TaxTMI 
TaxTMI 
2025 (12) TMI 404
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....AC) is erroneous both on facts and in law. 2.1. The Ld. CIT(A) erred in deleting the addition of Rs. 9,00,00,000/- made by the AO in the assessment order u/s.143(3) dated 20.09.2022 towards disallowance of the expenditure claimed by the assessee in connection with transfer of immovable property i.e. land of 10,164 sq. yards situated at R.S.No.199/1, Rajahmundry. 2.2. The Ld. CIT(A) erred in not appreciating the fact that the amount of Rs. 7,00,00,000/ is not the expenditure wholly and exclusively incurred by the assessee in connection wth the transfer of the properties as the same were not taken by the assessee for acquisition of the property or further construction and modification of the properties. In fact, these loans were taken by the companies for their own business purposes by giving the properties as collateral securities. Therefore, the same cannot be the expenditure in relation to transfer of properties from sale consideration. 2.3. The Ld. CIT(A) erred in not appreciating the fact that the amount in question i.e. Rs. 7 crores being settlement of outstanding loans which were directly paid by the buyer to the creditor ie SBI and Axis Bank is to b....
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....nies and hence the amount utlized to square off the loans cannot be claimed as deduction from the Long Term Capital Gains. 3.1. The Ld. CIT(A) erred in not appreciating the fact that the claim of deduction of expenditure of Rs. 2 cores paid to Kothapeta Settibalja Ramamandiram Committee is not an allowable expenditure from the computation of long term capital gains by the assessee due to the fact that as per agreement to sale, the assessee is the sole owner of the said property and also the said payment to M/s. Kothapeta Settibalija Ramamandiram Committee for title Clearance is not proved with proper explanation and documentary evidence during the course of assessment proceeding. 3.2. The Ld. CIT(A) erred in not calling for remand report from the Assessing Officer on the additional evidence submitted by the assessee during the course of appeal proceedings. 4. The appellant craves leave to add or delete or amend or substitute any ground of appeal before and/or at the time of hearing of appeal. 5. For these and other grounds that may be urged at the time of appeal hearing, it is prayed that the disallowance/additions made by the Assessing Officer b....
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....regate sale consideration of Rs. 12,04,45,000/-. Out of the sale consideration, the purchaser had paid an amount aggregating to Rs. 9,00,00,000/- directly to, viz. (i) SBI (Rs. 3.50 crores) and (ii) Axis Bank (Rs. 3.50 crores) to clear mortgage/encumbrances on the title of the property that was provided as collateral security by the assessee as a guarantor for the loans raised by third-party companies, i.e., M/s. Siva Sivani Surgical Cottons Pvt. Ltd. and M/s. Maddipoti Consultants Pvt. Ltd.; and (iii) M/s Kothapeta Settibalija Ramamandiram Committee (Rs. 2.00 crores) to settle a title dispute. The AO observed that the balance sale consideration of Rs. 3,04,45,000/- was paid to the assessee, out of which advance tax and tax deducted at source (TDS) were deposited, and only the balance amount of Rs. 28,41,320/- was received in his bank account. 4. The A.O observed, that the assessee while computing the "capital gain" on the sale of the subject properties during the year under consideration, had reduced the abovementioned payments aggregating to Rs. 9 crores (supra) as an expenditure that was claimed by him to have been incurred "wholly and exclusively in connection with transfer"....
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....he contentions advanced by the assessee in the backdrop of the evidence placed on his record, held that the payments of Rs. 9 crores (supra) were directly and inextricably connected with the transfer of the subject property. It was observed by him that the existence of encumbrances and rival claims was established on record, and that the purchaser had discharged the liabilities as per the sale deed and MoU, as without such clearance, a marketable title could not have passed to the purchaser. The CIT(A) accordingly directed the Assessing Officer to allow deduction of Rs. 9 crores under section 48(i) of the Act and deleted the disallowance made by the A.O. For the sake of clarity, we deem it apposite to cull out the observations of the CIT(A), as under: "5. Findings & Decision: 5.1 I have gone through the Assessment Order, Statement of Facts and Grounds of Appeal filed by the appellant and the written submissions filed by the appellant before me as well as the Assessing Officer. 5.2 The appellant has taken as many as 29 grounds of appeal out of which ground nos. 1, 2 and 29 are general in nature which do not call for separate adjudication. 5.3 Grou....
