HIRABEN C. SHAH, MUMBAI V. ITO 14(2)(3), MUMBAI

ITA 4399/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2797 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 11-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 31-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRIKANT NAMDEO
• Assessee Lawyers: KSHOR J DEWANI
• Keywords: Gift; Cost of acquisition
• Section: 143(3)

Judgement Text

SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTAN T MEMBER ITA NO. : 4399 /MUM/20 1 3 ( ASSESSMENT YEAR: 200 9 - 1 0 ) SMT HIRABEN C SHAH , KHAZANA FASHION, 453, KALBADEVI ROAD, MUMBAI - 400 006 .: PAN: A BMPS 9347 K VS INCOME TAX OFFICER 14(2)(3), ROOM NO. 306, 3 RD FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KSHOR J DEWANI RESPONDENT BY : SHRI SHRIKANT NAMDEO /DATE OF HEARING : 11 - 08 - 201 5 / DATE OF PRONOUNCEMENT : 09 - 11 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE AFORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 22 .0 3 .20 09 , PASSED BY CIT(A), MUMBAI FOR THE QUANTUM OF ASSESSMENT PA SSED U/S 143(3) FOR THE ASSESSMENT YEAR 200 9 - 1 0. IN THE VARIOUS GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLENGED THE FOLLOWING DISALLOWANCE OF CLAIM AGGREGATING RS. 53,22,444/ - MADE BY THE ASSESSEE OUT OF SALE PROCEEDS OF FLAT WHILE COMPUTING THE LONG TERM C APITAL GAIN : - A ) INDEXED COST OF IMPROVEMENT OF RS. 8,27,844/ - ; B ) SUM P AID TO HER SON M R KETAN C SHAH FOR SURRENDER OF OCCUPANCY RIGHTS ON THE FLAT OF RS. 40,00,000/ - IN TERMS OF THE ARBITRATION AWARD AND THE FAMILY ARRANGEMENT; AND C ) AMOUNT PAID THROUGH THE BUI LDER TO BDP ENTERPRISE AS REINVESTMENT IN FLAT RS. 4,94,600/ - . SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 2 2. THE BRIEF FACT S OF THE CASE ARE THAT, THE ASSESSEE IS AN INDIVIDUAL AND HAD SHOWN SALE OF FLAT DURING THE RELEVANT PREVIOUS YEAR FOR A CONSIDERATION OF RS. 3,47,00,000/ - . W HILE COMPUTING LTC G, THE ASSESSEE HAS DEDUCTED VARIOUS AMOUNTS FROM THE SALE CONSIDERATION WHICH INCLUDED A SUM OF RS.40 LAKHS PAID AS COMPENSATION TO HER SON M R KETAN C SHAH. IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY SUCH A COMPENSATION GIVEN TO HER SON CAN BE R ECKON E D AS EXPENDITURE IN CONNECTION WITH THE SALE OF FLAT, THE ASSESSEE SUBMITTED THAT UNLESS THE SAID COMPENSATION WAS PAID TO HER SON KETAN C SHAH, THE SALE WOULD NOT HAVE BEEN EFFECTED AS THERE WAS A DISPUTE WITH REGARD TO THE RIGHTS IN THE SAID FLAT AND HE WAS NOT AGREEING FOR SALE . I N SUPPORT COPY OF FAMILY ARRANGEMENT IN RESPECT OF SAID COMPENSATION PAID WAS FILED. HOWEVER, T HE AO REJECTED THE ASSESSEES CONTENTION AND NOTED THAT, THE ASSESSEE HAD ALSO GIVEN SUM OF RS. 65 LAKHS HAS GIFT TO SAME SON , THER EFORE, IT WAS A SOME KIND OF APPROPRIATION OF SALE PROCEED S . HE FURTHER OBSERVED THAT ASSESSEE WAS SOLE OWNER OF THE SOLD F LAT AT THE TIME OF SALE AND NO ONE ELSE INCLUDING MR KETAN SHAH HAD ANY LEGAL RIGHT IN THE FLAT. NEITHER THE SAID PAYMENT OF RS. 40 L AKHS TO HIM WAS MENTIONED IN THE SALE AGREEMENT NOR THERE WAS ANY LEGAL RIGHT OF HER SON TO MAKE SUCH A CLAIM . AFTER DETAILED REASONING AND EXAMINATION OF VARIOUS CLAUSES OF SALE DEED, HE CAME TO THE CONCLUSION THAT THE PAYMENT OF RS. 40 LAKHS GIVEN TO SHR I KETAN C SHAH CANNOT BE CLAIMED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE SALE OF FLAT. ACCORDINGLY, THE LD. AO ADDED THE SAID AMOUNT IN THE COMPUTATION OF LTCG. HE FURTHER ADDED A SUM OF RS. 8,27,844/ - ON ACCOUNT OF INDEX COST OF IMPROVEMENT, BECAUSE IT WAS CLAIMED THAT ASSESSEE HAD INCURRED ADDITIONAL COST IN THE FINANCIAL YEAR 1983 - 84 FOR WHICH ASSESSEE COULD NOT SUBMIT ANY EVIDENCE AND ALSO DISALLOWED THE CLAIM OF RS. 4,94,600/ - ON ACCOUNT OF SUM PAID TO THE BUILDER IN THE R EINVESTMENT OF VALUE OF NEW PLAN , AGAIN O N WANT OF ANY EVIDENCE. SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 3 3. THE LD. CIT(A) TOO HAS CONFIRMED THE SAID ADDITION ON THE GROUND THAT THERE IS NO LEGAL DOCUMENT TO ESTABLISH THAT MR KETAN C SHAH HAD ANY RIGHT IN THE SAID FLAT AND EVEN IF HE HA D SOME RIGHT THEN WHETHER SUCH AN AMOUNT HAS BEEN OFFERED FOR TAXATION OR NOT HAS NOT BEEN BROUGHT ON RECORD . HE OBSERVED THAT THE SALE AGREEMENT CLEARLY PROVIDES THAT ASSESSEE WAS ABSOLUTE OWNER AND ORIGINALLY THE NAME OF THE ASSESSEES HUSBAND WAS INCORPORATED MERELY AS SECOND HOLDER AND IN SOCIETYS RECORD THE NAME OF HER HUSBAND WAS ONLY FOR THE SAKE OF CONVENIENCE . A FTER THE DEATH OF HER HUSBAND, THE ASSESSEE IN ANY CASE HAD BECOME ABSOLUTE OWNER. FROM THE PERUSAL OF THE SALE DEED DATED 11.06.2008, HE NOTED T HE FOLLOWING FACTS : - 1) THE ASSESSEE IS WELL SUFFICIENTLY SEIZED AND POSSESSED OF THE SAID PREMISE AND THE OF THE SHARES (IN SOCIETY). (PAGE 3 & 4) 2) THE ASSESSEE IS ENTITLED TO THE SAID PREMISE AND NO ONE EXCEPT HERSELF HAS ANY RIGHT, TITLE, INTEREST OR DEMAND INTO OR UPON THE SAID PREMISE. (PAGE 8) 3) THE ASSESSEES TITLE TO THE SAID PREMISE AND THE SAID SHARES IS CLEAR AND MARKETABLE AND FREE FROM ALL ENCUMBRANCE AND REASONABLE DOUBTS. (PAGE 8) 4. THE ASSESSEE IS ENTITLED TO DEAL WITH AND / OR DISP OSE OFF SAME AS BEING BY VIRTUE OF THESE PRESENTS. 5. THE ASSESSEE HAD NOT ENTERED INTO ANY AGREEMENT FOR SALE OR CREATED ANY THIRD PARTY RIGHTS INTEREST OF THE SAID PREMISE OR ANY PART OR PORTION THEREOF AND / OR THE SAID SHARES (PAGE 10 OF SALE DEED DAT ED 11.06.2008) . HE FURTHER OBSERVED THAT, THE FAMILY A RRANGEMENT S OTHER AGREEMENTS ONLY SUBSTANTIATE S THE FACT OF APPROPRIATION OF SALE PROCEED S . T HE ASSESSEE HAD ALSO GIVEN GIFT OF RS. 65 LAKHS FROM THE APPROPRIATION OF SALE PROCEEDS , THEREFORE , COMPENS ATION OF RS. 40 LAKHS IS ALSO TOWARDS APPROPRIATION OF SALE PROCEED AND HENCE, THE SAME CANNOT BE ALLOWED AS DEDUCTION U/S 4 8 . REGARDING DISALLOWANCE ON UNSUBSTANTIATED COST OF IMPROVEMENT ON ACCOUNT OF UNACCOUNTED PAYMENT TO THE BUILDER, HE CONFIRMED THE ACTION OF SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 4 THE AO ON THE GROUND THAT THERE IS NO CREDIBLE EVIDENCE FOR CLAIM OF SUCH EXPENSES. 