. further submitted that going by the merits of the case, vide ground No. 14 of the assessee before the ld.CIT-(A), reference is made about encumbrance of property (refer CIT(A) orde....
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.... has not brought anything to prove that the interest was paid only under the circumstances mentioned above. The assessee did not prove that there was any problem in progressing the project because of concerned Authorities are on account of non-receipt of any approval and or consent for the project or any part thereof despite sincere effort by the Developer. In such circumstances, it can be ascertained that the payment of interest is related to the money enjoyed by the assessee which was received under the guise of JDA and sale agreement. This assertion is reinforced by the facts narrated by the ld. CIT(A) in para 5.2.9 of his order, where he stated that the assessee created an encumbrance of the property with M/s. Orlanda Realty. The same is reproduced for the sake of convenience, The A/R brought to my notice the condition laid down in the agreement between the appellant and the purchaser, M/s. Titan Company Ltd which speaks of making an advance to the appellant for clearing the property from all encumbrances. He pointed out that the purchaser put a condition that the land should be free from all encumbrances including the cancellation of the deeds entered into with M/s. O....
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....apattinam - (2019) 105 taxmann.com 298 (Madras), ii) Sri Kanniah Photo Studio Vs. ITO, Ward-1 (1) 31, Kumbakonam (2015) 62 taxmann.com 357 (Madras) 4.9 Hence, The ld. D.R. argued that the payment of Rs.7 Crores needs to be disallowed. This argument is further reiterated by the working given in page no.21 para 5.2.11 and observation made by the ld. CIT(A) in page no.22 para 5.2.12. In para 5.2.11 the interest worked out comes to Rs.7.25 Crores and the assessee paid a rounded figure of Rs.7 Crs. But the vital point to be noted is that the interest is not paid for the conditions/situations as envisaged in clause 4.5 of the JDA. This interest at the most can be stated to be paid against the mortgage. The interest paid for mortgage is not eligible expenditure u/s.48(l)(i) of the Act. 5. On the other hand, the ld. A.R. submitted that the assessee has filed detailed written submissions before the learned CIT(A) and filed documents in support of its contentions that the registered cancellation agreement was in pursuance to the settlement arrived mutually between the parties and further buttressed by the payments after deduction of TDS, to demonstrate that the claim of expend....
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....e can be no dispute with respect to the two important propositions: That in order to full within section 10(2)( xv} of the Act the deduction claimed must amount to an expenditure which was laid out or expended wholly and exclusively for the purpose of the business, profession or vocation. This will naturally depend upon the facts of each case. That in order to determine the question of reasonableness of the expenditure, the test of commercial expediency would have to be adjudged from the point of view of the businessman and not of the income-tax department. (v) In the case of CIT vs. Dalmia Cement P. Ltd., (2002) 254 ITR 377 the Hon'ble Delhi High Court held as follows: The jurisdiction of the revenue is confined to deciding reality of the expenditure, namely, whether the amount claimed as deduction was factually expended or laid down and whether it was wholly and exclusively for the purpose of the business. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount spent. Once it is established that there was a nexus between the expenditure and the purpose of business, the revenue cannot ....
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..... (vii) In the case of Honda Motor Co Limited A.A.R. No 1200 of 2011, dated 07.02.2018, the authority observed as follows: We have considered the nature of expenses incurred. A perusal of the cases cited and the vision contained in section 48 shows that the words "wholly and exclusively" do not connote necessarily". If the expenses have been incurred in connection with the transfer, they are to be allowed. The words "in connection with" are of wide import and if such expenses have an intimate connection with the transfer, they have to be allowed u/s 48. 5.2 On perusal of aforesaid judgement, the ld. CIT(A) observed that these judgements are directly applicable to the facts of the assessee's case. From the order of the AO, he observed that he has verified the genuineness of the claim of payment of compensation and there is no doubt that the assessee has indeed made payments to the Builder/purchaser and accordingly, the learned CIT(A) upon appreciation of the detailed written submissions, documents filed, judgements relied on by the assessee, etc. deleted the disallowance of Rs. 7 Crores as being spent to perfect the title and held that it was an allowable deduct....
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....Ltd. (1967) 65 ITR 381 (SC) iv. CIT v. Panipat Woollen & General Mills Co, Ltd. (1976) 103 ITR 66 (SC) v. CIT v. Dalmia Cement (P.) Ltd. (2002) 254 ITR 377 (Del.) vi. CIT v. Shakuntala Kantilal (1991) 190 ITR 56 (Bom.) vii. Trimm Exports (P.) Ltd. v. DCIT (2021) 130 taxmann.com 169 (Kar.) viii. Kaushalya Devi v. CIT (2018) 404 ITR 136 (Del.) ix. Miss Dhun Dadabhoy Kapadia v. CIT (1967) 63 ITR 651 (SC) x. CIT v. Bradford Trading Co. (P.) Ltd. (2003) 261 ITR 222 (Mad.) 5.5 The ld. A.R. submitted that if the compensation was not paid, then the assessee could not have sold the property to M/s. Titan Company Ltd. The compensation paid paved an easy path for the assessee to enable the transfer of the property to its desired purchaser. It was an obligation cast on the assessee to ensure that the property transferred is free of encumbrance and transfer a good title to the purchaser. Therefore, the amounts paid towards the cancellation of the agreements were essential for the transfer is wholly and exclusively incurred in connection with the transfer of property and consequently, the same is required to be allowed as cost as ....
