Kodanda Ramaiah Varadhi Vs ITO (ITAT Visakhapatnam)
Ld. A.R. argued that the assessee had entered into the agreement for sale of agricultural property with M/s. VPL Projects Pvt. Ltd. for a consideration of Rs.40 lakhs and received Rs.30 lakhs on 10.1.2007, which was paid to the vendor of the impugned property. Subsequently, the sale transaction entered with M/s. VPL Projects Pvt. Ltd. could not be materialized, therefore, the assessee had to pay a sum of Rs. 6 lakhs towards compensation. Since the funds were utilized for the purpose of acquiring the property, the Ld. A.R. argued that the compensation should be treated as expenditure incurred for the purpose of acquiring the property and the same required to be allowed as a deduction.
We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. In this case, the assessee has not taken any loan for acquiring the property and the compensation was not in the nature of interest. The assessee has entered into an agreement for sale of its agricultural property located at Visakhapatnam district, Anakapalle Mandal, Rebaka village in survey no.241/8/10/12 and 18, 3.29 1⁄2 acre to M/s. VPL Projects Pvt. Ltd. Private limited by an agreement dated 10.1.2007. According to the agreement, the assessee had received Rs.30 lakhs on 10.1.2007 and the same was paid for acquiring property. The remaining amount of Rs. 10 lakhs was also received by the assessee on 6.2.2007. The assessee had received the entire amount of Rs.40 lakhs and as per the sale agreement, the land required to be registered by the assessee in favour of the vendee but not registered the said property for which the reasons were not furnished. From the agreement it is observed that there was no clause of payment of any compensation. However, the assessee stated that the he had to pay Rs.6 lakhs as compensation because the sale transaction did not go through. When the assessee has received the entire amount what are the reasons for not concluding the sale transaction was not explained by the assessee. When there was no fault with the assessee in sale of the property, there is no valid reason and for payment of compensation. No agreement for cancellation was furnished by the assessee. In any case the compensation was not relatable to acquiring the property and it was with regard to the sale of agricultural land. The same cannot be linked with the sale of the impugned property. Further, the asset is capital asset and taxed under the head Capital Gains but not business income. Under the head Capital gains only direct expenses relatable to transfer of property are allowed as deduction. Therefore, the cancellation expenses should not be held to be incurred either for acquiring the property or for transfer of property and accordingly, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld. This ground of appeal raised by the assessee is dismissed.
Full Text of the ITAT Order is as follows:-
This appeal filed by the assessee is directed against order of the Commissioner of Income Tax(Appeals){CIT(A)}, Visakhapatnam vide ITA No.0249/2013-14/ITO W-5(1)/2014-15 dated 12.8.2014 for the assessment year 2010-11.
2. All the grounds of appeal are related to the expenses claimed by the assessee for acquiring property and for sale of the property in computing the capital gains. Assessee filed the return of income declaring total income of Rs.80,42,430/- and the agricultural income of Rs.30,000/- on 30.3.2011. During the assessment proceedings the A.O. found that the assessee sold two properties owned by the assessee along with his wife Smt. V. Gunavati. The assessee admitted Rs.17,61,775/- being 50% share in the property as capital gains.
The assessee sold property of 328 Sq.yds. of site with 1330 Sqft. in ground floor and 1987 sq.ft. in first floor RCC house at Dr.No.47-10- 7/2, Dwarakanagar, Visakhapatnam for a consideration of Rs.1,41,33,000/- and admitted his share of capital gains at Rs.6,31,547/- as per the workings given below:
