KAILAS KALYAN CREATORS PRIVATE LIMITED,AHMEDABAD vs. ITO WARD 2(1)(1), AHMEDABAD, AHMEDABAD

During the assessment proceedings, the Assessing Officer (AO) observed that the assessee had sold a land of property for consideration of Rs.12,79,25,000/- during the year under consideration, upon which the assessee had offered Long Term Capital Gain (LTCG) of Rs.2,91,89,534/-. The AO further noticed that the assessee while arriving at the LTCG had claimed improvement a cost of Rs.7,65,95,000/- claimed to have been expended/paid towards removing the encroachers for getting the land vacated. The AO observed that the assessee had not submitted complete details of the persons, such as, their names, PANs, nature of payments either cash or bank, etc. Asst. Year : 2023-24

On being asked to explain in this respect, the assessee submitted that the land in question was encroached upon by various people who had constructed their residential houses thereupon. That the assessee had approached Ahmedabad Municipal Corporation (AMC) for vacation of the land from the aforesaid people and thereafter a long protracted litigation ensured between the said encroachers and the AMC. The issue was also politicised also. When the assessee could not get the land vacated through legal course, the assessee had to make a deal with the said encroachers and paid compensation to each of them. The assessee furnished the details of all the persons to the AO and claimed that a total compensation of Rs.7,65,95,000/- was paid to the encroachers to get the clear and vacant possession of the land, which was further sold by the assessee to Naroda to Himalaya Sunmall LLP and, accordingly, offered the LTCGs earned for tax. The AO, however, observed that the details furnished by the assessee of the persons and corresponding evidences of the payments were not complete. He observed that the assessee had claimed total improvement expenditure of Rs.7,65,95,000/- including the amount of Rs.4,99,80,686/- paid during the year, however, the assessee had not furnished the complete details of all the expenditures incurred, bills & vouchers and names & addresses of the payees, etc. He, therefore, disallowed the entire improvement costs of Rs.Rs.7,65,95,000/- (total indexed cost of Rs.8,58,82,367/- and assessed the LTCGs at Rs.11,50,71,901/-.

Being aggrieved by the said order of the AO, the assessee preferred the appeal before the Ld. CIT(A). Asst. Year : 2023-24

Before the Ld. CIT(A), the assessee submitted that the assessee was pursuing to get the land vacated by removing the illegal encroachments since 2003 till the date of sale and for that, the assessee approached many authorities including AMC, Chief Minister’s Officer, Gujarat, Additional Chief Secretary Urban development, Police and Judiciary, however, remained unsuccessful in getting the land vacated and finally the assessee decided to pay compensation to the illegal encroachers and, accordingly, settled the issue by making payment. The assessee furnished notarized agreements with 47 such encroachers to whom the total payment of Rs.7,65,95,000/- was made out of which Rs.3,65,25,000/-was made in the year 2016 and the remaining amount of Rs.4,00,00,000/- was paid in the year 2023. The said expenditure was claimed as cost of improvement in the return of income. The assessee also requested the Ld. CIT(A) to get the aforesaid facts verified by calling remand report from the Ld. AO. The Ld. CIT(A), however, observed that it was not clear as to whether the aforesaid evidences furnished by the assessee were adduced before the AO or not. He, therefore, declined to recognize the evidences furnished by the assessee. He further observed that the AO had noted that the assessee had not furnished complete details of expenditure incurred by it including bills/vouchers and names & addresses of the payees, etc. He, however, observed that “Whereas appellant’s assertion regarding 192 dwelling structures on the land has not specifically been doubted, the AO has expressed his clear dissatisfaction on the quality and quantity of evidence as to the sums claimed to be paid as compensation to such parties”. He, therefore, upheld the order of the AO on this issue and confirmed the addition, so made by the AO. Asst. Year : 2023-24

Apart from the above issue relating to disallowance of cost of improvement, the assessee had also agitated before the Ld. CIT(A) that the AO has wrongly disallowed the business loss of Rs.2,57,516/- without any basis whatsoever. The Ld. CIT(A), in this respect, observed that the AO in the opening paragraph of the assessment has observed that the assessee had claimed a total loss of Rs.9,60,795/- and the same has not been disturbed by the AO. Whereas, the assessee claimed before the Ld. CIT(A) that the total loss claimed by the assessee in the return of income was of Rs.12,18,311/- and not Rs.9,60,795/-. That the AO wrongly noted that the loss claimed was of Rs.9,60,795/-. However, the Ld. CIT(A) dismissed this ground also, observing that the assessee had done nothing to demonstrate the correctness of its claim of loss.

Being aggrieved by the said order of the Ld. CIT(A), the assessee has come in appeal before us.

We have heard the rival contentions and gone through the record. So far as the issue relating to disallowance of loss of Rs.2,57,516/- is concerned, we find that this issue neither was a subject matter of scrutiny assessment nor the loss claimed has been disputed by the AO. It seems to be a matter of only clerical error as the AO noted the loss claimed at Rs.9,60,795/-, whereas, the assessee has claimed that the total claimed loss was of Rs.12,18,311/-. The Ld. Counsel for the assessee has brought our attention to Page-49 of the paper-book, which is the copy of the computation of the total income of the assessee and has demonstrated that the net profit/loss as per the Profit & Loss account of the assessee was Rs.(-)9,60,795/-. However, there was depreciation claimed as per the books of accounts of Rs.5,95,870/- which was Kailas Kalyan Creators Private Limited vs. ITO Asst. Year : 2023-24

So far as the issue relating to cost of improvement claimed by the assessee along with indexation thereupon in computing the LTCGS is concerned, the Ld. AR of the assessee has relied upon various evidences furnished before us. He has also submitted following evidences were also duly furnished before the Ld. CIT(A):