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....l security. 5.5 In the assessment completed, the A.O has not accepted the above said reduction from gross sale consideration of Rs. 12,04,45,000/- and brought to tax mentioning the following reasons in the Assessment order: a) The assessee is only the absolute owner of the impugned property which has clear, perfect and marketable title in the schedule property. b) The amount of Rs. 7 crores (Rs. 3.5 crores +Rs. 3.5 crores) paid to the Bankers is not the expenditure incurred wholly and exclusively in connection with the transfer on the ground that the loan was not taken by the assessee for acquisition of the property or for further construction and modifications of the properties. The loans were taken by the said companies for their own business purpose after giving the impugned properties as collateral securities. Therefore, the expenditure is not in relation to transfer of property. c) As a principle, the amount spent to get rid of any liability or encumbrance cannot be regarded as cost of improvement of a capital asset. d) Since the buyer has directly paid the amount to the creditor banks, the same is not deductible in computing the ca....
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....n the foregoing paras of this order, on coming to know about the proposed auction of the impugned property by SBI, Rajahmundry, some advocates on behalf of M/s. Kothapeta Settibalija Ramamandiram Committee duly gave a public notice in local news papers (Telugu) about the dispute involved with the ownership of the impugned property, the copies of which have been filed before the A.O at the time of assessment as well as during the appellate proceedings. With regard to the same dispute, the appellant has also filed a copy of the judgement of the Special Judge for trial of cases under SCs & STs (POA) Act-cum-X Additional District & Sessions Judge, Rajahmundry in O.S 155 of 2013 dated 27-06-2018 between M/s. Kothapeta Settibalija Ramamandiram Committee, Rajahmundry (Plaintiff) and SBI, Rajahmundry, Axis bank, Rajahmundry, the appellant and Others. 5.7 Also, the assessee has filed before the A.O as well as during appeal proceedings,a copy of the Memorandum of Understanding dated 13-6-2019 entered into between the assessee and M/s. Kothapeta Settibalija Ramamandiram Committee which gives the details of rivalry existing between the assessee and the said committee and the outcome o....
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....harged the onus cast on him with regard to the necessity of the payment. 5.11 Merely because the appellant has paid advance tax on the capital gains by taking into consideration the total amount of sale value of Rs. 12,04,45,000/- and then claimed a refund in computation as per the return of income filed, it cannot be said in the scrutiny assessment that the impugned deduction of Rs. 9,00,00,000/- is not allowable in the hands of the appellant. 5.12 While disallowing the claim made for Rs. 9,00,00,000/-, the AO has relied on the Hon'ble Supreme Court decision in the case of Roshan Di Hatti (1977) 107 ITR 938 (SC) which is distinguishable on facts. On the other hand, the appellant, in the case on hand has relied in support of his claim on the decisions rendered in the following cases: i) CIT Vs. Brandford Trading Co. (P) Ltd. (2002) 125 Taxmann 632 (Mad). ii) Gopee Nath Paul 7 Sons Vs. CIT (2002) 147 Taxmann 629 (Cal). iii) CIT Vs. P. Rajendran (1981) 127 ITR 810 (Ker). iv) CIT Vs. A. Venkataraman (1982) 137 ITR 846 (Mad). v) Damodar G. Nagolia Vs. CIT (2007) 12 SOT 600 (Mum). vi) CIT Vs. Roshanbabu Mohammed Hus....
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....ank, Rajahmundry invoked SARFAESI Act against their borrowers M/s. Maddipoti Consultants Pvt. Ltd. and M/s. Siva Sivani Surgical Cottons Pvt. Ltd and therefore that the appellant was before the Debt Recovery Tribunal, Visakhapatnam. Further, all the SAs filed by the bankers and the said parties were allowed by the Courts and the Debt Recovery Tribunal. 6. In view of the foregoing discussions, it is held that the entire expenditure of Rs. 9,00,00,000/- (Rs. 2,00,00,000/- + Rs. 3,50,00,000/- + Rs. 3,50,00,000/-) shall be treated as spent wholly and exclusively by the appellant in connection with the impugned transfer of the property and it is eligible for deduction under section 48 of the I.T. Act, 1961 while computing the Capital Gains. Moreover since the property was mortgaged with bank without clearing the loan of bank was not possible for assessee to dispose the property. The payment was made by assessee to bank for Title clearance charges. Accordingly, ground nos. 3 to 28 are allowed and the AO is directed to delete the addition of Rs. 9,00,00,000/-". 7. The Revenue being aggrieved with the CIT(A) order has carried the matter in appeal before us, contending, viz. (i)....
