Saroj Makan Vs ITO (ITAT Delhi)
Payments made by assessee to occupants/tenants for vacating is allowable while calculating Capital Gain: ITAT Delhi
The ITAT Delhi allowed the assessee’s appeal and held that payments made to occupants for vacating a property before its sale were deductible while computing capital gains. The assessee, a co-owner of a property in Karol Bagh, Delhi, sold her one-third share for ₹84 lakh and claimed deduction of ₹53 lakh paid to two occupants for handing over vacant possession. The Assessing Officer disallowed the claim, citing insufficient evidence, and the first appellate authority affirmed the disallowance on the ground that there were no municipal records, tenancy surrender deeds, or corroborative documents proving the payments. The Tribunal observed that the assessee had produced contemporaneous evidence, including cheques, bank records, affidavits, agreements, and utility bills showing occupation of the property. It further noted that the sale deed recorded delivery of vacant possession and contemplated rights concerning tenants. Holding that the payments were made to remove encumbrances and enable transfer of unencumbered title, the Tribunal ruled that such expenditure was allowable in computing capital gains and directed recomputation of the capital gain accordingly.
Core Issue: Whether payments made by the assessee to occupants/tenants for vacating a property before its sale were allowable while computing capital gains as expenditure incurred wholly and exclusively in connection with the transfer or as part of the cost incurred to remove encumbrances and secure an alienable title.
