CA Sandeep Kanoi
ITAT Delhi has held in the case of Smiti Golyan Vs. ITO that As per provisions of sec. 48 of the I.T. Act in case of acquisition of the property by way of gift or inheritance the cost of acquisition of the property will be the same as in the hands of the original owner/ transferor/donor. The cost of acquisition includes the cost of improvement of the property which includes the cost incurred on defending or improving the title. Thus in the hands of Smt. Beena Devi the cost of acquisition will include the original cost as well as the cost of litigation and payment of outstanding electricity dues which were necessary for defending the title and for enjoyment of peaceful possession and usufruct of the property.
Issue- Whether Learned A.O. as well as CIT(A) have erred on facts as well as in law in not allowing litigation expenses for 15 years in various courts as well as electricity charges of tenant which were incurred to improve the valuation of property, on which account, the appellant has been able to get sale price of Rs. 7.5 crores even though the property was let out for meager amount of Rs. 1000/- p.m.
Brief Facts :-
The property in question i.e. house property bearing no. 51A, New Friends Colony, New Delhi originally belonged to one Smt. Bina Devi Golyan. Same was illegally sublet by the original tenant M/s Amin Chand Pyarelal to one Shri Anil Gupta, without the permission of Smt. Bina Devi. For eviction of this illegal occupant, Smt. Bina Devi instituted many legal proceedings since 1992 and vide order dated 18-12-2006, High Court finally passed the order evicting Mr. Gupta and the possession was restored to Smt. Bina Devi. Thereafter on 24-04-2007 (A.Y. 2008-09) she gifted the property to her daughter in law Smt. Shakuntla and grand daughter in law Smt. Smiti Golyan i.e. assessee. Both of them sold this property during the year in question for a sale consideration of Rs. 15 crores i.e. each got a share of Rs. 7.5 crores. The assessee thereafter filed her return of income offering 7,50,00,000/- under the head “Income from capital gains”. While calculating the long term capital gains the assessee claimed following expenditure incurred by Smt. Bina Devi to defend the above legal proceedings for restoration of possession, towards improvement/ cost of the property:
(i) cost of acquisition after indexing : Rs. 72,85,828/-
(ii) Litigation expenses after indexing: Rs. 2,16,20,948/-
(iii) Electricity expense
(unpaid expenses, paid by the assessee): Rs. 3,65,315/-
Held by AO
The A.O., however, observed that these litigation expenses and electricity charges neither related to the transfer of the asset nor they were supported by any evidence to be held as attributable to cost of acquisition.
Held by ITAT
As per provisions of sec. 48 of the I.T. Act in case of acquisition of the property by way of gift or inheritance the cost of acquisition of the property will be the same as in the hands of the original owner/ transferor/donor. The cost of acquisition includes the cost of improvement of the property which includes the cost incurred on defending or improving the title. Thus in the hands of Smt. Beena Devi the cost of acquisition will include the original cost as well as the cost of litigation and payment of outstanding electricity dues which were necessary for defending the title and for enjoyment of peaceful possession and usufruct of the property.
The lower authorities have neither doubted the multifarious litigation engaged in by Smt. Bina Devi as also the outstanding electricity dues. Both the donees i.e. Smt. Shakuntla Golyan, mother in law of the assessee and the assessee claimed 50% of such expenses incurred towards the improvement of property which is duly included in cost of acquisition in the hands of Smt. Been Devi. The only reason for disallowing the above amounts proposed by A.O. is to the effect that the assessee failed to adduce evidence towards incurring these legal expenses. The fact of the matter is that the legal expenses have been incurred not by the assessee but by her grand mother in law as it is only after the improvement and clearance of title, the property was gifted to both the donees. Thus, the expenditure was incurred by Smt. Bina Devi and this claim has been made by the assessee based on her information.
We have heard rival contentions and gone through the entire material available on record. Though detailed arguments are made by both the parties, we have mentioned them in brief, as we are inclined to set aside the matter back to the file of assessing officer for following reasons.
(i) No cross verification from the returns or accounts of Smt. Beena Devi who was the original owner of the property have been carried out to verify as to what amount was spent from her books, bank of account or cash in hand in respective years. This is so because the assessee is claiming 50% of expenses incurred by Smt. Beena Devi in defending and improving her title over the property. This becomes a crucial factor for ascertainment of claim of the assessee.
(ii) There is no indication as to what has been done by department in the case of Smt. Shakuntla Golyan on these issues i.e. , the another co-owner to whom half of the property was gifted by Smt. Beena Devi along with the assessee.
In our considered view, both the issues have not been examined properly and require methodical verification of facts and record. Thus it will be in the interest of justice to set aside both the issues back to the file of assessing officer to decide the same afresh in accordance with law after giving the assessee an opportunity of being heard, keeping our observation.
The A.O. excluded these amounts from the cost of acquisition of the property while calculating the long term capital gains.