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.... of the Income-tax Rules, 1962. The Ld. AR to buttress his contention had drawn our attention to the observations of the CIT(A) at Page 23 - Para 4.2 of his order, wherein he had referred to the various documents that were filed by the assessee before the A.O from time to time during the assessment proceedings. Elaborating further on his contention, the Ld. AR submitted that the CIT(A) had not admitted any fresh/additional evidence in violation of Rule 46A (supra) as alleged by the department. 11. On merits, the Ld. AR supported the CIT(A)'s order. The Ld. AR submitted, that as without clearing the encumbrances under SARFAESI and settling rival claims, transfer of the subject properties during the year under consideration was not possible, therefore, the CIT(A) had rightly found favour with the assessee's claim for deduction of the amount of Rs. 9 crore(supra), and observing that the same was well in order and as per the mandate of law, vacated the disallowance made by the AO. The Ld. AR to fortify his contention that the assessee's claim for deduction of the amount of Rs. 9 crores (supra) had rightly been allowed by the CIT(A), relied on a host of judicial pronouncements. 12....
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....le disputes of the rival claimant - qualifies and falls within the meaning of an expenditure "wholly and exclusively in connection with transfer" and, thus, was rightly claimed as deductible by the assessee under section 48(i) of the Act while computing the "Capital gains" on the sale of the subject property. 15. We shall, before dealing with the controversy in hand, i.e., sustainability of the CIT(A)'s view that the sum of Rs. 9 crores paid directly by the purchaser of the subject property to, viz. (i) SBI (Rs. 3.50 crores) and (ii) Axis Bank (Rs. 3.50 crores) to clear the mortgage /encumbrances on the title of the property that was provided to the said banks as collateral by the assessee as a guarantor for the loans raised by third-party companies, i.e., M/s. Siva Sivani Surgical Cottons Pvt. Ltd. and M/s. Maddipoti Consultants Pvt. Ltd.; AND (iii) M/s Kothapeta Settibalija Ramamandiram Committee (Rs. 2.00 crores) to settle the title disputes of the rival claimant, qualifies and falls within the meaning of an expenditure "wholly and exclusively in connection with transfer" and, thus, was rightly claimed as a deductible by the assessee under section 48(i) of the Act while compu....
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....he Debt Recovery Appellate Tribunal, Kolkata ("DRAT"). 20. As the dispute about the ownership of the subject property between the assessee and the society continued, therefore, the aforesaid banks, had preferred appeals to the higher forums against the decision of the DRT. 21. We find that in the meantime, a memorandum of understanding (MoU) was entered into on 13.06.2019 amongst the assessee, the society, and the purchaser of the land, viz. M/s APSN Properties LLP & Ors. As per the MoU, it was agreed, viz. (i). the assessee had agreed to execute the sale deed in favour of the purchasers of the land admeasuring 10,164 Sq. yards; (ii). the society had agreed to give up its claim of title in all courts, and a lok adalat settlement between the assessee and the society was to be recorded, and the sale consideration as mentioned in the sale deed was agreed to be paid to the society; (iii). that out of the sale consideration of the property amount shall be paid to SBI and Axis Bank Ltd., Vishakapatnam, directly by the purchaser for the release of the mortgaged property, i.e., the subject property; and (iv). the purchasers of the property shall deduct TDS and the capital gains tax p....
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....ioned third-party companies, i.e., M/s. Siva Sivani Surgical Cottons Pvt. Ltd. and M/s. Maddipoti Consultants Pvt. Ltd. Also, the title of said property was subject to a rival claim by M/s Kothapeta Settibalija Ramamandiram Committee. As the purchaser would not have obtained a clean marketable title unless the aforesaid encumbrances on the property were cleared, therefore, to clear these encumbrances and rival claims and to enable a marketable title, the purchaser had agreed, under a contemporaneous "Memorandum of Understanding" (MoU) dated 13.06.2019, as per which he was to discharge the liabilities directly to the banks and the rival claimant. Accordingly, the purchaser of the property had, as per the MoU, dated 13.06.2019, paid an amount aggregating to Rs. 9 crores directly to the aforementioned parties. 25. We have carefully considered rival submissions and perused the material on record. The undisputed facts are that the property sold was encumbered under SARFAESI proceedings with both SBI and Axis Bank, and was also simultaneously subject to a rival claim of ownership. As observed hereinabove, the purchaser agreed to clear the aforementioned dues and encumbrances as a cond....
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....ings to the general public from buying the subject property in auction of the banks as the matter was sub judice in the court. Also, the society had filed with the Debt Recovery Tribunal, Vishakapatnam (for short, "DRT") S.A No. 196 of 2015 against SBI, Main Branch, Rajamahendravaram, and S.A No. 164 of 2015 against Axis Bank, T Nagar Branch, Rajamahendravaram. The DRT had vide its order dated 30.10.2015 allowed both the S.A's and confirmed the right, title, and interest of the society in the subject property. Thereafter, SBI and Axis Bank Ltd. had preferred appeals against the order of the DRT, dated 30.06.2015, before the Debt Recovery Appellate Tribunal, Kolkata (for short, "DRAT"). Further, the society had filed O.S no. 155 of 2013 with the Xth Additional District Court, Rajamahendravaram for the declaration of absolute ownership of the subject property and granting of a permanent injunction restraining the other parties from interfering with its possession and enjoyment of the said property, which, however, was dismissed by the court as barred by law as per Section 34 of the SARFASI Act, 2002. 29. Thus, on the one hand, the banks had initiated proceedings under Section 13(2....
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....at, as to whether or not the payment of Rs. 2 crores (supra) made to the society, viz. M/s Kothapeta Settibaliga Ramamandriram Committee (supra) have rightly been claimed by the assessee as a deduction while computing the capital gains on the transfer of the subject property. 32. We have given thoughtful consideration to the issue in hand in the backdrop of the orders of the authorities below. In our view, the fact that the society, viz. M/s Kothapeta Settibaliga Ramamandriram Committee (supra) had along with the assessee joined as a "Vendor" (i.e., as a vendor of the second part), in itself establishes that the consideration of Rs. 2 crores (supra) that it had received was towards its interest, right and title in the subject property and, thus, the sale consideration to the said extent could by no means be assessed in the hands of the present assessee before us. 33. Alternatively, we even otherwise, are of a firm conviction that, in the backdrop of the facts borne on record, viz. (i). the counter claim raised by the society towards the title of the subject property; (ii). the fact that the society on learning about the auction of the subject property by the banks under SARFA....
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....he sale of a property will qualify as a deductible expenditure u/s 48 of the Act. (B). CIT Vs. Shakuntla Kantilal (1991) 190 ITR 56 (Bom). The assessee in the present case had executed an "agreement to sell" and paid compensation to the earlier party to release the property from encumbrance. The High Court held that the payment made by the assessee was allowable as a deduction under Section 48 of the Act. (C). Yogesh Patel Vs. DCIT (2025) 170 Taxmann.com 130 (Delhi Tribunal) The Tribunal in the aforesaid case, had held that the expenditure paid by the assessee to confirming parties and occupant on sale of property was an allowable expenditure u/s 48(1) of the Act. (d). Gopee Nath Paul & Sons Vs. Dy. CIT (2005) 198 CTR 116 (Calcutta). The Hon'ble High Court had held that the payments to discharge encumbrances in order to enable the sale of the asset was a deductible expenditure. It was observed that any amount the payment of which is absolutely necessary to affect the transfer will be an expenditure covered by clause (i) of Section 48(1). In other words, if, without removing any encumbrance, sale or transfer could not be affected....
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.... Ltd. and Muddipoti Consultants (P) Ltd with the assessee as a guarantor: Rs. 3.50 crores; and (ii). Axis Bank Ltd, Rajahmundry, vide cheque no. 787359, dated 12.06.2019, drawn on SBI, SME Branch, Rajamahendravaram, for the release of the mortgaged title deeds given as guarantor for the loans that were given to the aforesaid two companies: Rs. 3.50 crores. 38. Coming back to the controversy involved, we find that the same boils down to the solitary issue that as to whether the aforesaid amount of Rs. 7 crores (supra) paid by the purchasers of the property out of the sale consideration directly to the aforesaid banks to release the subject property from the mortgage of the bank and remove the encumbrance on the same, i.e., diversion of the funds to the banks based on their overriding title had rightly been reduced by the assessee from the sale consideration for computing the capital gains assessable in his hands. 39. As observed by us hereinabove, the assessee had, vide guarantee agreements executed on 09.02.2011, given his land admeasuring 10,164 Sq. yards, as security, i.e., guarantee of Rs. 5 crore each for the loans that were taken by two companies, viz. (i). M/s Siva Siva....
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....the subject property, viz. M/s APSN Properties LLP & Ors. had directly paid the amount of Rs. 7 crores (supra) to the said banks, therefore, no part of the said sale consideration was either received or accrued in favour of the assessee as a result of the transfer of the capital asset, i.e., the subject property which the assessee not for any loan raised by him, but as a guarantor had given as collateral security to the banks for the loans raised by the aforementioned companies. 43. Our aforesaid view, that based on the principle of diversion of income by overriding title, the amount of Rs. 7 crores (supra) paid by the purchasers of the subject property, i.e., M/s APSN Properties LLP & Ors. could not have been assessed in the hands of the assessee is supported by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Sitaldas Tirathdas (1961) 41 ITR 367 (SC). Also, as there was a binding contract between the assessee and the banks, viz. (i). SBI; and (ii). Axis Bank Ltd., wherein by mortgaging the subject property for the loans raised by the third parties, the said banks based on the contractual obligation as per their superior title over the said property had appropri....
