Case Law Details
Abani Pattanayak Vs ACIT (ITAT Cuttack)
Introduction: The Income Tax Appellate Tribunal (ITAT) in Cuttack ruled in the case of Abani Pattanayak Vs ACIT that maintenance and electricity charges not in the form of deposits are excluded from the property cost for calculating Long Term Capital Gain (LTCG). The Tribunal also provided insight into the treatment of sinking fund and deposit charges, as well as the determination of the financial year for indexation.
Analysis: The ITAT examined several issues related to the cost of property and the computation of LTCG. It held that charges paid towards routine maintenance and electricity for a property cannot be considered as part of the property cost when computing LTCG. However, sinking fund payments and BWSSB deposits can be counted as part of the cost. The Tribunal also examined the timing of the payment of acquisition costs, concluding that once the full payment has been made, indexation would apply from the relevant financial year.
FULL TEXT OF THE ORDER OF ITAT CUTTACK
This is an appeal filed by the assessee against the order of the ld. CIT(A), Kolkata-22, dated 27.05.2022, passed in DIN & Order No.ITBA/APL/S/250/2022-23/1043216808(1) for the assessment year 2012-2013, arising out of the order passed by the ld. ACIT, International Taxation, Bhubaneswar, dated 23.12.2019.
2. This appeal is barred by 218 days. In this regard, ld. AR has filed an application along with an affidavit for condonation of delay, to which the ld.Sr. DR did not object. Looking to the facts and circumstances of the case and considering the application of the assessee, the delay of 218 days in filing the present appeal is hereby condoned.
3. It was submitted by the ld. AR at the time of hearing that the assessee has raised the following three grounds :-
i) The ld. CIT(A) has erred in confirming the amount of Rs.2,58,160/- representing BWSSB deposit and KPTCL charges, totalling to Rs.2,09,160/-, sinking fund of Rs.25,000/-and maintenance charges paid to the builder of Rs.24,000/-;
ii) The ld. CIT(A) has erred in confirming the action of the AO in calculating the cost of indexation for the financial year 20072008 as done by the AO as it falls in the financial year 20062007 as claimed by the assessee; and
iii) The ld. CIT(A) has erred in confirming the action of the AO in making the addition of Rs.1,20,000/-.
4. At the time of hearing, ld. AR withdrew the ground No.3 in respect of addition confirmed by the ld. CIT(A), which was made by the AO of Rs.1,20,000/-. Consequently, the ground No.3 is dismissed as withdrawn.
5. In regard to the issue of the inclusion in the cost of property of an amount of Rs.2,58,160/-, it is noticed that out of the said amount, Rs.24000/- has been paid to the builder towards maintenance charges in respect of annual maintenance. It was the submission of the ld. AR that the amount of Rs.25000/- has been paid towards sinking fund. It was the further submission that the amount of Rs.2,09,160/- includes BWSSB deposits and KPTCL charges. It was the submission that this was part of the cost of the building, insofar as it was paid to the builder at the time of acquisition of the flat, which has been sold. It was the prayer that the same should be included in the cost of building for the purpose of computation of Long Term Capital Gain (LTCG).
6. In reply, the ld. Sr. DR submitted that Rs.24000/- paid to the builder under the head maintenance charges is a revenue expenditure and the same cannot be considered. It was the further submission that the breakup of BWSSB deposits and KPTCL charges has not been given. It was the submission that KPTCL charges are nothing but the electricity charges and the same cannot be allowed as cost of the flat.
7. I have considered the rival submissions. Admittedly, the amount of Rs.24000/- paid as per the agreement with the builder is towards maintenance charges. The words used in the agreement are “towards maintenance charges for routine maintenance of any areas for a period of one year from the date of intimation of readiness of schedule “C” property”. This clearly shows the revenue expenditure and the same cannot be included in the cost of flat for the purpose of computation of LTCG. The sinking fund, admittedly is towards the value of the property and the same is includible in the cost of property. Similarly, the break-up of BWSSB deposits has not been given so also the investment in KPTCL charges. The AO shall verify the break-up of the amount towards deposits. BWSSB deposits is liable to be considered as part of the cost of the building. If KPTCL charges is in the form of deposit, the same is also to be considered as part of the building. However, if it is found that KPTCL charges is towards the electricity charges in respect of the flat, the same is not to be considered as part of the cost of building. In view of the above, this ground is partly allowed for statistical purposes.
8. Coming to the second ground regarding the indexation in respect of the cost of acquisition of the property, it was submitted by the ld. AR that the assessee has made the payment of the cost of acquisition as follows:-
i) 5,00,000/- on the date of agreement being 5th March, 2007;
ii) The balance of Rs.39,01,585/- was paid on 13th March, 2007; and
iii) the Registration has been made on 4th April, 2007.
9. This as per the assessment order itself the full amount has been paid before the year ending 31st March, 2007. Once the amount has fully been paid as on the year ending 31.03.2007, in view of the provision of Section 2(47)(v) of the Act and in view of the Section 43A of the Transfer Pricing Act, as part performance as required from the side of the assessee, has fully been complied with being the payment of consideration, the indexation would be available to the assessee from the assessment year 2007-2008 relevant to the financial year 2006-2007. In view of the above, this ground of assessee is allowed.
10. In the result, appeal of the assessee is partly allowed for statistical purposes.
Order dictated and pronounced in the open court on 18/05/2023.