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....al asset including the cost of any improvement there to. As seen from the facts of the case, the assessee already entered with M/s. Orlanda Reality Pvt. Ltd. with following agreements before the sale of property to M/s. Titan Company Ltd: 1. MOU for development property dated 25.1.2007 2. Copy of purchase agreement dated 25.1.2007 for purchase of 1% developed property. 3. The Joint Development Agreement dated 17.10.2007 for development of property. 6.2 Thereafter, the assessee has also entered into cancellation agreement as follows:- 1. Cancellation of MOU dated 6.9.2013 in respect of Memorandum of Understanding dated 25.1.2007 2. Deed of cancellation of purchase agreement dated 6.9.2013 in respect of purchase agreement dated 25.1.2007. 3. Cancellation of Joint development agreement dated 6.9.2013 in respect of JDA dated 17.10.2007. 4. Deed of settlement dated 6.9.2013 for payment of damages as per the joint development agreement. 6.3 Thus, the assessee has finally entered finally into registered sale deed on 23.1.2014 with M/s. Titan Company Ltd. In our opinion, unless assessee had settled the dispute with M/s. O....
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....g dated 25.1.2007 and cancellation of JDA dated 17.10.2017 vide Cancellation deed dated 6.10.2013 which includes certain properties which are not subject matter of sale deed dated 23.1.2014 with M/s. Titan Company Ltd. Being so, the compensation paid in respect of properties on cancellation of MOU/JDA other than the property sold to M/s. Titan Company Ltd. cannot be granted as a deduction while computing the capital gain arising out of the transfer of the property to M/s. Titan Company Ltd. Hence, the AO should examine these cancellation agreement and compare with sale deed entered with M/s. Titan Company Ltd. and grant the proportionate deduction out of compensation paid in relation to transfer and allow only it is related to the properties sold to M/s. Titan Company Ltd. and not the entire amount of Rs.7 crores, which cannot be granted as deduction towards cost of transfer from the sale consideration relating to the property transferred to M/s. Titan Company Ltd. For clarity, we extract the property covered in MOU cancellation dated 6.9.2013, cancellation JDA dated 6.9.2013 and cancellation purchase agreement dated 6.9.2013 along with the sale deed dated 23.1.2014 as below:- A....
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....eement with the developer M/s. Orlanda Realty Pvt. Ltd on 17.10.2007 to develop the property mentioned above as per Schedule of property at page no.s 35 to 40 of the said JDA, to be developed is also land only. On verification it is found that there is no mention of building in this Joint Development Agreement also. The assessee firm entered into serious of agreements mentioned above for the land portion only and there is no mention of building in all of these agreements. 7(d). The Hon'ble High Court of Madras in the case of CIT v/s Union Co Motors Pvt Ltd (283 ITR 445 (Madras) 2006) has held 'it is therefore, a settled law that even though the transaction involved land and building, once the land of the assets of the undertaking, the transfer is of the entire undertaking as a whole and it is not possible to bifurcate same, as suggested by the Assessing Officer in the instant case. All the more, in the instant case, the fact remains that the purchaser had applied for the demolition of the building and also demolished the building, which was taken into consideration by the commission and the tribunal, while arriving at a conclusion that section 50 of the Act, is not....
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....t the assessee has not transferred the building to the purchaser in the sale deed. Further, the AO has noted that the purchaser has demolished the building and used the land for construction of new residential property, which would amply reiterate that the building was very much transferred along with the land. The assessee submitted that the mere non mentioning of the building in the sale deed cannot lead a conclusion that there was no transfer of the building, which is attached to the land. If possession of land and building was not given, then the purchaser could not demolish the building to construct afresh, as noted by the AO himself. Alternatively, the assessee submitted that it has relinquished its right in the building or giving possession of the same to the purchaser has resulted in extinguishment of its right in the building. Both are methods of transfer as per the provisions of section 2(47) of the Act. Therefore, once the building has been transferred as per the provisions of the Act, then automatically the provisions of section 48 of the Act are attracted and the assessee is eligible to claim indexed cost of improvement i.e., the indexed cost of the construction of the....