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....7) 227 ITR 240 (SC); and (ii). CIT Vs. Attli N. Rao (2001) 252 ITR 880 (SC). It was observed that in neither of those cases, the Hon'ble Apex Court was considering a situation pertaining to loss of a capital asset on account of a guarantee given for a third party loan. Rather, in both the said cases, the encumbrance was created by the owner of the capital assets for his own benefit and, thus, the respective assessee's, had already received the value corresponding to the mortgage liability. It was further observed that in none of the said cases, there was any loss or erosion in the value of a capital asset without any benefit whatsoever to the owner. (emphasis supplied by us) (C). ITO, Ward 1(1), Hyderabad Vs. Arka Properties (P) Ltd., (2025) ITA No. 58/Hyd/2024, dated 17.04.2025. In the case before the Tribunal, the assessee had given its agricultural land as security and deposited the title deeds of the land with ICICI Bank Ltd. in respect of the loan taken by the assessee's sister concern, viz. M/s Soma Infrastructure (P) Ltd. Thereafter, the sister concern defaulted in repayment of the loan taken, and the ICICI bank gave 15 days time for releasing the charge....
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....ssessee filed his return of income for the Assessment Year 2013-14 declaring total income of Rs. 25,000/- which was assessed under section 143(3) of the Act,1961 by determining the total income of Rs. 3,15,05,000/-. During the year under consideration, the assessee sold an immovable property for a sale consideration of Rs. 5,50,00,000/- and out of the same, deducted expenses incurred in connection with the transfer, a sum of Rs. 3,25,00,000/- being payment made to various illegal occupants and a sum of Rs. 1,50,00,000/- being the payment made to Titco Limited for removing the charge created on the property. The Assessing Officer did not accept the claim of Rs. 3,25,00,000/- towards payment to illegal occupants. However, the Assessing Officer allowed the deduction for payment of Rs. 1,50,00,000/- made to Titco Ltd. 5. The PCIT, therefore issued a show-cause notice on the ground that the Assessing Officer had incorrectly allowed the deduction of payment to Titco Ltd amounting to Rs. 1.5 cores in view of the decision of the Apex Court in case of V.S.M.R. Jagdadishchandran vs Commissioner of Income Tax reported in 227 ITR 240 wherein it is held that where the property was not ....
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.... of the mortgage debt could neither be treated as cost of acquisition nor as an cost of improvement made by the assessee. The Tribunal, therefore, held that the deduction of the capital gains was not justified. Since the Tribunal declined to refer to the High Court the questions referred to above, the assessee filed an application under s. 256(2) of the Act before the High Court which has been rejected by the impugned order. The High Court has relied upon the decision of the Full Bench of the High Court in S. Valliammai & Anr. vs. CIT (1981) 127 ITR 713 (Mad) and has held that by discharging the mortgage debt subsisting on the property which was the subject-matter of a sale, the assessee was not either improving or perfecting his title or improving the property in any manner and, therefore, the amount paid for discharging the mortgage debt cannot be taken to be for the cost of acquisition as contended by the assessee. 4. In Civil Appeals Nos. 6098- 6101 of 1983 [since reported as R. M. Arunachalam etc. vs. CIT (1997) 141 CTR (SC) 348 filed against the judgment of the Full Bench of the Madras High Court in S. Valliammai & Anr. vs. CIT (supra) we have examined the correctnes....
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.... Revenue." (emphasis supplied by us) 44. We thus, in terms of our aforesaid deliberations, are of the considered view that as the sum of Rs. 7 crores (supra) was taken by the aforementioned banks, viz. (i). SBI; and (ii) Axis Bank Ltd. directly from the purchasers of the property, viz, M/s APSN Properties LLP & Ors., therefore, as per the principle of diversion of income by overriding title as the said banks had a superior tile over the subject mortgaged property based on the demand notices issued by them under Section 13(2) of the SARFASI Act, 2002; and further as per the real income theory, when no part of the sale consideration was either received or accrued to the assessee, therefore, drawing support from the aforesaid judicial pronouncements it can safely be concluded that the said amount could not have been assessed in the hands of the present assessee before us. 45. We, thus, finding no infirmity in the order of the CIT(A), wherein he had based on a well-reasoned order, observed that the sum of Rs. 9 crores paid directly by the purchaser of the subject property to, viz. (i) SBI (Rs. 3.50 crores) and (ii) Axis Bank (Rs. 3.50 crores) to clear mortgage /encumbrances on....