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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM vk;dj vihy la-@ITA No. 397/JP/2018
PER BHAGCHAND, AM
The appeal filed by the assessee emanates from the order of the ld.
CIT(A)-2, Jaipur dated 12-02-2018 for the Assessment Year 2013-14
raising therein following grounds of appeal.
‘’1. On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in confirming the addition of Rs. 5,00,000/- for payment to vacant of unauthorized possession out of capital gain.
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur 2. On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in not allowing the ground of the assessee that selection of the case under scrutiny through manual is bad in law and facts.
On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in confirming the disallowance of interest expenses of Rs. 8,02,854/-.’’
2.1 During the course of hearing the ld.AR of the assessee has not
pressed the Ground No. 2. Hence, the same is dismissed being not
pressed.
3.1 Apropos Ground No. 1 of the assessee, the facts as emerges from
the order of the ld. CIT(A) are as under:-
‘’2.4 I have perused the facts of the case, the assessment order and the submissions of the appellant. As noted by the AO, during the year under consideration, the assessee alongwith Shri Dilip Agarwal had sold a Plot No. 549, Uday Marg, Raja Park, Jaipur to Suresh Punjab and Shri Sundar Ganga Ram Punjabi for a consideration of Rs. 1,00,00,000/-. However, while computing capital gains the assessee has declared consideration of Rs. 45,00,000/- only for his 50% share in the said plot instead of Rs. 50,00,000/- as it had been submitted that there was encroachment on the said plot by two persons namely Babulal Meena and Phool Chand Jha. It had been submitted that the assessee served them a legal notice through Advocate and made efforts to evacuate the plot through Police also and since these efforts could not fetch result, the assessee had to make an agreement with the encroachers to the effect that at the time of sale of plot, a sum equal to 10% of the sale consideration shall be given to them for vacating the possessions. Accordingly, after sale of the said plot, a sum equal to 10% of the sale
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur consideration of Rs. 1,00,00,000/-i.e. Rs. 10 Lakh was paid to both of them and thus net sale consideration arrived at Rs. 90 lakhs only of which the 50% share i.e. Rs. 45 Lakhs has been correctly shown by the assessee to compute the capital gains. Reliance was placed by the A.R. on case of CIT vs Miss Piroja C Patel (2000) 242 ITR 582 (Bom.) and Mrs. June Perrett vs ITO (2008) 298 ITR 268 (Kar.) and Naozar Chenoy vs CIT (1998) 234 ITR 95 (AP).
The AO discussed and distinguished all the three cases in the case of Miss. Piroja C Patel, the assessee had sold land to the BMC which was having hutments over there. In that case giving vacant possession of the land to BMC was a condition precedent under the terms of the negotiation-cum- acquisition agreement. Hence, the compensation paid to the hutment dwellers were allowed as cost of improvement by the Hon'ble High Court. However, in the case of there is no material to suggest that the prospective buyer had insisted on handing over the vacant possession of plot.
In the case of Mrs. June Perrett, only the legal expenses, court fee etc. for obtaining the letter of administration and probate incurred by the executors to secure an order of eviction again unauthorized occupant was held to be allowed as expenditure in cost of improvement. In the present case no such expenses are involved.
The case of Naozar Chenoys vs CIT also does not help the assessee. In that case, the Hon'ble High Court allowed the expenditure incurred by the assessee towards payment made to the tenants for vacating the premises which is the subject matter of the sale transaction. It was held that such payment has nexus with the transaction as without the tenants vacating the premises, the building cannot be sold. Here in the present case, the payee are not the tenants but illegal/unauthorized occupants of the land. The AO thus added this amount of Rs. 5,00,000/-.
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur In the present proceedings, submissions as made in the assessment proceeding were reiterated. However, since the appellant could not demonstrate that the land was actually occupied by the 2 parties to whom the amounts were claimed to have been paid. Further as pointed out by the AO even in the sale deed the plot was mentioned as vacant and hence this does not support the appellant contention. In view of the discussion as above, the addition made by the AO is confirmed. The ground of appeal is dismissed.
3.2 During the course of hearing, the ld.AR of the assessee that the ld.
CIT(A) has erred in confirming the addition of Rs. 5.00 lacs which was
paid to vacant the unauthorized possession on plot. The amount is
allowable prior to working out capital gain. He further pleaded that the
assessee purchased the property in March 2002 and thereafter two
persons namely Shri Babu Lal Meena and Shri Phool Chand Jha
unauthorizedly constructed two small rooms. The assessee gave a legal
notice to these persons on 1-11-2007. The assessee also tried to remove
these unauthorized persons through Police. However, the unauthorized
possession from these unauthorised occupants could not be removed.
Thereafter in May 2008, assessee and the co-owner of the plot agreed
with Shri Babu Lal Meena and Shri Phool Chand Jha that whenever the
plot is sold, they will be paid 10% of the sale consideration towards
vacating the unauthorized structure on plot. The assessee has submitted
the copy of the legal notice issued to Shri Babu Lal Meena and Shri Phool
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur Chand Jha. Copy of Ikrarnama entered into with Shri Babu Lal Meena
and Shri Phool Chand Jha was also filed. The assessee also submitted the
ID Proof of these persons in support of his contentions.
3.3 On the other hand, the ld. DR supported the order of the lower
authorities.
3.4 We have heard the rival contentions and perused the materials
available on record. Brief facts of the case are that the assessee during the
year under consideration the assessee along with Shri Dilip Agarwal had
sold a Plot No. 549, Uday Marg, Raja Park, Jaipur to Shri Suresh Punjabi
and Sunder Ganga Ram Punjabi for a consideration of Rs. 1.00 crore.
While computing the capital gain the assessee had declared consideration
of Rs. 45.00 lacs only for his 50% share in the said plot instead of Rs.
50.00 lacs. When asked for showing the less consideration, it has been
submitted that there was encroachment on the said plot by two persons
namely Shri Babu Lal and Shri Phool Chand. The assessee served them a
legal notice through Advocate and made efforts to evacuate the Plot
through Police also (PBP-16). Since these efforts could not fetch result,
the assessee had to make an agreement with the encroacher to the effect
that at the time of sale of said plot a sum equal to 10% of the sale
consideration shall be given to them for vacating the possession (PBP 17-
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur 18). Accordingly, after sale of the said plot a sum equal to 10% of the sale
consideration of Rs. 1.00 crore i.e. Rs. 10.00 lacs was paid to both of
them for which the assessee has filed the receipt of cash amount of Rs.
10.00 lacs taken by them (Shri Babu Lal Meena and Shri Phool Chand
Jha) (PBP 20). The assessee has filed the ID Proof of both the persons i.e.
Driving Licens. It is noted that the assessee had shown its share of Rs.
45.00 lacs i.e. 50% of net consideration of Rs. 90.00 lacs to compute the
capital gain. It is also noted that ld.AR of the assessee vide its letter dated
14-12-2015 addressed to DCIT,Circle – 6, Jaipur (PBP 43-44) justified
the payment made to unauthorized occupants, the relevant submission is
as under:-
‘’ …Reason of the 10% agreed was that Shri Babu Lal Meena and Shri Phool Chand Jhan made construction on the property and they claimed to make expenses of Rs. 5,00,000/- to save the title, the assessee was having no alternative but to agree to give 10% share, the copy of the agreement is enclosed herewith at page no. 21-26.’’
However, it is noted that the AO has made the addition of Rs. 5.00 lacs
by observing as under:-
‘’4.5 ..On perusal of the sale agreement dated 15-01- 2013 on page 10 of the sale deed, it is clearly mentioned that the plot was flat and vacant at the time of sale. Had there been any construction by the so called encroachers, the same must have found a mention in the sale agreement. The
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur factual and legal position being so, the payment made to evacuate the illegal possessions can neither be allowed as a cost of improvement nor as an expenditure incurred in connection with sale transaction. This means an addition of Rs. 5,00,000/- to the income of assessee.’’
In first appeal, the ld. CIT(A) has confirmed the addition made by the
AO. From the available records, it is noted that there was a dispute and
Shri Babu Lal Meena and Shri Phool Chand Jhan were having the illegal
possessin on the premises of the assessee. It is further noted that the
ld.AR of the assessee vide letter dated 17-03-2016 addressed to ACIT,
Circle – 6,Jaipur had requested the AO to make enquiry if he has any
doubt about the illegal possession of the premises by these two persons
PBP 45). However, the AO had not given any adverse findings thereon. It
is noted from the sale agreement made between the assessee wherein the
assessee had received the amount of Rs. 45.00 lacs through cheque, the
details of which are available at PBP 36 of sale agreement. The assessee
had taken only Rs. 45.00 lacs through banking channel and Rs. 10.00 lacs
was received by cash which was due to the reason that these illegal
possession holder wanted the amount in cash. To this effect, the assessee
has relied on the decisions of various Hon'ble High Courts. Hon'ble
Karnataka High Court in the case of Mrs.June Perrett vs ITO (2008), 298
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur ITR 268 held that payment to execute an order of eviction and to evict an
unauthorized occupant can be treated as cost of improvement. The
relevant observation of the Court is as under:-
‘’Then the last question to be considered by us is, whether the amount spent by the executors to secure an order of eviction to evict unauthorised occupant has to be treated as expenditure in connection with the transfer of property ?
The executors could have sold the property even without evicting the unauthorised occupant. If such an attempt were to be made by the executors, no man of prudence would have come to buy the property, since the unauthorised occupant were claiming adverse possession of the property. In order to clear the cloud cast on the property, the executors were required to file a civil suit. Any expenses incurred in connection with such suit has to be treated as expenditure in order to transfer the property. Our view is supported by the judgment of the Bombay High Court in the case of CIT v. Miss Piroja C. Patel reported in [2000] 242 ITR 582. In the afore- said case, certain eviction proceedings were initiated to evict the unauthorised occupant from the land. Due to eviction of the unauthorised occupant from the house, the value of the property was increased and the expenditure incurred for vacating the land has been treated as cost of improvement. Similarly, in this case also, if the unauthorised occupant had not been evicted, the value of the property would have been decreased instead of increasing. Therefore, we have to treat the expenditure incurred by the executors to evict the unauthorised occupant as an amount spent towards cost of improvement of the property. In the circumstances, we have to answer the question of law framed in favour of the assessee.’’
In the case of CIT vs Miss Pijoria C Patel [2002] 242 ITR 582 (Bom),
the Hon'ble Bombay High Court held as under:-
‘’…The short point which arises for consideration in the present matter is whether compensation paid by the assessee and other co owners to the hutment dwellers for vacating the land was an allowable expenditure within the meaning of section 48 read with section 55 of the Income tax Act, 1961. The answer to this question will depend on whether the expen ses incurred by the assessee and other co owners constitute cost of improvement under section 48(ii). The said point is covered by the judg ment of the Division Bench of this court in the case of CIT v. Shakuntala Kantilal [1991] 190 ITR 56 and the judgment of the Division Bench of this court in the
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur case of Hardiallia Chemicals Ltd. v. CIT [1996] 218 ITR 598. On eviction of the hutment dwellers from the land in question, the value of the land increases and, therefore, the expenditure incurred for having the land vacated would certainly amount to cost of improvement. Accordingly, the above question is answered in the affirmative, i.e., in favour of the assessee and against the Department. The reference accordingly stands disposed of with no order as to costs. Issuance of certified copy expedited.
In the case of Naozar Chenoy vs CIT (1998), 234 ITR 95, the Hon'ble
Andhra Pradesh High Court held as under:-
‘’..As regards the expenditure incurred by the assessee towards payment of the amount to the tenants for vacating the premises, which is the subject matter of the sale transaction, we are of the view that it has nexus with the transaction as without the tenants vacating the premises, the building cannot be sold. Therefore we are of the view that the said expenditure was incurred for effecting the transaction and therefore he is entitled for deduction of the amounts incurred towards vacation of the tenants, in computing the capital gain of the building sold. It follows from the above that the assessee is entitled to the deduction of Rs. 43,107, Rs. 34,200, Rs. 60,000 and Rs. 3,800 because these amounts relate to the expenditure incurred for the purpose of getting the tenants to vacate the building. Accordingly, we allow the same.’’
Taking into consideration all the relevant facts, circumstances of the case,
evidences and various case laws relied on by the assessee, we hold that
the ld. CIT(A) is not justified in confirming the addition of Rs. 5.00 lacs
which we direct to delete. Thus Ground No. 1 of the assessee is allowed.
4.1 Apropos Ground No. 3 of the assessee, the facts as emerges from
the order of the ld. CIT(A) are as under:-
‘’3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The AO noted that interest payments of Rs. 8,02,585/- were claimed under section 57 as reproduced in the assessment order at para 3 on page 2. He further found tht out of the total claim of interest a sum of aggregating to Rs. 2,47,170/-
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur relates to HDFC Bank OD account and as per this, the opening balance as on 01-04-2012 was Rs. 9238/- and closing balance as on 31-03-2013 was Rs. 12,681/- and thus concluded that bank charges in this account were in respect of loan utilized and repaid during the year. Further the advance to M/s. Feathertouch Polychem P. Ltd. M/s. Laxmi Builders & Developers and M/s. Swadeshi Developers were given in earlier years and hence interest paid to HDFC bank could not have any nexus with the same. It was further noted that Rs. 11 lakh withdrawn on 20-04-2012 and subsequent loan on18-07-2012, 21-07-2012 and 26-07-2012 to 3 parties of an amount of Rs. 70,20,840/- were neither returned nor any interest received on the same and maximum amount of interest charges were attributable to these. As regards interest paid to private parties Raj Kumari Agarwal and Aparajita Saini, there is an opening balance and during the year interest has only been credited. Thus, it was concluded by the AO that interest bearing loans have not been utilized in giving advance on which interest has been earned and thus the claim of interest expenses against such interest income was rejected. In the present proceedings, A.R. reiterated the earlier submissions made before the AO. A perusal of the submissions and the ledger accounts, the A.R. has claimed to have paid Rs. 12 lakhs on 5-04-2012 and 7 lakhs on 06-08- 2012 to M/s. DND Build Homes Pvt. Ltd. A perusal of the account shows that on these dates funds were available with the assessee and there is no nexus for the loan funds from HDFC bank. As regards the amount of Rs. 25 lakhs on 07- 07-2012 to Shri Sunil Tiwari, the same is only for 3 days and returned on 10-07-2012. As regards loan to M/s. Feathertouch Polychm P. Ltd. M/s. Laxmi Builders & Developers and M/s. Swadeshi Developersssss, all are opening balances and no amounts are extended during the year. Further the HDFC bank account, the opening balance is only Rs. 9000/- approximately, thus no loans are reflected therein. Similarly only interest is being credited to the accounts of Aparajit Sen and Raj Kumari Agarwal the same are opening balances and interest is credited. Further the main issue is that the A.R. himself is agreeing that almost
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur Rs. 80 lakhs have been used for purpose of agricultural land and major part of interest amount is used for these. Thus the interest bearing loans have been utilized for a personal asset. The contention of the assessee that since capital gain is offered on the land in the subsequent year also cannot be accepted as the claim of the interest has been made under section 57 wherein it has to relate to the loans given and the interst earned thereon. In view of the discussion as above, the disallowance made by the AO is sustained. The ground of appeal is dismissed.’’
4.2 During the course of hearing, the ld.AR of the assessee prayed that
the ld. CIT(A) has erred in confirming the disallowance of interest of
Rs. 8,02,854/- which should be allowed.
4.3 On the other hand, the ld. DR supported the of the lower
authorities.
4.4 We have heard the rival contentions and perused the materials
available on record. Brief facts of the case are that the assessee in the
computation of income had claimed expenses of Rs. 8,02,854/- against
the interest income shown under the head ‘’Income from other sources.
During assessment proceeding the assessee was asked to prove that the
interest bearing loans taken by the assessee have been utilized in giving
the loans on which interest income has been earned. The details of
interest expenses claimed by the assessee are as under:-
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur
Bank Charges (HDFC Bank) Rs. 104215.60 Bank interest on OD a/c HDFC Bank Rs. 142954.86 Interest paid to private parties: Aparajita Saini Rs. 205725/- Shrikant Oil Rs. 300000/- Rajkumar Agarwal Rs. 49959/- Total Rs. 555654.00 Rs. 802854.00
The assessee during the course of assessment proceeding submitted all
these details filed before the AO who has made the addition of
Rs. 8,02,854/-. The ld. CIT(A) has confirmed the action of the AO. From
the available records before us, it is noted that the assessee has utilized
the borrowed funds to purchase the agricultural land. As regards interest
payment to Raj Kumari Agarwal and Aparjita Saini, it is noted that there
were opening balances of the amounts in their accounts. Further the
assessee has earned interest on the advances made to M/s. Feathertouch
Polychem (P) Ltd. of Rs. 6,17,757/-. It is important to note that during the
year the assessee has earned interest income of Rs. 13,95,012/- and paid
the interest of Rs. 8,02,854/-. In view of these facts and circumstances of
the case, we find no merit in the order of the ld. CIT(A) in sustaining the
disallowance of interest of Rs. 8,02,854/-. Thus Ground No. 3 of the
assessee is allowed.
ITA No.397/JP/2018 Shri Dev Suman Saini vs ACIT, Circle – 6, Jaipur 5.0 In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 02-07-2018.
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