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....uilding is not transferred along with the land. Thus, unless there is a specific agreement to the contrary, when land is transferred, things attached to it or fastened to anything attached to the earth will also get automatically transferred. At the most, if the owner receives the sale proceeds of the scrap, then while computing capital gains on transfer of land, the proceeds so received may be added to the overall consideration received by the assessee. 7.6 On perusal of above submissions of the ld. A.R., the ld. CIT(A) while adjudicating the appeal of the assessee has referred to the judgement in the case of Prabhandam Prakash [2008] 22 SOT 58 (ITAT, Hyderabad), wherein it has been held that even if the superstructure is to be demolished by the promoter the seller is entitled to deduction of the cost of construction of the house. Relevant portion of the judgement is reproduced below: "Cost of superstructure 9. The stand of the revenue is that since the superstructure was to be demolished by the promoter, it cannot be said that the existing house was also transferred and since only land was transferred, the cost of the house cannot be allowed as deduction. On ....
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....hat the superstructure is also transferred by the assessee to the promoter and the cost of construction thereof may be allowed to the assessee. 7.7 The ld. CIT(A) observed that the case of the assessee is similar to the one mentioned above and the same is squarely applicable to the facts of the case of the assessee. In the case of the assessee the agreement does not mention that the superstructure is not transferred to the purchaser and is retained by it. As per section 2(47) of the Act 'transfer" includes: (i) The sale, exchange or relinquishment of the asset; or (ii) The extinguishment of any right thereon; In the instant case the assessee has relinquished its right on the building with the transfer of the piece & of land to M/s Titan Company Ltd. The purchaser is free to use or demolish the building as per its wish; the assessee has no say in the same. Therefore, ld. CIT(A) did not find merit in the observation of the AO that the assessee has not transferred the building and the price it has received is only for the piece of the land. Accordingly, the ld. CIT(A) directed the AO to delete the disallowance of Rs.24,68,26,761/- from the total sale consid....
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....t for sale dated 26.08.2013 read along with sale deed dated 23.01.2014 and observed from the sale deed dated 23.01.2014 shows that the property sold was only land measuring total 254.43 guntas for total Rs.51,43,40,778/-. 8.2 Further, the ld. D.R. submitted that: i) The sale deed dated 23.01.2014 is executed and as per this sale deed the assessee sold and extinguished the rights over the land only to the extent of 254.43 guntas. Therefore, the assessee has transferred only land to M/s. Titan Company Ltd. The sale consideration received Rs.51,43,40,778/-is for the assessee's relinquishment of right over the land only as per Schedule of Property at page nos. from 28 to 35 of sale deed dated 23.01,2014. There is no mention of sale consideration received on the building in this sale deed. Therefore, the question of allowing Improvement Cost does not arise in the assessee case because the assessee has not transferred building to the purchaser in the sale deed. ii) The assessee has entered into agreement of sale on 26.08.2013 with M/s. Titan Company Ltd and it is noticed that here also the assessee and the purchaser have entered into agreement for sale of lands o....
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....of sale. Hence, it is evident that the sale consideration received solely for sale of land only and not to the Building. Again, in view of the decision of the Hon'ble High Court of Madras cited above the building has no value in the assessee case at the time of JDA itself. The assessee has sold the schedule property after 6 years from JDA and therefore, there is no value for the building in view of the above decision of Hon'ble High Court of Madras. 8.5 In view of the above discussion the ld. D.R. submitted that the Improvement Cost and its indexed Cost of Improvement claimed on the building is not allowed by the AO. The disallowable indexed Cost of Improvement is worked out as under; FY Cost of Improvement Indexed cost of improvement 2002-03 *I 31903486 6,70,18,732 2004-05 *I 409684 8,01,444 2005-06 *I 20051270 3,78,83,587 2006-07 *I 78000890 14,11,22,998 Total 24,68,26,761 Therefore, assessee's claim of Rs.24,68,26,761/- towards Indexed Cost of Improvement was not accepted by the AO and accordingly disallowed and added to the income and same to be confirmed and order of CIT(A) on this issue to be revised. F....
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....pute regarding the existence of super structure thereon the land. In the case of Dr. Maya Shanoy 124 TTJ 692 also there was no dispute regarding existence of super structure and it should be demolished by the assessee before handing over the possession of the land to the developer. Hence, the Tribunal was of the opinion that building being attached to the earth will pass on to the transferee along with land and the cost of such building to be deducted from the value of the sale consideration while determining the capital gain. But in the present case on hand, there was no iota of evidence shown by the assessee with regard to the transfer of the building in the sale deed entered by the assessee with M/s. Titan Company Ltd. and also the balance sheet of the assessee as on 31.3.2013 have no reference of building and it shows only the land-electronic city Rs.14,13,42,439/- .For better understanding, we extract the balance sheet for the immediate previous years: 9.1 After sale of the property, the assessee reduced the same value from the land- electronic city and presented fixed asset schedule as below:- 9.2 As seen from the above, there was no mentioning of any value of the build....