Nitaben M. Patel Vs ACIT (ITAT Ahmedabad)
ITAT Ahmedabad held that the expenses incurred to remove impediments or encumbrances in way of transfer of capital asset has to be allowed as deduction under the head ‘cost of improvement’ while computing taxable amount of capital gain.
Facts- The appellant filed a return of income for the year under consideration on 17.10.2016 declaring total income. The appellant earned long term capital gain out of the transfer of non-agricultural land. The appellant purchased a plot of land measuring about 7113 sq.mtr by and under a deed of conveyance dated 23.03.2008.
Thereafter, the appellant entered into an agreement to transfer the right title interest of the part of the said land admeasuring about 1858 sq.mtr for a total consideration of Rs.90 Lakhs out of which Rs.45 Lakhs were duly paid by those two co-owners to the appellant at the time of execution of the said deed of agreement for sale.
The earlier agreement for sale stood cancelled as the assessee found a better and higher sale consideration from a third party in respect of the said property. However, for withdrawing the right in respect of Plot measuring about 1858 sq. mtr. of land, thee appellant has to pay Rs. 3,80,00,000/- to the earlier parties. Finally, the appellant sold out a plot of land measuring about 3188 sq. mtr. by and under the sale deed. The agreement had clause about the confirmation of land to be freed from any encumbrances and in order to get the land free from encumbrances, the appellant had to pay Rs. 3,35,00,000/- and returned Rs.45 Lakhs to the erstwhile purchaser of land measuring about 1858 sq.mtr. which was part of the total area of land of 3188 sq.mtr.
The assessee claimed that expenditure incurred by him to the tune of Rs. 3,35,00,000/- being the additional cost to effectuate the sale transaction was a capital expenditure and thus should be allowed in the light of Section 55(1)(2)(ii) of the Act, which was disallowed by the AO and confirmed by the First Appellate Authority.
Conclusion- ITAT, Delhi in the case of ACIT vs. Pushkar Dutt Sharma has held that the expenses incurred to remove impediments or encumbrances in way of transfer of capital asset has to be allowed as deduction under the head ‘cost of improvement’ while computing taxable amount of capital gain.
Held that the expenditure incurred solely and exclusively on the immovable property as an expenditure to be deducted while computing capital gains. Link and connection with the transfer of a capital asset and the expenditure must be inextricable which has been found to be established by the appellant before us. We, thus, do not hesitate to hold that the impugned amount paid by the appellant to the erstwhile owners requires to be allowed under the head “cost of improvement” while computing taxable amount of long term capital gain.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The instant appeal filed at the behest of the assessee is directed against the order dated 30.07.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-12, Ahmedabad (in short ‘CIT(A)’) arising out of the order dated 20.12.2018 passed by the CIT(A)-12, Ahmedabad under Section 143(3) of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) for Assessment Year 2016-17.
2. Disallowance of deduction of indexed cost of improvement to the tune of Rs.2,90,00,000/- is the subject matter before us.
3. We have heard the rival contentions made by the respective parties and we have also perused the relevant materials available on record.
4. The brief facts leading to the issue is this that the appellant filed return of income for the year under consideration on 17.10.20 16 declaring total income of Rs. 1,49,03,580/-. The appellant earned long term capital gain of 2,36, 15,553/- out of the transfer of non-agricultural land lying and situated at Survey No. 360, Sama, Vadodara, the computation whereof is as follows:
