M/s. Gatsby Collections P. Ltd., CHENNAI V. ACIT, CHENNAI

CO 33/CHNY/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7953 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Commercial expediency; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. 224/MDS/2012 ASSESSMENT YEAR : 2007-08 THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(2), CHENNAI. (APPELLANT) V. M/S. GATSBY COLLECTION PVT. LTD., 34, KHADER NAWAZ KHAN ROAD, NUNGAMBAKKAM, CHENNAI-600034 PAN : AABCG1114F. (RESPONDENT) C.O. NO.33/MDS/2012 IN (ITA NO. 224/MDS/2012 ) ASSESSMENT YEAR : 2007-08 M/S. GA TSBY COLLECTION PVT. LTD., 34, KHADER NAWAZ KHAN ROAD, NUNGAMBAKKAM, CHENNAI-600034 PAN : AABCG1114F. (CROSS OBJECTOR) V. THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(2), CHENNAI. (RESPONDENT) APPELLANT BY : DR. S. MOHARANA, CIT , DR RESPONDENT BY : SHRI N. DEVANATHAN, ADVOCATE DATE OF HEARING : 15 TH OCT 2012 DATE OF PRONOUNCEMENT : 30 TH OCT. 2012 ITA 224/MDS/12 & CO 33/MDS/12 2 O R D E R PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE DEPARTMENT AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI, DATED 25.11.2011 IN ITA NO.789/09-10/A.III FOR THE ASST. YEAR 2007-08. THE ONLY GRIEVANCE OF THE DEPARTMENT IN THIS APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT COMPENSATION OF F.65 LAKHS PAID BY THE ASSESSEE IS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF PROPERTY IN COMPUTING THE SHORT TERM CAPITAL GAINS. 2. THE ASSESSE, A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF TEXTILES AND TAILORING, FILED ITS RETUR N OF INCOME ON 15.11.2007, ADMITTING INCOME OF F.3,28,88,540/- WHI CH WAS LATER REVISED TO F.3,29,83,950/- BY FILING REVISED RETURN ON 18.10.2008. THE ASSESSMENT WAS COMPLETED UNDER SEC.143(3) OF TH E I.T. ACT ON 31.12.2009 DETERMINING THE INCOME AT F.3,95,13,730/ -. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER WH ILE WORKING OUT SHORT TERM CAPITAL GAINS. DISALLOWED F.65 LAKHS BEI NG COMPENSATION ITA 224/MDS/12 & CO 33/MDS/12 3 PAID BY THE ASSESSEE ON THE GROUND THAT THE SAID CO MPENSATION CANNOT BE CONSIDERED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF PROPERTY. THE ASSES SEE ADMITTED CAPITAL GAIN OF F.3,13,83,148/- ON SALE OF IMMOVABL E PROPERTY SITUATED IN KHADER NAWAZ KHAN ROAD, CHENNAI. THIS PROPERTY WAS PURCHASED BY THE ASSESSEE ON 16.4.2004 FOR A CONSID ERATION OF F.1.50 CRORES. 3. THE ASSESSEE COMMENCED CONSTRUCTION ON THE SAI D PROPERTY BY AVAILING LOAN FROM CITY BANK. LATER, THE ASSESSEE FOUND THAT MOBILIZING FINANCE FOR COMPLETION OF THE PROJ ECT IS DIFFICULT AS THE CITY BANK DID NOT EXTEND FURTHER LOAN TO THE ASSESS EE FOR ITS PROJECT. THE ASSESSEE DECIDED TO SELL THE PROPERTY AND ENTER ED INTO AN AGREEMENT OF SALE ON 31.7.2005 WITH SHRI MADAN LAL GULATI FOR A SALE CONSIDERATION OF F.2.50 CRORES. THE ASSESSEE RECEI VED AN AMOUNT OF F2 LAKHS IN CASH ON EXECUTION OF AGREEMENT OF SALE. AS PER THE AGREEMENT OF SALE, THE BALANCE CONSIDERATION OF F.2 .48 CRORES SHALL BE PAYABLE BY THE PURCHASER IN REGULAR INTERVALS. AS PER THE AGREEMENT OF SALE, THE ASSESSEE HAS TO COMPLETE THE CONSTRUCT ION OF THE REMAINING STRUCTURE OF COMMERCIAL COMPLEX AND HAND OVER THE ITA 224/MDS/12 & CO 33/MDS/12 4 PROPERTY IN A PERIOD OF SIX MONTHS. THE ASSESSEE C OULD NOT COMPLETE THE PROJECT DUE TO FINANCIAL DIFFICULTIES AND ALSO SINCE THE PURCHASER DID NOT PAY THE BALANCE SALE CONSIDERATION IN REGUL AR INTERVALS AS AGREED UPON. 4. MEANWHILE THE ASSESSEE GOT AN OFFER OF F.6.50 CRORES FROM A THIRD PARTY FOR PURCHASE OF THE SAID PROPERT Y. ON NEGOTIATIONS WITH MR. ML GULATI, A COMPROMISE DEED WAS ENTERED I NTO BY THE ASSESSEE WITH MR. ML GULATI ON 31.7.2006 WHEREIN TH E ASSESSEE AGREED TO PAY F.65 LAKHS AS COMPENSATION TO MR. ML GULATI FOR TERMINATION OF AGREEMENT OF SALE ENTERED INTO BY TH E ASSESSEE WITH MR. GULATI ON 31.7.2005. THE ASSESSEE PAID MR. GUL ATI THE SAID COMPENSATION OF F. 65 LAKHS AS PER COMPROMISE DEED. THE ASSESSEE SOLD THE SAID PROPERTY TO M. LANKA LINGAM VIDE SALE DEED DATED 14.6.2006 FOR A SALE CONSIDERATION OF F6.50 CRORES. THE ASSESSEE COMPUTED THE CAPITAL GAINS AND WHILE COMPUTING CAPI TAL GAINS, CLAIMED DEDUCTION OF F.65 LAKHS AS EXPENDITURE INCU RRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF PROPERTY . THE ASSESSING OFFICER DISALLOWED THIS COMPENSATION OF F.65 LAKHS AND RE-WORKED THE CAPITAL GAINS. THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER ITA 224/MDS/12 & CO 33/MDS/12 5 OF INCOME TAX (APPEALS) CONTENDING THAT THE COMPENS ATION PAID TO ML GULATI IS ON ACCOUNT OF COMMERCIAL EXPEDIENCY AN D HAD RESULTED IN MORE CAPITAL GAINS AS THE ASSESSEE COULD SELL THE P ROPERTY FOR F.6.50 CRORES INSTEAD OF F.2.50 CRORES AS AGREED IN ITS AG REEMENT OF SALE. THE ASSESSEE DID NOT WANT TO SUFFER LOSS ON ACCOUNT OF LITIGATION AND THE COMPENSATION WAS PAID TO ML GULATI FOR AVOIDING ANY LITIGATION AND FOR BETTER TITLE OF THE PROPERTY. THEREFORE, T HE ASSESSEE CONTENDED THAT THE COMPENSATION PAID TO ML GULATI I S ALLOWABLE AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRANSFER OF THE ASSET IN COMPUTING CAPITAL GAINS. THE COMMISSIONER OF INCOME TAX (APPEALS) AGREED WITH THE CONTENTIONS OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO ALLOW COMPENS ATION PAID IN COMPUTING CAPITAL GAINS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. THE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT A S PER THE AGREEMENT OF SALE ENTERED INTO BY THE ASSESSEE WITH MR. ML GULATI, IN THE EVENT OF COMMISSION OR OMISSION OF ANY OF THE T ERMS AND CONDITIONS OF AGREEMENT RESULTING IN BREACH OF AGRE EMENT THE DEFAULTING PARTY SHALL COMPENSATE TO THE AGGRIEVED PARTY WITH A SUM ITA 224/MDS/12 & CO 33/MDS/12 6 OF F.20 LAKHS AS LIQUIDATED DAMAGES. THE DEPARTMEN TAL REPRESENTATIVE SUBMITS THAT IN THIS CASE, ML GULATI DID NOT PAY THE SALE CONSIDERATION IN REGULAR INTERVALS AND, THEREF ORE, ACCORDING TO THE DEPARTMENTAL REPRESENTATIVE MR. ML GULATI BREACHED THE CONTRACT AND HENCE NO COMPENSATION IS PAYABLE BY THE ASSESSE E EVEN AS PER THE AGREEMENT OF SALE. THE D.R. SUBMITS THAT SINCE NO COMPENSATION IS PAYABLE TO ML GULATI IT CANNOT BE ALLOWED AS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRANSFER OF PROPERTY. THE DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITS THAT IN FACT, THE ASSESSEE SOLD THE PROPERTY TO A THIRD PAR TY ON 14.6.2006 AND THIS DATE IS MUCH BEFORE ENTERING INTO THE COMPROMI SE DEED ON 31.7.2006 BY THE ASSESSEE WITH MR. ML GULATI. THER EFORE, THE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT WHEN THE S ALE TRANSACTION ITSELF WAS CONCLUDED ON 14.6.2006 WITH THE THIRD PA RTY, THERE IS NO NECESSITY FOR THE ASSESSEE TO PAY COMPENSATION OF F .65 LAKHS TO ML GULATI AND, THEREFORE, SUCH COMPENSATION CANNOT BE CONSIDERED AS DEDUCTION WHILE COMPUTING CAPITAL GAINS. 6. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE COMPANY PURCHASED THE LAND WITH BUILDING SITUATED I N AN EXTENT OF 2 ITA 224/MDS/12 & CO 33/MDS/12 7 GROUNDS AND 2128 SQ. FT. (TOTALING 6928 SQ. FT.) IN BLOCK NO.12, NUNGAMBAKKAM DIVISION, KHADER NAWAZ KHAN ROAD, CHEN NAI. HE SUBMITS THAT THE ASSESSEE DESIRED TO BUILD A COMMER CIAL COMPLEX AND APPROVED PLAN WAS OBTAINED FROM CORPORATION OF CHE NNAI IN PPA NO.2453 OF 1995 DATED 23.5.2005. THE ASSESSEE COMM ENCED CONSTRUCTION WORK OF COMMERCIAL COMPLEX AND AFTER S OMETIME IT WAS FOUND THAT ITS LIQUIDITY DID NOT PERMIT THE ASSESSE E TO GO AHEAD WITHOUT BORROWED FUNDS AND, THEREFORE, RAISED FINAN CE FROM CITY BANK. THEREAFTER, THE DIRECTORS OF THE ASSESSEE CO MPANY WERE ADVISED THAT WITH THE BORROWED CAPITAL THE INVESTME NT WILL NOT YIELD THE EXPECTED RESULTS. THEREFORE, THE MANAGEMENT OF THE ASSESSEE COMPANY DECIDED TO SELL THE PROPERTY. THE AGREEMEN T OF SALE WAS ENTERED INTO ON 31.7.2005 WITH ML GULATI FOR A SALE CONSIDERATION OF F.2.50 CRORES. IT WAS AGREED THAT ML GULATI SHALL MAKE PERIODICAL PAYMENTS TO THE ASSESSEE AND THE ASSESSEE SHALL COM PLETE THE REMAINING CONSTRUCTION AND HAND OVER THE PROPERTY W ITHIN SIX MONTHS. THE PERIODICAL FUNDING WAS NOT RECEIVED FR OM ML GULATI AND THE ASSESSEE COMPANY HAD TO DRAIN ITS FUNDS TO PROC EED WITH THE CONSTRUCTION. ITA 224/MDS/12 & CO 33/MDS/12 8 7. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT IN THE MEANTIME THE ASSESSEE RECEIVED A GOOD OFFER FROM TH E THIRD PARTY FOR THE SAID UNFINISHED CONSTRUCTION FOR A SALE CONSIDE RATION OF F.6.50 CRORES. SINCE THE OFFER WAS QUITE ENCOURAGING THE DIRECTORS OF THE ASSESSEE COMPANY DECIDED TO CANCEL THE AGREEMENT OF SALE ENTERED INTO WITH ML GULATI AND AFTER DETAILED CORRESPONDEN CE AND NEGOTIATIONS WITH ML GULATI A COMPROMISE WAS REACHE D TO PAY F.65 LAKHS TO ML GULATI FOR TERMINATION OF THE AGREEMENT OF SALE. THIS COMPROMISE WAS ENTERED INTO WITH ML GULATI ON THE C ONDITION THAT HE SHOULD NOT PROCEED FOR ENFORCING THE CLAUSE OF SPEC IFIC PERFORMANCE IN THE AGREEMENT OF SALE AND FURTHER THE AGREEMENT OF SALE SHALL BE TREATED AS CANCELLED. THE COUNSEL FOR THE ASSESSE E SUBMITS THAT ML GULATI ALSO AGREED THAT HE WOULD RECEIVE THE COMPEN SATION AFTER THE SALE PROCEEDS ARE RECEIVED BY THE ASSESSEE COMPANY. HE SUBMITTED THAT THE COMPROMISE DEED WAS DOCUMENTED ON 31.7.200 6 AND THE COMPENSATION OF F65 LAKHS WAS PAID FROM THE SALE PR OCEEDS OF THE PROPERTY TO ML GULATI AND ML GULATI FILED HIS RETUR N OF INCOME FOR ASST. YEAR 2007-08 ON 21.3.2008 ADMITTING THE COMPE NSATION AMOUNT OF F.65 LAKHS AS GAIN FROM SHORT TERM CAPITAL GAINS AND PAID TAXES ITA 224/MDS/12 & CO 33/MDS/12 9 ACCORDINGLY. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT SINCE ML GULATI HAS ALREADY PAID TAX ON THE COMPENSATION OF F.65 LAKHS RECEIVED BY HIM, THERE IS NO LOSS TO THE REVENUE. THE COUNSEL FOR THE ASSESSEE STRONGLY RELIED ON THE ORDER OF THE CO MMISSIONER OF INCOME TAX (APPEALS) AND PLEADED FOR UPHOLDING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 8. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW.. THE ASSESSING OFFICER DENIED DEDUCTION OF F.65 LAKHS PAID AS COMP ENSATION TO ML GULATI ON THE GROUND THAT SUCH COMPENSATION CANNOT BE TREATED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH TRANSFER OF ASSET WHILE COMPUTING CAPITAL GAINS. T HE COMMISSIONER OF INCOME TAX (APPEALS) AGREED WITH THE CONTENTIONS OF THE ASSESSEE THAT THE COMPENSATION WAS NECESSARILY TO BE PAID TO ML GULATI FOR BETTER TITLE OF THE PROPERTY AND, THEREFORE, SUCH C OMPENSATION IS AN EXPENSE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTI ON WITH THE TRANSFER OF PROPERTY AND HENCE ALLOWABLE AS DEDUCTI ON WHILE COMPUTING CAPITAL GAINS. THE COMMISSIONER OF INCOM E TAX ITA 224/MDS/12 & CO 33/MDS/12 10 (APPEALS), IN PARAS 6.2 & 6.3 OF HIS ORDER ELABORA TELY DISCUSSED THIS ISSUE AS UNDER :- 6 .2 I H AVE C AR EF U LL Y CO N S ID E R E D THE F AC T S OF T H E CA S E AND SUBM I SSIONS OF T HE ID . AR I H AVE ALSO GONE T ROUG H THE DECIS I ONS RELIE D ON BY T HE AR. I HAVE A LS O P E R US ED T H E V AR I OU S A G RE E M E N TS S U B M I T TED BY T H E A P PE L L ANT. T H E ISSUES FO R CO N S I D E R ATI O N I S T HE WH E T H E R T H E A M O U N T O F RS.6 5 , 0 0, 0001 - PA I D AS CO M P ENSA T ION TO T HE PR OP O SED SE LL ER I . E . SR I M ADAN LAL G U L A T I ( M LG ) TO GE T P ERF ECT T IT L E OF T HE L AN D AND T O R E C E I V E F A I R MA R KE T P R I CE IS ALSO TO B E TAKE N I N T O A CCOU N T FOR COMPUTATION OF CA P I T AL GA I N . 6 . 3 THE M EC H A N I SM F O R CO MP U TATION O F CA P I TAL G A I N I S P R OV ID ED IN S . 48 OF THE A C T . THE IN C O M E CHA R G EA B L E UN D E R T H E H E A D ' CA P I T AL GA I NS ' S H AL L BE COM P UT E D B Y DE D U C TING F R O M TH E FU LL V A L UE O F THE C ONS I DERA T I ON R ECEIVED OR ACCR UI NG AS A R ESUL T O F T HE T R A N S F E R OF TH E C A P IT AL ASSET T H E ' F O L L OW I N G AM OUN T S, NAME L Y : (I) EX P E N D I T U R E I N C UR RE D W H O L L Y AN D E XC LUSIV E L Y I N CO N N E CTIO N W I T H SUCH TRANSFER AND ( I I) THE COST O F ACQ UIS IT IO N O F T HE A SS E T AND T HE CO S T OF A N Y IM P R OVEMENT THE R E T O . THERE I S N O D I S P UT E R EG A R DING F U LL V A LUE O F C O NSI D E RATI ON I N TH E I NST ANT CASE . T H E A P P E LL A N T H AS R EDU C ED RS . 65 , 00 , O OO/- PA I D A S C OM P E N S A T I O N T O MLG F RO M COMPUT AT ION O F SH O R T- T E R M C A PI T A L GA I N WH E R EAS TH E A O H A S E XC L UD E D TH E A B OVE CO MP E N SAT I O N O F R S.6 5 , O O , 0001- PA I D TO ML G . H ENCE, TH E ONLY I SSU E F O R CO N S I DERA TI O N I S T H E ALL OWA B I L I T Y O F T HE C O M P EN SA T ION PAI D B Y T H E A P P E L L A NT T O MLG . THE FA C TU M OF P AYMENT O F T HE ABOVE S UM HAS N O T B EEN D I S P UTE D BY T H E AO BU T H E HAS D ISA L LOWED T HE C L A I M OF COMPENS A TION F R O M CO MPUTAT I O N O F CA P IT AL GA I N BY H OLD I NG T HAT I T WAS N O T IN C U R RED W H OL L Y AND E X CLUS I VE L Y IN CO N NECT I O N W I TH T HE TRANSFE R . T H E RE C E I PT OF A S U M O F RS . 65 , 00 , 0001 - BY ML G H AS BEE N CON FI R M E D VIDE L E TT E R DATED 18.11 . 201 1 A N D C OPY O F T H E B ANK S T ATEMEN T OF M LG W I T H U N I ON B AN K OF I N DI A (ALE NO . 4531), T RIPLIC ANE ITA 224/MDS/12 & CO 33/MDS/12 11 BR A N C H, CHENNAI AND TAM I L NAD U M ERCAN T ILE B R A N CH ( ALC N O . 34) , R OYAPE T TA H B RANC H , CHE N NA I . M L G HAS I NC L UDE D T HE ABOVE S U M OF RS . 65 , 00 , 000/- I N H I S P R O F IT AND L O S S ACCOU NT A N D H A S F I LE D H I S RE TUR N O F INC O M E BY O F FE R ING THE SA M E T O T AX A S SH O R T- T E RM CAPITA L G AIN . T HU S , B O T H TH E PAY M ENT A N D RECEIPT OF COMPENSAT I ON H A S B E EN DUL Y E S T ABLISHE D. N O W, T HE P O I N T T H AT NEEDS TO B E DETERMINED IS WHE THE R T HE C OMP EN SA TI ON P A ID I S A N A LL OWA BL E D E DU C T IO N ' FO R THE P URPOSES O F COMPU T ATION O F CA P I TA L GAI N U/S 48 O F TH E A C T . TH E I D . A R HAS . CO N TENDED T HA T THE EXPENDITURE WAS INC U R RED WHO L L Y AND E XCLUS I VELY I N C O N N ECT I ON W IT H TRA N S F ER AS WEL L AS B Y WA Y O F COMM E R CI A L EXPED I E N CY . T H ERE I S M ER IT I N THE CON T ENT I ON BECAUSE THE APPEL L ANT HAD O R IGIN A LL Y E NT ER ED IN T O A N AG RE E M E NT O F S AL E W I T H M L G ON 31 . 07 . 2005 F O R T O T AL C O N S I D E R AT I O N O F RS . 2,50 , 0 0, 0001- . I T H A D A L SO RE C EIVED RS.2 , 00 , 0001- FROM MLG O N D A T E O F A G R EEMENT . S UB S EQU E NT L Y , M LG D I D NO T MAKE THE PAYMENT AS PE R THE S CH E D U L E C A USI N G F I N A N C I A L DIF F IC U LT Y IN CONS T R UCTING T H E COMMERCIAL COMP L EX. I N THE M EANW H I LE , T H E AP P E L L A NT GO T A BE T T E R O F F E R : FRO M M/S LANSO N VE N TURES FO R THE IM PUG N ED PR OPE RT Y FOR A CO N S I DERA T I O N O F R S . 6 , 5 0,0 0 , 00 0 1 - W H ICH WAS M U C H HIGHE R T HAN TH E PRI C E AGRE ED TO B E PA I D B Y M LG . HOWEVE R , TO COM P LETE THE SA L E , T HE A PP E L L AN T H A D TO C ANC E L TH E A G REEMEN T W IT H ML G. A F T ER DE T A I LE D D I SCUSSI O N S , AG R EEM ENT WAS ARRI V E D A T B E T WE E N T H E AP P EL L A N T A ND MLG AS PE R W H ICH M LG A G R EED T O R EC EI VE C O MPE NSA T I O N O F R S . 65 ,O O , O OOI - F OR NOT EN F ORC I N G HIS R I G HT O F SP E C I F I C P ER F O R MANC E I N T H E A G R EEME N T . H E A L SO AG REED T O CANCEL THE OR IG I NAL S A L E AGR E EM E N T . H E FUR T HE R A GR E E D T O R EC E I V E TH E CO MP ENSA T I ON AFTE R T HE SA LE PRO C E EDS AR E RE C EI V E D B Y T H E AP P EL L A N T. T HU S, TH E CO MP E N S A T I ON WAS P AID TO M L G I N C O N S I D E R AT IO N F O R R E LEAS I N G AND RE L I NQU I SH I NG AL L I T S CLA IM S, RIGH T S , TITLE AND I N TE R ES T O VE R T H E PR OPE R TY AN D T HE AGR EE M E N T OF SA L E DA T E D 3 1. 07.2005 . I T IS T H US C L EA R F RO M THE FA C T S D I S CUSSED A B OVE T H A T TI L L T HE D IS PU T E W I TH M L G WAS PEND I NG A ND W A S NO T S E TT L ED, T H E A P P E L LAN T CO U L D NO T HA VE ITA 224/MDS/12 & CO 33/MDS/12 12 GIVE N A PER F ECT TI T L E OF THE PROPE R T Y T O T H E N EW PUR CHASER . N OBODY W O U L D B U Y A D I S PU T ED P R O PER TY A T SUC H A H I GH P R I CE BECAUSE IT I S OF NO USE TI L L T HE DI SP U TE I S SE T T LE D. H E N CE , TH E A M O U NT PA I D TOWARDS COMPENSA T I O N W AS WHO LLY A N D EXCL U S I VE L Y I N O F THE C A P I T A L A S S E T . 'W H O L LY' REPRESENTS T HE Q UAN T U M O F PAYMENT W H E R EAS 'EXC L USIVELY ' DENO T ES TH E PU R P O SE FOR WHIC H THE AMO U NT WA S PA ID . FU R T HER, T HE VA L UE OF THE PROPERTY H AD GON E UP BY %. 4 . OO CRORES F R OM RS. 2 . 5 0 CRORES T O R S . 6.50 CRORES BETWEEN 3 1. 07 . 2005 A N D 1 4 . 06 .2006 . S I NCE THE APP E LLAN T C O U L D NOT HAVE SOLD THE PROPERTY WITHO U T PAYING TH E C O M P E NS A T I ON, THE E XP EN D I T URE TO W ARDS T HE COMPE N SATIO N WAS INCURRED WHOLLY A ND EX C LU S I VE L Y IN CONNEC T ION WI T H T R AN SFE R O F T HE CAPI T AL ASSET . THE FACT THA T TH E COM P EN SA TI ON W A S P A I D A FT E R T HE SALE T OOK PLAC E, B Y ITSELF , WOULD NOT MAKE I T NO T A L L OWA B L E . THE COMP E NSA T I O N COU L D N OT BE G I VEN BEF O R EHAND BECAUSE T HE A P PEL L A N T W A S SUF F E R IN G F INANC IA L H A R DSH I P. AS LON G AS T H E GENU I N E N ESS OF THE PAYMENT IS NO T DI S P UTED, T H E R E IS NO REAS O N TO DI S ALLO W T H E CO MP E N SATION . FUR T HER, THE RECEIP I EN T ( M L G ) H A S ALS O CO N FIRME D TH E R E CE I PT A N D HA S A L SO OF F E R E D THE SAME F OR T AXAT I O N. I T ALS O NE E D S TO BE A P P RE C I AT ED THA T T H E APPE L LAN T HAS GAINED MUCH MORE T H AN TH E AM O UN T OF CO MP ENS A T I O N . H E H AS G O T ADDI TI O N AL CONS I DERA T ION OF %.4 CRORES BUT HA S PA I D C OM PENSATION OF RS. 6 5 L AKHS O N L Y. THE HO N 'BL E BO M BAY HIGH COURT I N C IT V . S H A K U N TA LA KANT I LA L , 190 ITR 56 ( B O M ) HELD T HAT A N EXPENDITURE INCU R RED TO P R O ID E PE R FE CT T I T LE TO T H E PU R C H AS E R AN D T HUS S ECU R E A N APPRO PR IATE P R I CE FO R THE PROPERT Y W O U L D BE AN A LL OWA B LE E XP E N DITURE U /S 48. I T H AS FU R THER BEEN HE L D BY VARIO US H ON'BLE COU R T S THA T THE CO MP E NSA T I ON P A I D F OR VACAT IN G UN AUTHORIZED OCCUPAN T S H A S N EX U S W I T H T H E T RANS A C T ION O F SA L E BECA U SE W I T H OU T THE OCCUPAN T S VACA T ING T HE LAN D, T H E L A N D COUL D NO T B E SOL D . T HEREFO R E, THE C OM PE N SATIO N S SO P AI D WERE A L LOW A BLE EXP END ITU RE IN T H E CO M PU T ATI ON OF CA P I T A L G A I N. FO R T HIS VIEW, RELIA N CE IS P L ACED ON T HE F OLL OWING D EC I S I ONS: ER R V. A VE N KAT AR A R N A , 1 3 7 IT R 846(MAD) , CIT V. BRADFORD TR A DI N G C O . PV T . L T D, 261 I T R 222 (M A D ) C I T V , M ISS P IROJA C . PA T E L , 122 TAX R NA N ITA 224/MDS/12 & CO 33/MDS/12 13 7 52 (B O R N) , C I T V . A B R A R A L VI, 247 IT R 3 1 3 ( BO R N ) A N D NA OZAR C H ENOY V . CIT , 2 3 4 I TR 9 5 ( AP ) . THE R AT I O OF T H E SE D E C I S ION S A R E AP P LI C A B LE TO THE FACTS OF THE A PPEL L AN T . I N V I EW O F TH E ABOVE F ACT UA L P O SIT IO N A N D AUT H O RIT A T I V E PRECEDENTS, THE A O I S D IRECTE D T O A L L O W THE COMPEN S A T I ON P A I D BY A PPE L L ANT I N CO M PUTATION OF CAPITAL GA I NS U/S 48 . TH E G R OU ND I S A L L OWE D . ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS), WE FIND NO INFIRMITY IN HIS CONCLUSION T HAT THE SAID COMPENSATION PAID BY THE ASSESSEE HAS TO BE CONSIDE RED AS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH THE TRANSFER OF ASSET IN COMPUTING CAPITAL GAINS. THER EFORE, WE SUSTAIN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) A ND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. C.O. NO.33/MDS/2012 : THE CROSS OBJECTION FILED BY THE ASSESSEE IS ONLY SUPPORTING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). SINCE WE HAVE UPHELD THE ORDER OF THE COMMISSIONER OF INCOME TAX ITA 224/MDS/12 & CO 33/MDS/12 14 (APPEALS) WHILE DEALING WITH THE APPEAL OF THE REVE NUE AS ABOVE, THE CROSS OBJECTION FILED BY THE ASSESSEE BECOMES INFRU CTUOUS AND DISMISSED ACCORDINGLY. 11. IN THE RESULT, THE CROSS OBJECTION IS DISMISSE D AS INFRUCTUOUS. 12. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, THE 30 TH DAY OF OCTOBER 2012. SD/- SD/- ( DR. O.K. NARAYANAN) (CHALLA NAGEND RA PRASAD) VICE PRESIDENT JUDICIAL MEMB ER CHENNAI, DATED : 30 TH OCTOBER 2012. JLS. COPY TO:- (1) APPELLANT (2) RESPONDENT (3) CIT(APPEALS) (4) CIT, CHENNAI (5) D.R. (6) GUARD FILE