Madhavrao Ramchandra Pandit, Kolhapur V. ITO, Wd.-2(2), Kolhapur

ITA 924/PUN/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85348 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 29-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Recovery proceedings; Cost of acquisition
• Section: 2; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO . 914 /PN/20 1 1 ASSESSMENT YEAR : 200 6 - 07 NEELKANTH RAMCHANDRA PANDIT, 25/KH/ 2, RAJPRASAD, E WARD, TARABAI PARK, KOLHAPUR VS. INCOME TAX OFFICER, WARD - 2(2), KOLHAPUR (APPELLANT) (RESPONDENT) PAN NO. AANPP8923G ITA NO. 924 /PN/201 1 ASSESSMENT YEAR : 200 6 - 07 MADHAVRAO RAMCHANDRA PANDIT, 25/KH/2, RAJPRASAD, E WARD, TARA BAI PARK, KOLHAPUR VS. INCOME TAX OFFICER, WARD - 2(2), KOLHAPUR (APPELLANT) (RESPONDENT) PAN NO. AIAPP0065A REVENUE BY: SHRI B.C. MALAKAR ASSESSEE BY: MS. DEEPA KHARE ORDER PER R.S . PADVEKAR , JM : - TH ESE TWO APPEALS ARE FILED BY TWO DIFFERENT ASSESSEES , WHO ARE THE BROTHERS AND ALSO CO - OWNERS OF THE PROPERT Y, CHALLENGING THE RESPECTIVE IMPUGNED ORDERS OF THE LD. CIT(A), KOLHAPUR DATED 28 - 02 - 2011 AND 17 - 02 - 2011 FOR THE A.Y. 2006 - 07. AS T HE ISSUES ARISING IN BOTH THE APPEALS ARE COMMO N HENCE, THESE APPEALS ARE DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. WE FIRST TAKE THE APPEAL FILED BY NEELKANTH RAMCHANDRA PANDIT BEING ITA NO. 914/PN/2011. THE ASSESSEE HAS TAKEN THE FOLLOWING ORIGINAL GROUNDS IN THE APPEAL: 1. ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE 2 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR ADDITION MADE BY ASSESSING OFFICER HOLDING THE EXPENDITURE INCURRED BY ASSESSEE FOR RELEASE OF PROPERTY TITLE WAS NOT ALLOWABLE WHILE CALCULATING THE CAPI TAL GAIN. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACT THAT LOAN WAS RAISED ON PROPERTY BY DEVELOPER THEREFORE THE EXPENDITURE INCURRED BY APPELLANT WAS ALLOWABLE AS DEDUCTION. 3. THE ASSESSEE HAS ALSO FILED AN APPLICATION SEEKING THE LEAVE OF THE TRIBUNAL TO RAISE THE FOLLOWING ADDITION AL GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND WITHOUT PREJUDICE TO THE GROUNDS OF APPEAL ALREADY RAISED, THE ASSESSEE BE ALLOWED 1/6 TH SHARE OF ADDITIONAL COST OF RS.55,88,350/ - AS COST OF ACQUISITION OF THE DEVELOPMENT RIGHT AND OTHER RIGHTS, BEING AMOUNT PAID FOR PERFECTING HIS TITLE BY CLEARING THE ENCUMBRANCE OF MORTGAGE CREATED BY THE DEVELOPER MEHTA CONSTRU CTIONS: PROPRIETOR SHRI SHITAL ULHAS MEHTA FOR RAISING LOAN OF RS.65,00,000/ - FROM WARANA SAHAKARI BANK BY MORTGAGING THE PROPERTY GIVEN TO HIM BY THE ASSESSEE AND THE OTHER CO - OWNERS FOR DEVELOPMENT WITH A POWER OF ATTORNEY, WHICH MADE THE DEVELOPER VIRTU ALLY AND IN SUBSTANCE A FULL OWNER OF THE SAID PROPERTY. 4. WE HAVE HEARD THE PARTIES ON ADMISSION OF THE ADDITIONAL GROUND. WE FIND THAT AS THE ORIGINAL GROUNDS ARE GENERAL IN NATURE HENCE, THE ASSESSEE HAS RAISED THE ADDITIONAL GROUND BY WAY OF SPEC IFIC GROUND AND NO SEPARATE FACTS ARE REQUIRED TO BE PRO B ED AND ADDITIONAL GROUND IS A LEGAL ISSUE. WE, THEREFORE, ADMIT THE ADDITIONAL GROUND. 5. THE SOLITARY ISSUE WHICH ARISES FOR OUR CONSIDERATION IS WHETHER THE ASSESSEE IS ENTITLED TO CLAIM THE DE DUCTION (TO THE EXTENT OF 1/6 TH OF HIS SHARE) WHILE COMPUTING THE CAPITAL GAIN ON THE SALE OF DEVELOPMENT RIGHTS IN THE PROPERTY AT E WARD, DABHOLKAR CORNER, KOLHAPUR IN RESPECT OF THE LOAN TAKEN BY M/S. MEHTA CONSTRUCTION BUT WHICH WAS NOT REPAID BY HIM AND THE ASSESSEE HAD TO REPAY THE LOAN TO CLEAR 3 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR ENCUMBRANCE CREATED BY THE DEVELOPER . THE FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE IS CO - OWNER IN PROPERTY BEARING C. S. NO. 329, E/K/1A, NEW SHAHUPURI, DHABHOLKAR CORNER, KOLHAPUR. THE ASSESSEE ALONG WITH OTHER CO - OWNERS ENTERED INTO A D EVELOPMENT A GREEMENT WITH ONE M/S. MEHTA CONSTRUCTION CO. FOR CONSIDERATION OF RS.64,00,000/ - . THE DEVELOPER PAID RS.8,00,000/ - AS EARNEST MONEY TO THE OWNERS INCLUDING THE ASSESSEE AND FOR BALANCE C ONSIDERATION POSTDATED CHEQUES WERE ISSUED. M/S. MEHTA CONSTRUCTION CO. WAS ALSO RESPONSIBLE FOR REMOVAL OF THE TENANT M/S. KUMAR AUTOMOBILES OCCUPYING THE SAID PROPERTY . THE DEVELOPER MORTGAGED ABOVE PROPERTY ON BASIS OF THE D EVELOPMENT A GREEMENT TO OBT AIN A LOAN OF RS.65,00,000/ - FROM SHRI WARNA SAHAKARI BANK LTD. THE SAID AMOUNT OF LOAN IS STATED TO HAVE BEEN UTILIZED BY M/S. MEHTA CONSTRUCTION CO. FOR PURPOSES OTHER THAN D EVELOPMENT OF THE PROPERTY AND THE CHEQUES ISSUED TO THE LAND OWNERS BY THE DEV ELOPER COULD NOT BE REALIZED. AS M/S. MEHTA CONSTRUCTION CO. DEFAULTED ON PAYMENT OF THE LOAN INSTALLMENTS WITH THE BANK, THE BANK INITIATED RECOVERY PROCEEDINGS BY ISSUING NOTICES TO THE LAND OWNERS THEREBY INDICATING ATTACHMENT OF THE PROPERTY IN CASE O F NON - PAYMENT OF THE OUTSTANDING LOAN. AS THE DEVELOPER HAD FAILED TO PAY THE FULL CONSIDERATION TO THE ASSESSEE AND OTHER CO - OWNERS , T HE DEVELOPMENT A G REEMENT ENTERED INTO WITH HIM WAS CANCELLED VIDE CANCELLATION AGREEMENT EXECUTED ON 13 - 05 - 2005. IT IS ST ATED THAT THE ASSESSEES EFFORTS TO RECOVER THE OUTSTANDING AMOUNT BY ISSUING LEGAL NOTICES TO M/S. MEHTA CONSTRUCTION CO. WERE ALSO IN VAIN. REALIZING THAT IN CASE THE PROPERTY WAS ATTACHED BY THE BANK, A SUIT WITH THE CIVIL COURT TO VACATE THE SAME WOULD TAKE AT LEAST 10 TO 15 YEARS DURING WHICH THE LOAN AMOUNT WOULD KEEP MULTIPLYING AND HENCE , THE LAND OWNERS DECIDED TO REPAY THE LOAN OF RS.53,75,000/ - (PRINCIPAL AMOUNT + ACCRUED INTEREST) AND MAKE A FRESH D EVELOPMENT A GREEMENT WITH ANOTHER BUILDER. ACCO RDINGLY, THE BANK LIABILITY OWED BY THE M/S. MEHTA CONSTRUCTION WAS 4 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR DISCHARGED BY THE ASSESSEE AND OTHER CO - OWNERS AND SAID AMOUNT WAS CLAIMED AS EXPENDITURE WHILE WORKING OUT THE CAPITAL GAINS ARISING ON TRANSFER OF DEVELOPMENT RIGHTS OF THE PROPERTY TO M /S. AMATYA DEVELOPERS SUBSEQUENTLY. IT WAS CLAIMED THAT THE EXPENDITURE WAS IN THE NATURE OF COST OF ACQUISITION OF THE PROPERTY AND THEREFORE, ALLOWABLE AS DEDUCTION WHILE WORKING THE CAPITA! GAINS. THE ASSESSING OFFICER, HOWEVER, WAS NOT SATISFIED WITH T HE CONTENTION OF THE ASSESSEE AND OBSERVED AS UNDER: I. CONDITIONS OF THE DEVELOPMENT A GREEMENT HAD NOT BEEN FULFILLED BY MEHTA CONSTRUCTION. II. AS PER THE DEVELOPMENT AGREEMENT, MEHTA CONSTRUCTION WAS RESPONSIBLE FOR REPAYMENT OF LOAN AND NOT THE LAND OWNERS. III. THE LAND OWNERS DID NOT ENQUIRE ABOUT T H E REPUTATION OR MEHTA CONSTRUCTIONS IN THE MARKET AND THEIR ASSETS AND LIABILITIES. IV. THE LAND OWNERS DID NOT MAKE ANY EFFORTS TO VACATE THE LAND FROM THE BANK EXCEPT GIVING NOTICE THROUGH ADVOCATE. V. NO REP LY FROM THE BANK TO THE SAID NOTICE WAS BROUGHT ON RECORD. VI. THE SEARCH REPORT CLEARLY MENTIONED THAT BEFORE ADVANCING LOAN, THE BANK SHOULD OBTAIN AFFIDAVIT FROM THE PROPOSED MORTGAGOR THAT, HE, HAS NOT MORTGAGED THE PROPERTY OR HAS NOT EXECUTED ANY AGREEME NT OR TRANSFERRED THE SAID PROPERTY TO ANYBODY AND THE SAID PROPERTY WAS FREE FROM ALL TYPES OF ENCUMBRANCES. VII. SINCE THE LOAN WAS TAKEN BY MEHTA CONSTRUCTION, THE BANK SHOULD HAVE FIRST ATTACHED ITS INDIVIDUAL/BUSINESS PROPERTY. VIII. NO SUIT AGAINST THE BANK OF THE DEVELOPER WAS FILED IN THE CIVIL COURT. IX. NO LEGAL STEPS TO VACATE THE MORTGAGE IN THE POSSESSION OF THE BANK WERE TAKEN. X. THE PARTNERS OF M/S. AMATYA DEVELOPERS, WITH WHOM THE DEVELOPMENT AGREEMENT WAS ENTERED INTO SUBSEQUENTLY, WERE ALSO THE OWNERS OF T HE LAND. IF SO, WHY THIS FIRM HAD NOT TAKEN THE 5 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR DEVELOPMENT RIGHTS BEFORE ENTERING INTO AGREEMENT WITH MEHTA CONSTRUCTION? 5 .1. CITING THE ABOVE OBSERVATIONS AND RELYING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ATTILI N RAO REPORTE D IN 252 ITR 880 AND DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. N VAJRAPANI NAIDU REPORTED IN 241 ITR 560, THE ASSESSEE WAS CALLED UPON BY THE ASSESSING OFFICER TO EXPLAIN AS TO WHY THE EXPENDITURE ON DISCHARGING THE LOAN LIABILITY OF THE DEV ELOPER SHOULD BE ALLOWED AS COST OF TRANSFER WHILE COMPUTING THE CAPITAL GAINS. BEFORE THE ASSESSING OFFICER, IT WAS CONTENDED THAT THE MORTGAGE ON THE PROPERTY WAS NOT CREATED BY THE ASSESSEE BUT BY A DEVELOPER , AND THEREFORE, EXPENDITURE INCURRED FOR REL EASING SUCH MORTGAGE WAS AN ALLOWABLE EXPENDITURE. HOWEVER, THIS EXPLANATION WAS HELD TO BE WITHOUT ANY MERIT BY THE ASSESSING OFFICER BY OBSERVING THAT THE ASSESSEE HAS PAID THE LIABILITY OF A THIRD PARTY WHEN HE WAS NOT LIABLE TO PAY, WHICH IS NOT AN ALL OWABLE EXPENDITURE WHILE WORKING OUT THE CAPITAL GAINS. THE ASSESSING OFFICER PLACING HIS RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT AND MADRAS HIGH COURT MENTIONED ABOVE, CAME TO THE CONCLUSION THE ASSESSEE WAS NOT ABLE TO PROVE THAT THE EXPEND ITURE ON PAYMENT OF LOAN LIABILITY OF M/S. MEHTA CONSTRUCTION CO. AGAINST THE MORTGAGE OF PROPERTY WAS A DIRECT COST OF TRANSFER OF THE PROPERTY, AND ACCORDINGLY, REJECTED THE ASSESSEES CLAIM. 6 . THE CLAIM MADE BY THE ASSESSEE WAS TURNED DOWN BY THE ASSE SSING OFFICER BY GIVING THE ABOVE REASONS. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) PLACED HIS RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ROSHANBABU MOHAMME D HUSSEIN MERCHANT 275 ITR 231 (BOM). AS OBSERVED BY THE LD. CIT(A) THE ASSESSEE WAS NOT UNDER ANY OBLIGATION TO DISCHARGE BANK LOAN LIABILITY CREATED BY THE DEVELOPER I.E. 6 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR M/S. MEHTA CONSTRUCTION CO. AND RESPONSIBILITY OF DISCHARGING THE LIABILITY WAS TH AT OF DEVELOPER AND NOT PROPERTY OWNERS. THE LD. CIT(A) ALSO R EFERRED TO CLAUSE NO. 3 OF THE D EVELOPMENT A GREEMENT, AND OBSERVED THAT THE ASSESSEE AND OTHER CO - OWNERS RESERVED THE RIGHT TO UNILATERALLY CANCEL THE D EVELOPMENT A GREEMENT IN CASE THERE WAS DE LAY IN PAYMENT OF THE BALANCE CONSIDERATION BY THE DEVELOPERS. IN THE OPINION OF THE LD. CIT(A) AS PER THE FACTS THE ASSESSEE HAS VOLUNTAR ILY TAKEN OVER THE LIABILITY OF A THIRD PARTY IN THE GARB OF AVOIDING LONG DRAWN LITIGATION AND IT AMOUNTS TO CREATIN G AN ENCUMBRANCE BY THE ASSESSEE HIMSELF. THE LD. CIT(A) CONFIRMED THE ASSESSMENT ORDER. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE PRESENT ASSESSEE IS A CO - OWNER O F THE PROPERTY SITUATED AT E WARD, DABHOLKAR CORNER, NEW SHAHUPURI, KOLHAPUR . THE ASSESSEE HAS PURCHASED THAT PROPERTY ON 31 - 12 - 2001 FOR RS.37,00,000/ - . THE ASSESSEE ALONG WIT H OTHER CO - OWNERS ENTERED INTO D EVELOPMENT A GREEMENT WITH M/S. MEHTA CONSTRUCTION CO. AND A CONSIDERATION WAS FIXED AT RS.64,00,000/ - AND THE SAID D EVELOPMENT A GREEMENT WAS EXECUTED ON 17 - 04 - 2003. AT THE TIME OF EXECUTION OF THE D EVELOPMENT A GREEMENT DEVELOPER PAID RS.8,00,000/ - . AS PER THE D EVELOPMENT A GREEMENT THE DEVELOPER WAS GIVE N A RIGHT TO MORTGAGE THE PROPERTY TO BANK FOR RAISING THE FINANCE BY WAY OF LOAN. THE DEVELOPER WAS ALSO GIVEN IRREVOCABLE P OWER OF A TTORNEY BY ALL THE CO - OWNERS. IT APPEARS THAT A T THE TIME OF EXECUTION OF THE DEVELOPMENT A GREEMENT , M/S. MEHTA CONSTRUC TION CO. ISSUED THE POSTDATED CHEQUES AS PER THE SHARES OF CO - OWNERS IN THE SAID PROPERTY TOWARDS AGREED CONSIDERATION . SUBSEQUENTLY, THE DEVELOPER BORROWED THE LOAN FROM SHRI WARNA SAHAKARI BANK LTD. FOR THE PURPOSE OF CONSTRUCTION. THEREAFTER EVEN IF T HE LOAN WAS BORROWED THE DEVELOPER DID NOT CARRY OUT THE CONSTRUCTION AND ULTIMATELY THE ASSESSEE CANCELLED THE DEVELOPMENT A GREEMENT ON 7 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR 06 - 05 - 2005 AND WITHDREW ALL THE DEVELOPMENT RIGHTS GRANTED TO THE DEVELOPER. THE ASSESSEE HAS FILED THE COPY OF THE DE ED OF MORTGAGED WHICH WAS EXECUTED BY THE DEVELOPER WITH THE BANK AS PER THE AUTHORITY GIVEN TO HIM IN THE IRREVOCABLE P OWER OF A TTORNEY . THE DEVELOPER MORTGAGED THE ASSESSEE S PROPERTY AND BORROWED THE LOAN BUT SUBSEQUENTLY IT WAS REVEALED BY THE CO - OWNE RS THAT THE DEVELOPER WAS UNABLE TO CONTINUE WITH THE DEVELOPMENT WORK AND THE ASSESSEE RECOVERED THE RIGHTS FROM THE DEVELOPER AND TOOK THE RESPONSIBILITY OF THE REPAYMENT OF THE LOAN WHICH WAS BORROWED BY M/S. MEHTA CONSTRUCTION CO. FROM SHRI WARNA SAHAK ARI BANK LTD. THE ASSESSEE WAS PAID RS.8,00,000/ - AND THE TOTAL LIABILITY IN RESPECT OF LOAN GOT SANCTIONED BY M/S. MEHTA CONSTRUCTION CO. AGAINST THE MORTGAGE OF THE PROPERTY WAS TO THE EXTENT OF RS.65,00,000/ - FROM SHRI WARNA SAHAKARI BANK LTD. AND OUT OF SANCTIONED LOAN , HE WITHDREW THE AMOUNT OF RS.45,00,000/ - . THE BANK INITIATED PROCEEDINGS FOR RECOVERY OF THE OUTSTANDING LOAN AS THE DEVELOPER DEFAULTED THE REPAYMENT OF LOAN BY INVOKING THE PROVISIONS OF THE SECURITIZATION AND RECONSTRUCTION OF FINAN CIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002. NOTICE WAS ALSO ISSUED TO THE OWNERS OF THE PROPERTY INCLUDING PRESENT ASSESSEE FOR RECOVERY OF THE LOAN BORROWED BY THE DEVELOPER. THE ASSESSEE AND OTHER CO - OWNERS SETTLED THE LOAN BY MAKING TH E PAYMENT OF RS.55,88,350/ - INCLUDING THE ACCRUED INTEREST. 8 . THE ASSESSE E SUBSEQUENTLY, ENTERED INTO A D EVELOPMENT A GREEMENT WITH M/S. AMATYA DEVELOPERS IN WHICH THE ASSESSEE IS A PARTNER. NOW, THE ISSUE BEFORE US IS WHETHER THE ASSESSEE CAN CLAIM TH E DEDUCTION IN RESP ECT OF THE AMOUNT PAID TO SHRI WARNA SAHAKARI BANK LTD. FOR SETTLING THE LOAN BORROWED BY THE EARLIER DEVELOPER M/S. MEHTA CONSTRUCTION CO. THE ARGUMENT OF THE LD. AR IS THAT THE CHARGE WAS CREATED BY THE DEVELOPER ON THE SAID PROPERTY AND CHARGE WAS NOT CREATED BY THE ASSESSEE AND OTHER CO - OWNERS AND THE ASSESSEE WAS FORCED TO REP AY THE 8 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR LOAN BORROWED BY THE DEVELOPER AS OTHERWISE THE SAID PROPERTY WOULD HAVE BEEN ACQUIRED BY THE BANK AND THE ASSESSEE WOULD HAVE BEEN PUT TO LOSS BY LOSIN G THE RIGHTS OF THE SAID PROPERTY. THE LD. AR SUBMITS THAT THE RELIANCE PLACED BY THE LD. CIT(A) ON THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF ROSHANBABU MOHAMMED HUSSEIN MERCHANT (SUPRA) IS TOTALLY MISPLACED AND IN FACT, THE SAID DEC ISION SUPPORT THE CASE OF THE ASSESSEE. SHE SUBMITS THAT AS PER THE DOCUMENTARY EVIDENCE IN THE FORM OF MORTGAGED DEED THE CHARGE WAS NOT CREATED BY THE ASSESSEE BUT CHARGE WAS CREATED BY THE DEVELOPER WHO DID NOT REPAY THE AMOUNT OF THE LOAN. SHE SUBMIT S THAT EVEN AS PER THE DEED OF MORTGAGE WHICH IS NOT SIGNED BY THE ASSESSEE BUT ON THE BASIS OF THE IRREVOCABLE POWER OF ATTORNEY GIVEN TO THE DEVELOPER M/S. MEHTA CONSTRUCTION CO. , HE SIGNED ON BEHALF OF THE ASSESSEE AND OTHER CO - OWNERS. SHE SUBMITS THAT THE REPAYMENT WAS MADE FOR REMOVING THE ENCUMBRANCE ON THE PROPERTY AND HENCE, THE ASSESSEE IS ENTITLED FOR CLAIMING THE DEDUCTION U/S. 48(I) OR 48(II) OF THE ACT. THE LD. AR RELIED ON THE FOLLOWING PRECEDENTS: I. CIT VS. KUMARARANI. MEENAKSHI ACHI 292 ITR 624 (MAD) . II. CIT VS. S. MUTHUKARUPAN 290 ITR 154 (MAD) . III. JASWANT RAI VS. COMMISSIONER OF WEALTH TAX, PATIALA I. 107 ITR 477 (P & H). IV. GULABRAI HANUMANBOX VS. COMMISSIONER OF WEALTH TAX 198 ITR 131 (GAUH). V. COMMISSIONER OF WEALTH TAX VS. SMT. S. SUSHIL GOELA 168 ITR 277 (DEL). 9 . PER CONTRA, T HE LD. DR SUBMITS THAT IT WAS THE VOLUNTARY ACT OF THE ASSESSEE AND OTHER CO - OWNERS GIVING THE CONCESSION TO THE DEVELOPER E VEN THOUGH THERE WAS NO NECESSITY AND HENCE, IT WAS THE CHARGE OF THE ASSESSEE HIS AND HENCE, LD. CI T(A) HAS RIGHTLY HELD THAT THE ASSESSEE 9 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR CANNOT CLAIM THE DEDUCTION. 10 . WE HAVE GONE THROUGH THE COPY OF D EVELOPMENT A GREEMENT WHICH IS PLACED IN THE COMPILATION AS WELL AS THE COPY OF THE MORTGAGE DEED WHICH IS ALSO FILED BEFORE US. IT IS TRUE THAT THE MORTGAGE DEED WAS NOT AVAILABLE BEFORE THE AUTHORITIES BELOW. WE HAVE EXAMINED THE MORTGAGE DEED WHICH IS REGISTERED WITH THE SUB - REGISTRAR, KOLHAPUR AND WE FIND THAT EVEN THOUGH THE OWNERS ARE IMPLEADED AS A PARTY NOS. 1 TO 3 BUT THEY HAVE NOT PERSONALLY SIGNED THE MORTGAGE DEED BUT MORTGAGE DEED IS SIGNED AND EXECUTED BY THE PROPRIETOR OF M/S. MEHTA CONSTRUCTION CO. WITH WHOM THE OWNERS ENTERED INTO A DEVELOPMENT A GREEMENT. IF WE SEE THE SEQUENCE OF THE FACTS OF THIS CASE ADMITTEDLY WHEN THE PROPERTY WA S ACQUIRED THERE WAS NO ENCUMBRANCE EXCEPT ONE TENANT I.E. M/S. KUMAR AUTOMOBILES AND TO THAT EXTENT THERE IS NO DISPUTE ABOUT IT . T HE ONLY DISPUTE IS IN RESPECT OF THE AMOUNT BORROWED BY THE DEVELOPER M/S. MEHTA CONSTRUCTION CO. FROM SHRI WARNA SAHAKARI BANK LTD. WHICH WAS REPAID BY THE ASSESSEE AND OTHER CO - OWNERS. 1 1 . IN THE CASE OF ROSHANBABU MOHAMMED HUSSEIN MERCHANT (SUPRA) THEIR LORDSHIPS HAVE MADE A DISTINCTION BETWEEN THE OBLIGATION TO DISCHARGE THE MORTGAGE DEBT CREATED BY THE PREVIOUS OWNER A ND THE OBLIGATION TO DISCHARGE THE MORTGAGE DEBT CREATED BY THE ASSESSEE HIMSELF. IN THE SAID CASE THE ASSESSEE STOOD AS A GUARANTOR TO THE COMPANY AND MORTGAGE WAS CREATED. AS PER THE FACTS NOTED IN THE SAID CASE , THE SAID ASSESSEE WAS SHAREHOLDER OF A COMPANY KNOW N AS MERCHANT STEEL INDUSTRIES (P) LTD. IN WHICH HER HUSBAND WAS A D IRECTOR. THE ASSESSE OWNE D A PLOT OF LAND AT BHAVNAGAR ADMEASURING 2 9 92 SQ. YARD S . THE SAID COMPANY I.E. MERCHANT STEEL INDUSTRIES (P) LTD. HAD RAISED A LOAN FROM THE STATE B ANK OF SAURASHTRA AND FOR THE REPAYMENT OF THE SAID LOAN, THE ASSESSEE STOOD AS ONE OF THE GUARANTORS AND THE ASSESSEE HAD OFFERED THE ABOVE PLOT OF LAND AS SECURITY FOR REPAYMENT OF 10 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR THE LOAN. IN THE BACKGROUND OF SAID FACT THEIR LORDSHIPS HELD THAT IT WA S A VOLUNTARY ACT OF THE ASSESSEE TO CR E ATE THE MORTGAGE AFTER THE PROPERTY WAS ACQUIRED. OTHERWISE THE ASSESSEE HAS CREATED THE MORTGAGE ONLY AFTER ACQUIR ING THE PROPERTY. IN OUR OPINION THE FACTS IN CASE OF ROSHANBABU MOHAMMED HUSSEIN MERCHANT (SUPRA) ARE DISTINGUISHABLE . IN THE PRESENT CASE THE LOAN WAS BORROWED BY THE DEVELOPER M/S. MEHTA CONSTRUCTION CO. AND WE FIND THAT IT WAS PART OF THE TERMS AND CONDITIONS OF THE D EVELOPMENT A GREEMENT AS THE DEVELOPER WAS ALLOWED TO RAISE THE LOAN AGAINST THE MO RTGAGE OF THE PROPERTY FOR DEVELOPMENT PURPOSE ONLY . IN OUR OPINION THE PRINCIPLES LAID DOWN BY THE HON'BLE JURISDICITIONAL HIGH COURT IN THE CASE OF ROSHANBABU MOHAMMED HUSSEIN MERCHANT (SUPRA) IN FACT HEL P THE ASSESSEE AS THE CHARGED ON THE PROPERTY WAS NOT BY THE ASSESSEE AND OTHER CO - OWNERS . 1 2 . THE ASSESSING OFFICER HAS RELIED ON THE DECISION IN THE CASE OF CIT VS. ATTILI N. RAO 252 ITR 880 (SC). IN THE SAID CASE THE ASSESSEE CARRIED ON ABKARI BUSINESS AND HE MORTGAGED HIS IMMOVABLE PROPERTY TO TH E EXCISE DEPARTMENT OF THE STATE OF ANDHRA PRADESH. HE DID SO TO PROVIDE SECURITY FOR THE AMOUNTS OF KIST WHICH WAS DUE FROM HIM TO THE STATE. SUBSEQUENTLY, THE SAID PROPERTY WAS SOLD ON THE PUBLIC AUCTION TO RECOVER THE DUES FROM THE SAID ASSESSEE. I N AUCTION THE STATE COULD GET RS.5,62,980/ - AND FROM THE SAID AMOUNT SUM OF RS.1,29,020/ - TOWARDS DUE TO KIST AND INTEREST WAS RECOVERED AND BALANCE AMOUNT WAS PAID TO THE ASSESSEE. THE ASSESSEE CLAIMED THE DEDUCTION OF RS. 1,29,020/ - WHICH WAS RECOVERED BY THE STATE ON ACCOUNT OF HIS KIST DUES. T HE SAID RECOVERY WAS MADE WHICH WAS HAVING THE NEXUS OF THE ASSESSEES BUSINESS AND IT WAS THE TAX LIABILITY OF THE ASSESSEE IN NATURE OF KIST . IN OUR HUMBLE UNDERSTANDING THE FACTS ARE TOTALLY DISTINGUISHA BLE. IN THE LIGHT OF OUR ABOVE REASONS AND DISCUSSIONS , WE ARE INCLINED TO ALLOW THE GROUNDS TAKEN BY THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW CLAIM IN RESPECT OF BANK LIABILITY OF THE DEVELOPER REPAID BY THE 11 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR ASSESSEE AND OTHER CO - OWNERS, TO EXTEND OF ASSESSEES SHARE U/S. 48(I)/(II) OF THE ACT. 1 3 . NOW, WE TAKE UP THE APPEAL FILED BY MADHAVRAO RAMCHANDRA PANDIT BEING ITA NO. 924/PN/2011. THE ASSESSEE HAS TAKEN THE FOLLOWING ORIGINAL GROUNDS IN THE APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY ASSESSING OFFICER HOLDING THE EXPENDITURE INCURRED BY ASSESSEE FOR RELEASE OF PROPERTY TITLE WAS NOT ALLOWABLE WHILE CALCULATING THE CAPITAL GAIN. SAME PLEASE BE ALLOWED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACT THAT LOAN WAS RAISED BY THE DEVELOPER ON PROPERTY OWNED BY THE APPELLANT THEREFORE THE EXPENDITURE INCURRED BY APPELLANT FOR RELEASE OF THE SAID PROPERTY WAS ALLOWABLE AS DEDUCTION WHILE CALCULATING THE CAPITAL GAIN. 1 4 . THE ASSESSEE HAS ALSO TAKEN ADDITION AL GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND WITHOUT PREJ UDICE TO THE GROUNDS OF APPEAL ALREADY RAISED, THE ASSESSEE BE ALLOWED ADDITIONAL COST OF RS.55,88,350/ - AS COST OF ACQUISITION OF THE DEVELOPMENT RIGHT AND OTHER RIGHT S , BEING AMOUNT PAID FOR PERFECTING HIS TITLE BY CLEARING THE ENCUMBRANCE OF MORTGAGE C REATED BY THE DEVELOPER MEHTA CONSTRUCTIONS: PROPRIETOR SHRI SHITAL ULHAS MEHTA FOR RAISING LOAN OF RS.65,00,000/ - FROM WARANA SAHAKARI BANK BY MORTGAGING THE PROPERTY GIVEN TO HIM BY THE ASSESSEE AND THE OTHER CO - OWNERS FOR DEVELOPMENT WITH A POWER OF ATT ORNEY, WHICH MADE THE DEVELOPER VIRTUALLY AND IN SUBSTANCE A FULL OWNER OF THE SAID PROPERTY. 1 5 . THE FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE IS CO - OWNERS IN PROPERTY BEARING S. NO. 329, E/K/1A, NEW SHAHUPURI, DHABHOLKAR CORNER, KOLHAPUR. THE FACTS OF THIS CASE ARE IDENTICAL AS IN THE CASE OF NEELKANTH RAMCHANDRA PANDIT (SUPRA). WE, 12 ITA NO S. 914 & 924/PN/2011, NEELKANTH RAMCHANDRA PANDIT & ORS., KOLHAPUR ACCORDINGLY, FOLLOWING OUR REASONS IN THE CASE OF NEELKANTH RAMCHANDRA PANDIT (SUPRA) ALLOW THE GROUNDS TAKEN BY THE ASSESSEE AND DIRECT THE ASSESSI NG OFFICER TO ALLOW THE DEDUCTION U/S. 48(I) /(II) OF THE ACT AT THE TIME OF COMPUTATION OF CAPITAL GAIN. 1 6 . IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 - 1 2 - 201 4 SD/ - SD/ - ( G . S . PAN NU ) ( R. S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED : 31 ST DECEMBER, 201 4 RK/PS COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) , KOLHAPUR 4 THE CIT - I /II, KOLHAPUR 5 6 THE DR, ITAT, A BENCH, PUNE. G UARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR , INCOME TAX APPELLATE TRIBUNAL , PUNE