GHODAWAT HOTELS PVT.LTD.,JAIPUR vs. DCIT(HQ), JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES , JAIPUR Jh HkkxpUn] ys[kk lnL; ,o Jh dqy Hkkjr] U;kf;d lnL; ds le{k BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM vk;dj vihy la-@ITA No. 886 and 887/JP/2014 fu/kZkj.k o"kZ@Assessment Year : 2006-07 and 2008-09 cuke M/s. Ghodawat Hotels (P) Ltd. The DCIT (HQ) Vs. C-18, Bhagwan Das Road Circle- 6 Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACG 8745 P vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by:Shri Manish Agarwal & O.P. Agrwal, CA jktLo dh vksj ls@ Revenue by :Shri O.P. Bhateja, lquokbZ dh rkjh[k@ Date of Hearing : 06/01/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 09 /02/2017 vkns'k@ ORDER PER BHAGCHAND, AM Both these appeals have been filed by the assessee against two separate orders of the ld. CIT(A)-II, Jaipur dated 17-10-2014 for the assessment years 2006-07 and 2008-09 respectively raising therein following grounds of appeal. ITA No. 886/JP/2014 – A.Y. 2006-07 ‘’1. On the facts and in the circumstances of the case the ld. CIT(A) has grossly erred in upholding the addition of Rs. 49,63,278/- made by the AO by enhancing the capital gain

2 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . declared by the assessee at Rs. 1,39,80,454/- without any basis and without pointing out any specific defect in the capital gain computed by the assessee, thus the consequent addition so upheld deserves to be deleted. 1.1 The ld. CIT(A) has further erred in failing to appreciate that the AO has miscomputed the capital gain by wrongly calculating the indexed cost of acquisition inasmuch as he has not applied the prescribed formula for calculating the indexed cost of acquisition but has considered imaginary figures for arriving at the reduced indexed cost of acquisition and thus enhancing the capital gain. Therefore, the addition so made deserves to be deleted. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has grossly erred in confirming the disallowance of const./expenses of Rs. 1,01,97,208/- claimed u/s 48(1) of the I.T. Act, 1961 arbitrarily, without appreciating the nature of expenses, incurred vis-a-vis the contractual obligation and special circumstances attached to the asset sold, thus the disallowance so made and upheld deserves to be deleted. 2.1 That the ld. CIT(A) has further erred in ignoring the fact that the amounts were paid for taking over possession of the asset sold and removal of encumbrances created thereon, thus the payments being made for removing the encumbrance over the asset sold without which the sale of the assets was impossible, hence the amount so paid is eligible for deduction u/s 4(1) of the I.T. Act, 1961. ITA No. 887/JP/2014 – A.Y. 2008-09

‘’1. On the facts and in the circumstances of the case the ld. CIT(A) has grossly erred in upholding the addition of Rs. 4,76,203/- made by the AO by enhancing the capital gain declared by the assessee at Rs. 23,88,095/- without any basis and without pointing out any specific defect in the capital gain computed by the assessee, thus the consequent addition so upheld deserves to be deleted.

3 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . 1.1 The ld. CIT(A) has further erred in failing to appreciate that the AO has miscomputed the capital gain by wrongly calculating the indexed cost of acquisition inasmuch as he has not applied the prescribed formula for calculating the indexed cost of acquisition but has considered imaginary figures for arriving at the reduced indexed cost of acquisition and thus enhancing the capital gain. Therefore, the addition so made deserves to be deleted. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has grossly erred in confirming the disallowance of const./expenses of Rs. 1,01,97,208/- claimed u/s 48(1) of the I.T. Act, 1961 arbitrarily, without appreciating the nature of expenses, incurred vis-a-vis the contractual obligation and special circumstances attached to the asset sold, thus the disallowance so made and upheld deserves to be deleted. 2.1 That the ld. CIT(A) has further erred in ignoring the fact that the amounts were paid for taking over possession of the asset sold and removal of encumbrances created thereon, thus the payments being made for removing the encumbrance over the asset sold without which the sale of the assets was impossible, hence the amount so paid is eligible for deduction u/s 4(1) of the I.T. Act, 1961. 3. On the facts and in the circumstances of the case the ld. CIT(A) has erred in upholding an addition of Rs. 2,30,671/- made on account of disallowance of genuine expenses claimed by the on account of car expenses, depreciation on car and interest paid on car loan without appreciating that the claim of depreciation is a statutory deduction available to assessee and other expenses claimed were exclusively incurred for business expenses. Thus the disallowance so sustained deserves to be deleted.