4 . BEFORE US , LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAD TWO SONS AND BOTH THE SONS HAD THE LEGAL RIGHT IN THE PROPERTY OF THEIR FATHER AFTER HIS DEMISE. FROM THE RECORDS HE POINTED OUT THAT THE FLAT WAS PURCHASED IN THE YEAR 1976 BY THE HUSBAND OF THE ASSESSEE , MR. CHANDRAKANT SHAH WHO WAS AN A CTUAL CO - OWNER IN THE FLAT . HER HUSBAND WAS CO - OWNER RIGHT FROM THE DATE OF THE PURCHASE AGREEMENT AND LATER ON AT THE TIME OF EXECUTION OF PURCHASE OF FLAT SITUATED IN NAV G AYTRI BUILDING 80 - A AT WALKESHWAR ROAD, MUMBAI. NOT ONLY THAT HE WAS A CO - OWNER IN THE PURCHASE DEED BUT IN THE S OCIET Y S RECORDS ALSO HIS NAME WAS SHOWN. AFTER THE DEMISE OF CHANDRAKANT SHAH ON 30 TH M AY, 2005, THE NAME OF BOTH THE SONS WERE SHOWN AS CO - OWNER IN THE RECORDS OF THE SOCIETY. SINCE HIS SONS WERE HIS LEGAL HEIRS THEY CLAIMED THEIR RIGHTS IN THE FLAT ALONG WITH THE ASSESSEE. DUE TO TH E FAMILY DISPUTE REGARDING RIGHTS , THE ARBITRATION AGREEME NT WAS ENTERED INTO ON 26.12.2006 , WHEREIN IT WAS MENTIONED THAT FLAT WAS ACQUIRED IN JOINT NAME OF ASSESSEE AND HER HUSBAND AND ALSO REFERRED TO THE FOLLOWING RECITALS IN THE ARBITRATION AGREEMENT : WHEREAS, THE DIFFERENCE ON ACCOUNT OF DISPUTES HAVE ARISEN BETWEEN THE JOINT FAMILY MEMBERS, AS TO THEIR SHARE, RIGHTS, INTEREST, AND CLAIMS ABOVE PARTIES IN THE SAID FLAT AND PARTIES HERETO CONFIRM AND CLAIM AND STATE THAT THEIR ALREADY EXIST, RIGHT, TITLE AND INTEREST IN THE SAID THE FLAT WHICH WAS ACQUIR ED A JOINT NAME AND THEY CONTEND THAT IT WILL BE TRANSFERRED IN THE NAME OF MRS. HIRABEN CHANDRAKANT SHAH AFTER FATHERS DEATH FOR CONVENIENT SAKE WITHOUT CRYSTALISING RIGHTS OF ALL MEMBERS OF FAMILY X X X THAT PARTIES ARE NOT IN AGREEMENT WITH EACH OTHE R AS TO WHAT EXTENT EACH MEMBERS HAS HIS/HER RIGHT, TITLE, INTEREST IN THE SAID FLAT ALTHOUGH THE FLAT IS IN THE NAME OF MRS. HIRABEN C SHAH. SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 5 THEREAFTER, A S PER THE ARBITRATION AWARD DATED 25.03.2008 , ARBITRATORS DIRECTED THE ASSESSEE TO PAY RS. 40 LAK HS WITHIN ONE YEAR FROM THE DATE OF THE AWARD TO SETTLE THE MATTER. RELEVANT AWARD READS AS UNDER : - 1 . THAT MRS. HIRABEN CHANDRAKANT SHAH ARE RESIDING WITH TWO SONS NAMELY (A) MR. SAMIR CHANDRAKANT SHAH AND (B) MR. KETAN CHANDRAKANT SHAH ALONG WITH THEIR FA MILY AS JOINT HINDU FAMILY. THE FLAT UNDER DISPUTE IS ACCEPTED AS FAMILY HOUSE AND EACH ONE HAS A RIGHT OR CLAIM OF OCCUPATION. ALL THE PARTIES WHO ARE LIVING TOGETHER, SHALL HAVE CERTAIN CLAIMS AND RIGHT IN THE SAID FLAT UNDER DISPUTE. 2 . 3 . 4 . WE HAVE CONFIRM ED AFTER TAKING INTO CONSIDERATION VARIOUS FACTORS THAT MRS. HIRABEN CHANDRAKANT SHAH WILL MAKE PAYMENT OF RS. 40,00,000 (RUPEES FOURTY LAKHS ONLY) TO MR. KETAN CHANDRAKANT SHAH TO PURCHASE AND ACQUIRE NEW PREMISES EITHER OUT OF SAVING OF THE FAMILY OR OUT OF BORROWED FUNDS OR BY SELLING THE FLAT NO. 21, 6 TH FLOOR, NAVGAYTRI BUILDING, 80A WALKESHWAR ROAD, MUMBAI - 400 006 AFTER TAKING INTO CONSIDERATION VARIOUS FACTORS AND WE FURTHER DIRECT THAT PAYMENT OF RS. 40,00,000/ - (RUPEES FOURTY LAKHS ONLY) SHOULD BE MADE WITHIN ONE YEAR AS CONSIDERATION TO MR. KETAN CHANDRAKANT SHAH. IN PURSUANCE THEREOF, A FAMILY ARRANGEMENT AGREEMENT DATED 12.04.2008 WAS ARRIVED AT BETWEEN THE FAMILY MEMBERS OUT OF COMPULSION AND NECESSITY TO GET THE PERFECT TITLE TO THE PROPERT Y SO THAT CLEAR TITLE TO THE PURCHASER CAN BE PASSED ON. HENCE, ONCE FOR ALL SETTLEMENT WAS ARRIVED AT TO CLEAR THE PROPERTY FOR FAMILY PEACE AND HARMONY. AS PER THE FAMILY ARRANGEMENT, IT WAS AGAIN AGREED THAT , MR. KETAN SHAH SHOULD BE PAID THE MONEY AS H E WANTED TO STAY SEPARATELY ALONG WITH HIS WIFE AWAY FROM HIS MOTHER AND BROTHER. EVEN IN THE SALE DEED, THE ASSESSEE HAS BEEN REFERRED AS VENDOR , WHEREAS HER TWO SONS HAVE BEEN REFERRED AS CONFIRMING PARTY WHICH SHOWS THAT THEY HAD A RIGHT, TITLE, INTERES T OR CLAIM IN THE FLAT . THUS, THE LD. COUNSEL SUBMITTED THAT BOTH THE SON HAD A SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 6 RIGHT AND SINCE THERE WAS FAMILY DISPUTE THEREFORE, TO REMOVE SUCH ENCUMBRANCE FROM THE PROPERTY, SUM OF RS. 40 LAKHS HAS BEEN PAID. REG A RDING GIFT OF RS. 60 LAKHS, IT WAS SUBM ITTED BY HIM THAT ASSESSEE HAD FILED AN AFFIDAVIT , WHEREIN IT WAS STATED SUM OF RS. 60 LAKHS WAS DEMANDED OVER AND ABOVE BY MR. KETAN C SHAH WHICH HAS BEEN GIVEN TO HER SON. SAID AMOUNT WAS GIVEN SO THAT ONCE FOR ALL HE SHOULD NOT HAVE ANY CLAIM ON THE SAL E PROCEEDS OF THE SAID FLAT OR IN FUTURE IN THE PURCHASE OF THE FLAT BOUGHT IN THE NAME OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE HAS REFERRED TO THE VARIOUS DOCUMENTS PLACED IN THE PAPER BOOK. BESIDES THIS, HE HAS MADE SEVERAL ARGUMENTS WITH REGAR D TO THE VARIOUS EVIDENCES FILED AND ALL HIS ARGUMENTS HAVE BEEN GIVEN IN THE FORM OF WRITTEN SUBMISSIONS BEFORE US. AS REGARDS THE DISALLOWANCE OF AMOUNT EARNED ON UNSUBSTANTIATED INDEXED COST OF IMPROVEMENT OF RS. 8,27,844/ - , HE SUBMITTED THAT IN THE FIN ANCIAL YEAR 1983 - 84, A SUM OF RS. 1,65,000/ - WAS INCURRED FOR THE IMPROVEMENT, HOWEVER, EVIDENCE COULD NOT BE FILED AS IT WAS FROM OLD RECORDS. REGARDING DISALLOWANCE OF RS. 4,94,600/ - ON ACCOUNT OF UNCONFIRMED PAYMENT TO THE BUILDER, HE SUBMITTED THAT, TH E ASSESSEE HAD FURNISHED A BILL OF RS. 4,94,600/ - ISSUED BY BDP ENTERPRISE TO CLAIM THAT THIS AMOUNT WAS PAID FOR THE NEWLY PURCHASED FLAT. THIS PAYMENT WAS ON ACCOUNT OF MAKING NEW HOUSE HABITABLE. 5 . ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE O RDER OF THE CIT(A) AND SUBMITTED THAT, NAME OF THE ASSESSEES HUSBAND AT THE TIME OF PURCHASE WAS ONLY ADDED FOR THE PURPOSE OF CONVENIENCE AND FOR THE NAME SAKE . T HE MENTION OF HER HUSBANDS NAME IN THE SOCIET Y S CERTIFICATE ALSO HAS NO RELEVANCE. IN EITH ER CASE, THE ASSESSEE WAS SOLE OWNER AND HER SON S DID NOT HAD ANY RIGHT IN THE SAID FLAT. ONCE THAT IS SO, ANY AMOUNT PAID IS NOT ON ACCOUNT OF ANY E NCUMBRANCE BUT PURE UTILIZATION OF SALE PROCEED S . HE THUS SUBMITTED THAT , IT IS A PURELY A COLORABLE DEVICE FOR EVADING THE TAX LIABILITY IN TERMS OF REDUCING THE TAX LIABILITY IN THE SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 7 COMPUTATION OF LONG - TERM - CAPITAL - GAIN. REGARDING OTHER DISALLOWANCE ALSO , HE STRONGLY RELIED UPON THE ORDER OF THE CIT(A). 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT FINDING AND THE MATERIAL PLACED ON RECORD. THE MAIN ISSUE INVOLVED IS , WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, S U M OF RS. 40 LAKHS PAID BY THE ASSESSEE OUT OF THE SALE PROCEEDS OF THE FLAT TO HER SON , M R KETAN C SHAH CAN BE ALLOWED AS DEDUCTION U/S 48(I) , BEING EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF AN ASSET . FROM THE FACTS ON RECORD, IT IS SEEN THAT THE FLAT WAS PURCHASED IN THE YEAR 1976 AND IN THE COPY OF PURCHASE AGREEMENT DATED 31 ST AUGUST, 1976 THE ASSESSEES NAME SMT HIRABEN C SHAH ALONG WITH HER HUSBAND , SHRI CHANDRAKANT V SHAH HAS BEEN REFERRED AS TRANSFEREES. THE SAID PROPERTY WAS PURCHASED FOR SUM OF RS. 1,10,000/ - . IN THE S OCIET Y S RECORDS OF NAVGAYATRI CHS , THE ASSESSEE AND HER HU SBAND , CHANDRAKANT V SHAH WERE SHOWN AS THE OWNER AND THE MEMBERSHIP WAS TRANSFERRED IN THEIR NAME ON 31 ST AUGUST, 1976 ITSE L F . ON 30 TH MAY, 2005, THE ASSESSEES HUSBAND , SHRI CHANDRAKANT V SHAH DIED INTERSTATE SURVIVED BY HIS WIFE (ASSESSEE) AND THEIR TWO SONS MR. SAM I R SHAH AND MR. KETAN SHAH. IT APPEARS FROM THE RECORD THAT HER YOUNGER SON , M R . KETAN C SHAH DID NOT HAD GOOD TERMS WITH HIS MOTHER AND BROTHER AND FAMILY DISPUTE HAS ARISEN WITH REGARD TO THE RIGHT AND INTEREST IN THE SAID FLAT AFTER DEMISE OF FATHER . TO RESOLVE THE FAMILY DISPUTE , ARBITRATORS WERE APPOINTED AND ARBITRATION AGREEMENT WAS ENTERED INTO ON 26 TH DECEMBER, 2006 BETWEEN THE ASSESSEE, MR. SAMIR C SHAH AND MR. KETAN C SHAH. THE IMPORTANT TERMS OF RECITALS OF THE SAID AGREEMENT HAS ALREADY BEEN REFERRED ABOVE. IN PURSUANCE OF SUCH AN ARBITRATION AGREEMENT A WARD WAS GIVEN BY THE ARBITRATORS ON 25 TH MACH, 2008 , T HE RELEVANT CLAUSES OF THE AWARD HIGHLIGHTING THE DISPUTE AND THE TERMS OF AWARD ARE REPRODUCED HERE UNDER : - SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 8 AND WHEREAS THAT DISPUTES ARISEN BETWEEN MRS. HIRABEN CHANDRAKANT SHAH PARTY OF THE FIRST PART AND MR. SAMIR CHANDRAKANT SHAH PARTY OF THE SECOND PART AND MR. KETAN CHANDRAKANT SHAH PARTY OF THE THIRD PART RELATING TO RIGHTS, LIKE, INTEREST, CLAIM IN THE PROPERTY I.E. FLAT NO. 21, 6 TH FLOOR, NAVGAYTRI BUILDING, 80 A WALKESHWAR ROAD, MUMBAI - 400 006, AND WE ARE CONVINCED THAT DISPUTES IS LIKELY TO BE AGGRAVATED IN FUTURE AND THERE WERE EXISTING DISPUTE BETWEEN TWO BROTHERS AND THEIR FAMILY IN RELATION TO THIS FLAT SINCE SOME TIME. THE SAID PARTIES BY WRITING ARBITRATION AGREEMENT DATED 26 TH DECEMBER, 2006 NOMINATED AND APPOINTED 1 . MR. HARESH PRAVINCHANDRA SHAH HAVING ADDRESS AT 19, WESTERN COURT BUILDING, 5 TH FLOOR, 83, MARINE DRIVE, MUMBAI - 400 002, AND (2) MR. NAVIN N. ME HTA HAVING ADDRESS AT 27, MAHAVIR DARSHAN OPP. BHANDARI STREET POST OFFICE, MASJID BUNDER, MUMBAI - 400 003. TO ACT AS ARBITRATORS AND SETTLED THE SAID MATTER IN DISPUTES BETWEEN THE PARTIES; AND WHEREAS THAT WE THE ARBITRATORS RESPECTIVELY ACCEPTED THE SAI D APPOINTMENTS AND TOOK UPON THEMSELVES TO DISCHARGE THE BURDEN OF THE SAID REFERENCE; AND WHEREAS WE COMMENCED THE ARBITRATION PROCEEDINGS ON BY CALLING THEM PERSONALLY EITHER AT OFFICE OR HOLDING MEETING AT THEIR RESIDENCE AND AT OTHER PLACE AND HAVE HEA RD THAT PARTIES ON AFFIDAVIT DATES I.E. 31/12/2006, 15/3/2007, 8/6/2007, 31/8/2007, 20/10/2007, 31/12/2007, 26/1/2008, 15/2/2008, 1/3/2008 AND HAVE EXAMINED ALL THE PAPERS, DOCUMENTS, MATERIALS WHICH WERE PRODUCED BY THEM. AND WHEREAS THE PARTIES LED DOCUM ENTARY AND ORAL EVIDENCE BEFORE US AND PARTIES HERETO HAVE PRESENTED THEIR REPRESENTATIVE BEFORE US WITH THE UTMOST CARE AND FAIRNESS WHICH LIGHTENED OUR TASTE; AND W HEREAS WE HAVE CONSIDERED ALL T HE PROS AND CONS OF THE MATTER AND THE RELEVANT CIRCUMSTAN CES BROUGHT TO OUR NOTICE (AND OF WHICH WE WERE COGNIZANT BY OUR PERSONAL KNOWLEDGE AND OBSERVATIONS) NOW WE, THE SAID ARBITRATORS, HAVING CONSIDERED THE MATTERS IN DISPUTE, AFTER TAKING INTO CONSIDERATION ALL DOCUMENTS, DRAWINGS AND MATERIALS PLACED BEFOR E US, AFTER CONDUCTING THE SITE INSPECTION AND GETTING SUCH MEASUREMENTS AND FOUND NECESSARY AND HAVING HEARD THE ORAL EVIDENCE PRESENTED BY THE PARTIES AND HAVING HEARD THE PARTIES HERETO. WE HEREBY AWARD AS FOLLOWS : - NOW BE IT KNOW THAT WE ARBITRATORS F OUND AFTER COMING TO CERTAIN CONCLUSION AND AWARD AS FOLLOWS : SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 9 1 . THAT MRS. HIRABEN CHANDRAKANT SHAH ARE RESIDING WITH TWO SONS NAMELY (A) MR. SAMIR CHANDRAKANT SHAH AND (B) MR. KETAN CHANDRAKANT SHAH ALONG WITH THEIR FAMILY AS JOINT HINDU FAMILY. THE FLAT U NDER DISPUTE IS ACCEPTED AS FAMILY HOUSE AND EACH ONE HAS A RIGHT OR CLAIM OF OCCUPATION . ALL PARTIES WHO ARE LIVING TOGETHER, SHALL HAVE CERTAIN CLAIMS AND RIGHT IN THE SAID FLAT UNDER DISPUTE. 2 . THAT MRS. HIRABEN CHANDRAKANT SHAH, SHOWN AS OWNER IN THE FL AT NO. 21, 6 TH FLOOR, NAVGAYTRI BUILDING 80 A WALKESHWAR ROAD, MUMBAI - 400 006, ON THE RECORDS OF THE SOCIETY, ADMEASURING 1050 SQ. FT. CARPET AREA. 3 . THAT WE, DIRECT AND AWARD TO RESOLVE THE DISPUTES FOREVER AND TO DO JUSTICES TO ALL OF THEM AND TO DECIDE T HEIR CLAIMS AND THEIR RIGHT, AND BRING HARMONY IN THE FAMILY. 4 . WE HAVE CONFIRMED AFTER TAKING INTO CONSIDERATION VARIOUS FACTORS THAT MRS. HIRABEN CHANDRAKANT SHAH WILL MAKE PAYMENT OF RS. 40,00,000/ - (RUPEES FORTY LAKH ONLY) TO MR. KETAN CHANDRAKANT SHAH T O PURCHASE AND ACQUIRED NEW PREMISES EITHER OUT OF SAVINGS OF THE FAMILY OR OUT OF BORROWED FUNDS OR BY SELLING THE FLAT NO. 21, 6 TH FLOOR, NAVGAYTRI BUILDING, 80 A WALKESHWAR ROAD, MUMBAI - 400 006, AFTER TAKING INTO CONSIDERATION VARIOUS FACTORS AND WE FU RTHER DIRECT THAT PAYMENT OF RS. 40,00,000/ - (RUPEES FORTY LAKH ONLY) SHOULD BE MADE WITHIN ONE YEAR AS CONSIDERATION TO MR. KETAN CHANDRAKANT SHAH TOWARDS THE PURCHASE COST OF THE NEW FLAT SO AS TO ENABLE HIM TO SETTLE HIS FAMILY AND THER E AFTER TO ACQUIRE THE PREMISES IN THE NAME OF MOTHER MRS. HIRABEN CHANDRAKANT SHAH AND MR. SAMIR CHANDRAKANT SHAH WHO INTENDS TO RESIDES WITH HER MOTHER JOINTLY IN WHICH MR. KETAN CHANDRAKANT SHAH WILL HAVE NO RIGHT, TITLE, INTEREST IN THE SAID FLAT AFTER THE DEATH OF MOTH ER WHICH WOULD BE ACQUIRED JOINTLY BY MOTHER MRS. HIRABEN CHANDRAKANT SHAH AND ELDER BROTHER MR. SAMIR CHANDRAKANT SHAH AND KETAN WILL NEVER CLAIM, ANY RIGHT, TITLE AND INTEREST IN THE SAID FLAT IT WILL EXCLUSIVELY BELONG TO SAMIR CHANDRAKANT SHAH AND K ETA N WILL NEVER CLAIM, RIGHT, TITLE AND INTEREST IN THE SAID FLAT IT WILL EXCLUSIVELY BELONG TO SAMIR CHANDRAKANT SHAH. 5 . AND WE FURTHER AWARD THAT THE MOTHER MRS. HIRABEN CHANDRAKANT SHAH AND MR. SAMIR CHANDRAKANT SHAH ALSO WILL NOT HAVE ANY RIGHT, TITLE, INTE REST IN THE FLAT TO BE PURCHASED OR ACQUIRED BY MR. KETAN CHANDRAKANT SHAH. SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 10 7 . FROM THE ABOVE, IT IS EVIDENTLY CLEAR THAT IN TERMS OF THE AWARD, THE ASSESSEE WAS REQUIRED TO PAY SUM OF RS. 40 LAKHS TO MR. KETAN C SHAH TO GET CLEAR RIGHT AND TITLE IN T HE FLAT. THEREAFTER, THE SALE DEED FOR SALE OF THE FLAT WAS ENTERED INTO ON 11 TH JUNE 2008 , WHEREIN THE ASSESSEE WAS REFERRED TO BE AS VENDOR AND MR. SAMIR C SHAH AND MR. KETAN C SHAH HAVE BEEN REFERRED AS CONFIRMING PARTIES. NOW ON THESE FACTS , WHETHER IT CAN BE HELD THAT PAYMENTS OF RS. 40 LAKHS PAID BY THE ASSESSEE TO HER SON F O R DISCHARGE OF ENCUMBRANCE ON THE PROPERTY CAN BE TREATED OR RECKONED AS AN EXPENDITURE CONNECTED WHOLLY AND EXCLUSIVELY WITH THE TRANSFER OF THE PROPERTY. FROM THE ABOVE DISCUS SION, IT CAN BE VERY WELL BE DEDUCED, FIRSTLY , THE ASSESSEES HUSBAND , MR. CHANDRAKANT V SHAH HAD A RIGHT AND INTEREST IN THE FLAT FOR THE REASON THAT THE ENTIRE SOURCE OF ACQUISITION OF THE FLAT WAS COMPLETELY MADE BY HIM ; SECONDLY , HE WAS THE CO - OWNER IN THE S AID FLAT WHICH IS EVIDENT FROM THE PURCHASE AGREEMENT AND ALSO FROM THE RECORDS OF THE SOCIETY ; LASTLY , HE DIED ENTESTATE , THAT IS, WITHOUT WILL; I N SUCH A SITUATION, HIS SURVIVING LEGAL H E IR S , HIS WIFE AND HIS TWO SONS GET THE RIGHT IN HIS SHARE. TH US, HIS TWO SONS MR. SAM I R SHAH AND MR. KETAN SHAH ACQUIRED THE RIGHT IN THE SAID FLAT AFTER THE DEATH OF THE I R FATHER ALONG WITH THEIR MOTHER (ASSESSEE). IT IS ALSO NOT IN DISPUTE THAT , THERE AROSE A FAMILY DISPUTE WITH REGARD TO RIGHTS AND INTEREST IN TH E SAID FLAT, WHICH HAS LEAD TO APPOINTMENT OF ARBITRATORS AND AGREEMENT W AS SIGNED. IN THE ARBITRATION AGREEMENT , THE MAIN DISPUTE WAS WITH REGARD TO THE INTEREST AND RIGHT IN THE FLAT ONLY. MR. KETAN SHAH OPTED TO SEPARATE OUT FROM THE FAMILY , THEREFORE , IT WAS DECIDED THAT ALL HIS RIGHT SHOULD BE SETTLED ONCE FOR ALL AND IT WAS DECIDED THAT A SUM OF RS. 40 LAKHS WOULD BE GIVEN TO HIM AS AND WHEN THE FLAT WOULD BE SOLD. ACCORDINGLY, THE ARBITRAL AWARD AS INCORPORATED ABOVE WAS GIVEN. LATER ON, WHEN THE F LAT WAS SOLD AT A VERY HIGH PRICE, THEN SOME MORE AMOUNT IN THE FORM OF A GIFT WAS GIVEN WHICH HERE IS NOT AN ISSUE OF DISPUTE ALBEIT IT HAS BEEN ADVERSELY VIEWED BY THE AO AND CIT(A) FOR DISALLOWING THE CLAIM OF DEDUCTION OF RS. 40 LAKHS. SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 11 8. IF THE ASSES SEE INHERITS ANY PROPERTY WITH ENCUMBRANCE OR ANY DEBT ON THE PROPERTY , THEN ANY EXPENDITURE INCURRED TO DISCHARGE OR REMOVE SUCH ENCUMBRANCE OR DEBT IS TO BE REGARDED AS EXPENDITURE CONNECTED WITH THE TRANSFER OF THE PROPERTY AS CONTEMPLATED IN SECTION 4 8 . TH IS PROPOSITION HAS BEEN ELABORATED AND WELL SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF R M ARUNACHALAM VS CIT REPORTED IN, [1997] 227 ITR 222 AND VSMR JAGD I SH - CHANDRAN (DEED) V CIT, REPORTED IN [1997] 227 ITR 240. THE HONBLE APEX COURT HAS CLA SSIFIED THAT, IF THE ASSESSEE HAD INHERITED THE PROPERTY ALONG WITH MORTGAGE OR ANY ENCUMBRANCE , THEN THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION OF THE AMOUNTS SPENT IN DISCHARGE OF SUCH ENCUMBRANCE OR MORTGAGE AS COST OF ACQUISITION U/S 4 8 . HOWEVER, IF THE ASSESSEE HIMSELF HAS CREATED A MORTGAGE OR ENCUMBRANCE AND THEN SAME CONSEQUENCE SHALL NOT FOLLOW. THUS, IF THE ASSESSEE ACQUIRES A PROPERTY I N INHERITANCE FULLY OR PARTIALLY WITH ANY KIND OF ENCUMBRANCE THEREIN, THEN ANY OBLIGATION AMOUNT SPENT TO REMOVE THAT ENCUMBRANCE HA S TO BE TREATED AS AN EXPENDITURE WHOLLY CONNECTED WITH THE TRANSFER OF THE PROPERTY. HERE IN THIS CASE, THE ENCUMBRANCE WAS IN THE FORM OF A RIGHT AND INTEREST OF ONE OF HER SON MR. KETAN C SHAH AND IF SUCH A N ENCUMBRANCE WOULD N OT HAVE BEEN REMOVED , THAT IS, AMOUNT OF SHARE OF HIS RIGHT HAD NOT BEEN SETTLED OR GIVEN TO HIM THEN THE PROPERTY ITSELF WOULD HAVE GONE IN DISPUTE WHICH COULD HAVE LED TO LONG - DRAWN LITIGATION WITHIN THE FAMILY AND THE SUBSEQUENT PURCHASES WOULD NOT HAVE GOT THE CLEAR TITLE . THIS DISPUTE HAS BEEN RESOLVED THROUGH ARBITRAL AWARD WHICH ITSELF GOES TO SHOW THAT THE ENCUMBRANCE HAS TO BE DISCHARGED BY MAKING THE PAYMENT TO HER SON FROM THE SALE PROCEED OF THE FLAT AND THIS HAD BEEN EVENTUALLY DONE AFTER THE P ROPERTY WAS SOLD. THUS, IN OUR OPINION THE PAYMENT MADE BY THE ASSESSEE TO HER SON WAS PURELY ON ACCOUNT OF DISCHARGE OF THE ENCUMBRANCE ON THE PROPERTY WHICH HAS TO BE RECKONED AND TREATED AS EXPENDITURE IN CONNECTION WITH THE PROPERTY , THEREFORE , DEDUCTI ON OF SUCH COST HAS SMT HIRABEN C SHAH, ITA NO. 4399 /MUM/20 1 3 12 TO BE ALLOWED AS COST OF ACQUISITION WHILE COMPUTING THE LONG - TERM - CAPITAL - GAIN. ACCORDINGLY, DISALLOWANCE OF RS. 40 LAKHS AS MADE BY THE AO AND CONFIRMED THE CIT(A) IS DELETED . 9 . SO FAR AS OTHER DISALLOWANCES ARE CONCERNED, WE ARE IN AGREEMENT WITH THE FINDING AND CONCLUSION OF THE CIT(A) , AS THE ASSESSEE HAS FAILED TO FURNISH ANY CONCRETE EVIDENCE WITH REGARD TO ANY OF THE EXPENDITURE OR PAYMENT MADE BY THE ASSESSEE WHICH HAS BEEN CLAIMED TOWARDS COST OF ACQUISITION. EVEN BEFORE US, THE POSITION REMAINS THE SAME, THEREFORE ON THESE TWO DISALLOWANCES OF RS. 8,27,844/ - AND RS. 4,94,600/ - THE ADDITION GETS CONFIRMED. 1 0 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER , 2015. SD/ - SD/ - ( ) ( ) (RAMIT KOCHAR ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 9 TH NOVEMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 25 , MUMBAI. 4 ) THE CIT 14 , MUMBAI. 5 ) H , , / THE D.R. H BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS