MADHU RAKESH MARDIA,AHMEDABAD vs. THE PR. CIT-5, AHMEDABAD

It emerges out from the record that the assessee has filed her return of income on 28.9.2012 declaring total income at Rd.33,41,521/-. The case of the assessee was selected for scrutiny assessment and assessment order was passed on 13.6.2014, and the AO determined taxable income by accepting the returned income. A perusal of the record would show that the 2 ld.Commissioner harboured a belief that the assessee has sold one piece of land for a consideration of Rs.1,01,85,700/-. While computing the capital gain, she has shown cost of acquisition at Rs.8,80,750/- including the cost of maintenance deposit of Rs.1,23,750/-. According to the ld.Commissioner, this Rs.1,23,750/- ought not to be treated as a part of cost of acquisition and since the AO failed to conduct any inquiry in this aspect, he treated the assessment is erroneous and prejudicial to the interest of Revenue. Accordingly, the ld.Commissioner has set aside the assessment order with a direction to pass a fresh assessment order.

While impugning the order of the ld.Commissioner, the ld.counsel for the assessee contended that a supplementary agreement was executed between M/s.Lakheni Builders, a proprietorship firm and M/s.Mahavir Enterprise, a proprietorship concern of Smt.Madhuben Rakeshkumar on 27.2.2004. In this agreement it was settled that development charges of Rs.3,46,500/- was to be paid by the prospective buyer to the developer which included deposits towards maintenance fund viz. GEB charges etc. According to the assessee this component of Rs.1,23,750/- was part of deposit given to the builder as a maintenance fund. It is part and partial of cost of acquisition and has rightly been accepted by the AO while computing the capital gain.

On the other hand, the ld.DR relied upon the order of the ld.Commissioner and contended that maintenance expenses are recurring expenses, which could not be considered as a part of cost of acquisition or improvement cost.

We have duly considered rival contentions and gone through the record. The dispute before us is, whether one time deposit taken by the builder at the time of acquisition towards maintenance deposits is to be considered as recurring expenditure required to be excluded from the cost of acquisition. The ld.commissioner while treating the assessment as erroneous and prejudicial to the interest of the Revenue failed to appreciate the very nature of the expenditure. It was not routine expenditure debited towards the electricity etc. It was one-time amount taken by the builder which will be kept in the funds of the society for taking care of maintenance in future. Part of the same is relatable towards deposits required to be made for electricity connection. Hence, he has erred in appreciating this fact before holding that this amount is not liable to included in the cost of acquisition. In our opinion, it was one-time deposit given by the assessee which were not refundable to her, and it became part of acquisition cost. The ld.AO has rightly allowed it to the assessee while determining the capital gain assessable in her hand. There is no error in the order of the AO which has caused prejudice to the Revenue, and therefore, we allow this appeal and quash the order of the ld.Commissioner passed under section 263 of the Act.

In the result, appeal of the assessee is allowed. Order pronounced in the Court on 17th July, 2019.