4 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . 2.1 First of all, we take up the grounds of appeal of the assessee for

the assessment year 2006-07 which has been dismissed by the ld. CIT(A)

by observing as under:-

‘’2.5 I have perused the facts of the case, the assessment order and the submissions of the appellant. In this case, the appellant has purchased a new building (at C96) which has been given on a 99 years lease to tenant (RFC) for a lease rent of Rs. 2,500/- per annum. However, the ownership rights of the new property still vest with the appellant. In the case laws cited by the appellant, money was paid to the tenant (case of Eagle Theaters, supra) or compensation was paid to the hutment dwellers (case of Piroja Patel, supra) to vacate the premises being transferred. In all these cases, the assessee parted with the property (money) which was given to tenants or hutment dwellers. In the instant case, the ownership rights of this property remain vested with the appellant. By giving a 99 years lease and other terms and conditions of the lease agreement enumerated by the appellant, it has transferred some rights in the new property to RFC but not the ownership rights. Therefore, it my view the cost of acquisition of the new property cannot be allowed as cost of improvement of the property transferred or expenditure incurred in connection with the transfer of property. Therefore, the addition made by the AO is sustained. The above grounds are dismissed.’’

2.2 During the course of hearing the ld. AR of the assessee filed the

following written submission praying therein to delete both the additions

as made in Ground No. 1 and 1.1 & 2 and 2.1.

‘’Ground of Appeal No.1 to 1.1: ‘’In all these grounds of appeal, assessee has challenged the action of Ld. CIT(A) in upholding the addition of Rs.12,91,499/- made by ld. AO by not allowing the credit of expenses to the tune of Rs.2,16,932/- and Rs.9,84,333/- incurred in F.Y.1998-99 and 2003-04 respectively resulting into lessor allowance of indexed cost of acquisition to the extent of 12,91,499/-. During the course of assessment proceedings necessary details of all the expenses

5 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . incurred were submitted including the aforesaid expenses (APB 62), however,the same were not allowed for the reason best known to the Ld. AO who as stated above has wrongly observed that assessee filed revised calculation of capital gains which in fact was filed by assessee on the direction of Ld. AO. Your honour, would appreciate that before making any addition/disallowance, ld. assessing officer has to satisfy himself on what basis a legal claim of assessee is to be treated as incorrect and this has to be done by passing a speaking order and not in casual manner without even made any discussion of the issue. Further, mode of computation of capital gain has been specified u/s 48 of the Income Tax Act, according to which entire cost of acquisition incurred in respect of property sold has to be reduced from Sale Consideration, whereas Ld. AO without any reason has denied the claim of indexed cost of acquisition to the tune of Rs.12,01,265/- resulting into inflated capital gain. All the expenses were duly recorded in the books of accounts and such books were not rejected by Ld. AO. Thus, the addition made by Ld. AO does not hold good on facts as well as on law and the same deserves to allow the assessee as claimed.’’ ‘’Grounds of appeal No. 2 and 2.1 In these grounds of appeal, assessee has challenged the action of Ld. CIT(A) in confirming the denial of Cost of Rs.1,01,97,208/- of the property leased out to RFC in lieu of getting physical possession of the property C-18, Bhagwan Das Road, Jaipur, which was developed and part of the area has been sold and resultant capital gain on which was declared by the assesseein the return of income filed for the year under consideration after claiming such cost. Briefly stated the facts of the case are that assessee company was in possession of a property “Surya Niwas”located at C-18, Bhagwan Das Road, Near Raj Mandir Cinema, C-Scheme, Jaipur, which was purchased by it in terms of Purchase deed dated 19.02.1996. At the time of purchase, the said property was occupied by Rajasthan Finance Corporation (RFC) a state financial institution as tenantwho was tenant since 1972, i.e. more than 28 years.The said building was around 40-45 years old and due to the fact of being occupied by Government department, was under heavy wear and tear, therefore, the assessee decided to rebuilt the property in the shape of a commercial complex and accordingly it had approached to RFC to vacate the property which request of vacate the property was turned down by RFC. Thereafter a notice dated 01.09.1999 was given to Chairman and Managing Director, RFC giving a proposal that RFC shift its office to some alternative accommodation and once the construction of property is over (i.e. in around 2- 3 years) , RFC would be provided with around 1800-2000 sq. feet area, i.e. equivalent to existing sitting area in the new building. Subsequently, vide letter dated 23.12.1999, assessee alternatively offered the RFC a compensation of Rs.15 lacs for vacating the premises without exchange offer as made vide letter dated 01.09.1999. Again, vide notice dated 18.01.2000, assessee made a new proposal that RFC may shift to new premises in nearby area for 3-4 years

6 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . on rent and further offered that the rent in excess of existing rent shall be paid by assessee and after completion of new building, RFC could either opt for taking equivalent space in new building or Rs.15 lacs as lumpsum compensation. It was also intimated to the CMD of RFC that assessee has submitted the Plan for construction of proposed new building to Nagar Nigam, Jaipur and also expressed its desire to commence construction at the earliest. Subsequently, pursuant to multiple rounds of meetings and discussions held between directors of assessee company and RFC officials and following proposal was reached vide letter dated 16.03.2000:

(i) The branch Office occupied by RFC be shifted to new premises in nearby area for a period of 3-4 years. (ii) The excess of lease rent shall be paid by the petitioner.

(iii) A total area of 4070 sq. ft. which includes the area of sitting with common facilities will be provided to RFC in the new building. The rent of such area of 4070 sq. ft. will be 30% of the then prevailing market rate.

Thus, assessee searched out certain properties to accommodate RFC which were referred to it vide letter dated 24.06.2000 and after physical inspection and considering the various aspects of the matter, RFC agreed to shift their office to following two premises:-

(i) 67, Gopalbari, Ajmer Road, Jaipur, and (ii) D-13, Meera Marg, Bani Park, Jaipur

All the formalities, i.e. fixing the rent, drafting the lease deed etc. were done and in fact advance payment of rent was made.RFC further desired that a bank guarantee should be given in favour of it for due performance of the agreement, which was also executed. However, subsequently on 12.09.2000, assessee was intimated that Board of RFC did not approve the agreement and thus denied to vacate the property. Since, RFC committed the breach of agreement, assessee filed the writ petition (APB 21-32)before Hon’ble Rajasthan High Court in the year 2000 requesting to direct RFC to vacate the premises. All the facts as narrated above are duly borne out of in the said writ petition filed by assessee, copy of which was duly filed before the lower authorities.

During the pendency of writ before the Hon’ble High Court, RFC in accordance with earlier proposal of assessee, agreed to vacate property in lieu of another property situated at Plot No.C-96, Jagan Path, Chomu House, Jaipuron irrevocable lease of 99 years which could be further extended for 99

7 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . years or more and during the lease period assessee could not get loan over the said property nor allowed to hypothecated the same. Thereafter the possession of new premises was handed over to RFC and assessee got possession of old propertyvide lease deed dated 13.03.2003(APB 6-17). Accordingly, RFC agreed to withdraw revision petition No.927/2001 and assessee filed application under Article 326 of Constitution to withdraw writ petition (APB 46-47).

The new property which is given to RFC on lease is located at C-96, Chomu House, Jaipur and was acquired by assessee for a total consideration of Rs.1,01,97,208/- in terms of purchases deed dt. 5.8.2002. As per Lease deed dated 15.03.2003,(APB 6-17) said property was given to RFC on a lease rent of Rs.2500 per annum (clause 4, APB-11). Further, the said lease was perpetual and irrevocable for a period of 99 years and further extendable to 99 years or more (clause 2, APB-10). Further as per clause 3 of Lease deed, lessee had even right to sublet the property(APB-10). It was also provided in clause in 6 & 8 that RFC can carry out any alterations, improvements, developments and further construction in the said premises and it had to bear all the obligations related to House tax, municipal taxes etc. in future (APB- 11-12).

All the above terms on which property was leased out to RFC, make it amply clear that assessee practically parted with all the rights in respect of the subject property for a period of 99 years through an irrevocable lease deed with the liberty to lessee i.e. RFC to further extend it for a period of 99 years or more. In this manner though the legal title remained in favour of assessee but actual ownership is enjoyed by the lessee who has right to modify, construct, sub-let the leased premises as per its convenience and the owner i.e. the assessee even couldnot have right to mortgage or take loan over the said property meaning thereby that the assessee has handed over the property to RFC with all rights to enjoy it for indefinite period of time in lieu of getting possession over the property at C-18, Bhagwan Das Road, Jaipur.

On vacation of property at C-18, Bhagwan das Road by RFC, assessee on 31.10.2003 entered into a Development agreement with M/s Silver Sands Builders Private Limited to develop the said plot of land, and accordingly construction of new commercial complex was completed in the year under consideration. During the year under consideration,assessee sold total built up area admeasuring to 22860.09 sq.ft. and offered Capital Gain of Rs.1,39,80,454/- (APB 56) on the same. While computing Capital Gain, assessee claimed the deduction towards the cost of property leased to RFC (C- 96, Chomu House) i.e. Rs.1,01,97,208/- u/s 48(1) of the Income Tax Act, 1961 being incidental and unavoidable expenses without which as stated above, assessee could not get the physical possession over the premises sold during the year. However, Ld. AO rejected the claim of assessee. Also, Ld. AO denied to give benefit of cost incurred on account of following:-

8 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur .

(i) “Expenses on Building” Rs.2,16,932/- incurred in 31.03.1999 (ii) Reduced expenses incurred for the year ended 31.03.2004 by Rs.9,84,333/-

During the course of assessment proceedings the Ld. AO directed the assessee to furnish the revised calculation of capital gain by reducing the cost of acquisition to the extent stated above, in response to which assessee provided the details of revised capital gain (APB62-67). After receiving this submission, Ld. AO completed the assessment after making addition of Rs.49,63,278/- and further wrongly observed in para 2 at page 4 of the order that “……assessee has agreed and filed the revised cost of acquisition/ indexed cost of acquisition of the property”.Thisobservation of the ld. AO is not correct at all rather contrary to the facts of the case and the bonafide made compliance by the assessee of AO’s direction was used against it without their being any admission of any kind made by assessee. When these facts were brought before the ld. CIT(A) and contention was raised, he proceeded to decide the issue on merits and department has not preferred any appeal before the hon’ble bench against such action of the ld. CIT(A).

As stated above, while computing capital gain, cost of the property given to RFC in lieu of vacation of present property, i.e. Rs.1,01,97,208/- was claimed as expense u/w 48(1) which was disallowed by Ld. AO without any specific reason merely stating that assessee has filed the revised computation of capital gains, which is factually incorrect. The Ld. CIT(A) though appreciated this fact that no such revision was made by assessee however, upheld the order of Ld. AO on the premise that expenses of Rs.1,01,97,208/- are not allowable in view of fact that assessee has not parted with the ownership rights in theproperty leased to RFC by grossly ignoring the facts and circumstances under which the premises was given on perpetual lease of 99 years to RFC with the liberty to further extend it for a period of 99 years or more..

In this regard, it is humbly submitted that section 48 provides the “Mode of Computation” of Capital Gain, which reads as under: “48. The income chargeable under the head “Capital Gains”shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely: (i)expenditure incurred wholly and exclusively in connection with such transfer, (ii) the cost of acquisition of the asset and cost of any improvement thereto:”

9 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . From the entire set of facts narrated above, it is evident that the new property was leased out to RFC solely for the purpose of getting vacationandphysical possession of another property which later on stood developed and sold by the assessee. Thus expense towards the cost of new property provided on lease to RFC are incurred “wholly and exclusively in connection with transfer” and deserve to be allowed in view of specific provisions of clause (i)of section 48(1).

However, neither Ld. AO nor Ld. CIT(A) allowed the deduction towards the cost of new property as expenses from the sale consideration while working out the capital gains for the sole reason that assessee had the ownership title over the said property though no doubts whatsoever was raised to the facts that the subject property given to RFCon irrevocable lease of 99 years for the getting possession of other property. In this regard reliance is placed on various judgements wherein it has been held that expenses incurred for getting property vacated for its further development and sale are to be treated as “expenses wholly and exclusively in connection with transfer” and thus to be allowed against Capital Gain.

1.147 Taxman 629 (Cal)Gopee Nath Paul & Sons Vs. DCIT, (pages 1- 7) “Section 48 of the Income Tax Act, 1961 – Capital gains – Computation of – Assessment Year 1992-93 – Whether if without removing any encumbrance, sale or transfer could not be effected, amount paid for removing that encumbrance will fall under clause (i) of section 48(1) – Held, yes.”

10 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . (iiii) Clause 4: Lease Rent fixed ata token amount of Rs.2500/-PA. (APB-11) (iv) Clause 8: Lessee shall be free to make improvements, development in the property as per convenience.(APB-12) (v) Clause 13: Lessor shall not be entitled to raise any loan against the Land and building. (APB-13) On perusal of above clauses of lease deed, it is evident that even though the assessee would continue to be owner of property however, for all practical purposes the rights stands transferred in favour of RFC who is entitled to enjoy the property as per its sweet will.

Further, your honours would appreciate the fact that even RIICO, Rajasthan Housing Board and Jaipur Development Authority allotted the properties to allottees on Lease for a tenure of 99 years without transferring the ownership however, for all practical purposes, allottee is treated as owner of the property and after the term of 99 years, lessee by paying lease money gets the lease renewed. In fact, the same happened in the case of assessee as clause 2 of Lease deed, provides that lease tenure can be extended for a further period of 99 years or more at the option of lessee and lease money is payable annually with the stipulation that lessee will not vacate the property.

Also, looking to the past experience with RFC at the time of getting property vacated, it is for sure that the property would not be vacated by RFC ever. Further, it is to be noted that had the property be like any other rented property, the same would not be leased at such a nominal rent, which is not at all in commensurate with the market rates and also on the conditions which all are against the rights of a owner. Further recently CBDT vide circular No. 35/2016 (pages 27-28) has held that the land allotted by the state institutions for a long term lease would character as deemed sale and thus no TDS could be deducted on the lease charges paid for it. With this it can be said that in the present case when the assessee leased out the property to the RFC for minimum period of 99 years, it is deemed sale i.e. the ownership right would be transferred to RFC.

In other words, if the cost of property is not allowed as deduction in accordance with section 48(1)(i), it would amount to undue hardship to assessee as it has purchased a property, which can :-

(i) not be used by it in the manner it wishes, (ii) not be let out at a rent at market rates, (iii) not be mortgaged for raising finance, and further, chances of getting it back after completion of Lease term are negligible. Thus, the property leased cannot be treated at par with other leased properties, wherein lessor:-

11 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . (i) gets a handsome amount as down payment, (ii) charges lease rent in accordance with market rates, (iii) and still option of extension of Lease completely lies at the will of lessor. In view of above facts, it is submitted before your honour that property given to RFC was leased under compulsion for vacation of property without which development/ sale of subject property was not possible and since the same being incurred wholly and exclusively in relation to sale, has been claimed as expenditure u/s 48(1) being incidental and unavoidable expenses. Thus cost of property leased out to RFC for getting vacant possession of property sold during the year deserves to be hold as “Expenses in connection with transfer” and consequent cost deserves to be allowed as deduction against the sale consideration for the purpose of computing the capital gains.’’ 2.3 During the course of hearing, the ld. DR relied on the orders of the ld. CIT(A). 2.4 We have heard the rival contentions and perused the materials

available on record. As regards Ground of appeal No. 1 to 1.1, we have

also considered the facts of the case with reference to the orders of the

lower authorities. It is seen that assessee in the computation of income

has claimed certain cost towards the cost incurred in various years and

claimed the indexed cost of expense out of the sale consideration. This

claim of the assessee was not allowed by the AO without giving any

reasons for that. In first appeal also, this issue remained unaddressed by

ld. CIT(A). The assessee is a Private Limited Company and accounts are

audited. The claim of assessee could be very well got verified from the

audited accounts. Under these circumstances, we set aside this issue to

the file of the AO with a direction that the claim of the assessee be

examined after taking the necessary evidence on record and further after

12 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . providing a reasonable opportunity of being heard to the assessee. Thus

Ground No. 1 and 1.1 of the assessee are allowed for statistical purposes.

2.4.1 As regards Ground of appeal No. 2 to 2.1, we have also considered

the facts of the case and case laws relied on by both the sides. Brief facts

as gathered from the records are that the assessee had purchased a

property at C-18, Bhagwan Das Road, Jaipur on 19.02.1996 which was

occupied by Rajasthan Financial Corporation (in short RFC) since past

several years. Assessee in order to develop a commercial complex on the

said property requested the RFC to vacate the property however RFC

denied for the same and on repeated persuasion required a heavy

consideration of vacation had asked for an alternative accommodation at

the cost of the assessee. Thereafter disputes continued between the

assessee and RFC and the matter went up to the Hon’ble Rajasthan High

Court. During the pendency of the writ before the Hon’ble High Court, a

settlement was reached between the parties and accordingly it was

decided that the assessee would provide a new property to RFC on 99

years lease against the vacation of property i.e. C-18, Bhagwan Das Road,

Jaipur occupied by RFC. Accordingly assessee offered another property

owned by it which is situated at C-96, Chomu House, Jaipur purchased by

the assessee on 05.08.2002 for the total cost at Rs. 1,01,97,208/-.

13 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . Thereafter a lease agreement was entered into between the assessee and

RFC on 15.03.2003, copy of which is available in the paper book filed by

the assessee. As per this lease deed, assessee has provided newly

purchased property to RFC for an annual lease rent of Rs. 2,500/- for a

period of 99 years which is further extendable on the option of the RFC

for another 99 years or more on the choice of RFC. It was also decided

between the parties that this lease would be irrevocable and also

contained certain terms and conditions according to which except the

legal title, RFC would enjoy all rights and easements over the said

property including alteration, improvement, development and further

construction and also would be having a right to sub-let the leased

property. Assessee in lieu of this leased premises to RFC, got the vacant

possession of the RFC occupied property situated at Bhagwan Das Road,

Jaipur in which property after getting vacant possession from RFC,

assessee constructed a commercial complex and during the year under

appeal had declared long term capital gain from the sale of the newly

constructed space in the commercial complex and claimed deduction of

the cost incurred on acquisition of new property given to the RFC on

lease rental basis as cost of improvement u/s 48(2) of the Income Tax

Act, 1961. From the above facts, it is clear that the RFC was in the

14 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . possession of the property owned by the assessee as a tenant and for the

vacation of the same, assessee was forced to provide a new property to

RFC thus the cost incurred towards the acquisition of the new property

had a direct link with the sale of property ( i.e. the vacated property) from

which capital gain is declared in the year under appeal which had only

been possible when the said property was vacated by the RFC on being

shifted to the another premises owned and provided by the assessee on

irrevocable extendable lease of 99 years or more on a meagre annual

lease rent of Rs.2,500/-. Therefore, the price paid for new asset would

certainly amount to cost of improvement and is an allowable expenditure

within the meaning of section 48(2) of the I.T. Act, 1961. This view is

supported by the decision of Hon’ble Delhi High Court in the case of CIT

Vs. Eagle Theatres wherein vide orders dated 21.12.2011 in ITA No.

1287/2011, it has been held by the Hon’ble Court as under:

15 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur .

“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. The stand of the Revenue cannot be accepted on the second contention.’’

Further Hon’ble Mumbai High Court in the case of CIT Vs. Piroja C.

Patel reported in 242 ITR 582 has also expressed the same view and held

that payment made to hutment dwellers for vacation of property

amounted to cost of improvement and accordingly allowable as

expenditure within the meaning of section 48 r.w.s. 55 of the I.T. Act,

1961. In view of the above and respectfully following the judicial

pronouncements as discussed above and relied upon by the assessee, we

are of the considered view that the cost of the new asset which is

provided to RFC on long term irrevocable lease against the vacation of

assessee’s property from its possession has a direct nexus with the

property sold during the year and therefore the cost of Rs. 1,01,97,208/-

paid by the assessee for the acquisition of new property is the cost of

improvement eligible for deduction u/s 48(2) of the Act out of the total

sale consideration for the purpose of computing the capital gain.

16 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . Accordingly the Ground No. 2 and 2.1 of this appeal is allowed in

favour of assessee.

3.0 In the result, the appeal of the assessee in ITA No. 886/JP/2014 is

partly allowed for statistical purposes.

4.1 Now we take up the appeal of the assessee in ITA No. 887/JP/2014

for the assessment year 2008-09 wherein Ground No. 1 and 1.1 & 2 and

2.1 raised by the assessee are similar. It is noted that the ld. CIT(A) has

dismissed the appeal of the assessee giving similar findings as given in

the assessment year 2006-07. Taking into consideration of the appeal of

the assessee for the assessment year 2008-09, we find that similar issue

has been decided in the case of the assessee for the assessment year 2006-

07 (supra) and therefore, the decision taken therein in both the issues will

apply mutatis mutandis in both the grounds of appeal of the assessee for

the assessment year 2008-09. Thus Ground No. 1 and 1.1 of the assessee

is allowed for statistical purposes & Ground No. 2 and 2.1 of the assessee

is allowed.

5.0 It is further noted that the assessee has raised the Ground No. 3 in

this appeal for the assessment year 2008-09 praying therein that the ld.

CIT(A) has erred in upholding an addition of Rs. 2,30,671/-made on

account of disallowance of genuine expenses claimed by the assessee on

17 ITA No. 886/JP/2014 M/s. Ghodawat Hotels (P) Ltd. vs. DCIT (HQ), Circle- 6, Jaipur . account of car expenses, depreciation on car and interest paid on car on loan without appreciating that the claim of depreciation is a statutory

deduction available to the assessee. We find that this issue is not raised before the ld. CIT(A) by the assessee during first appeal. Hence, we find no reason to entertain this Ground No. 3 of the assessee. Therefore, the

Ground No. 3 of the assessee is dismissed. 6.0 In the result, both the appeals of the assessee are partly allowed for statistical purposes as indicated above. The order is pronounced in the open Court on 09 -02-2017. Sd/- Sd/- ¼dqy Hkkjr½ ¼HkkxpUn½ (KUL BHARAT) (Bhagchand) U;kf;d lnL; /Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 09 /02/ 2017

*Mishra आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- M/s. Ghodawat Hotels (P) Ltd., Jaipur 1. 2. izR;FkhZ@ The Respondent- The DCIT (HQ), Circle- 6, Jaipur vk;dj vk;qDr¼vihy½@ CIT(A). 3. 4. vk;dj vk;qDr@ CIT, विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. 6. xkMZ QkbZy@ Guard File (ITA No. 886/JP/2014) vkns'kkuqlkj@ By order, सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत