Income Tax Appellate Tribunal - Hyderabad
Smt.B. Sarada Reddy , Hyderabad vs Assessee on 22 November, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 1618/Hyd/2011
Assessment year 2007-08
Smt. B. Sarada Reddy vs. The Addl. Commissioner of
Hyderabad Income-tax, Range-4,
PAN: AKMPB7468D Hyderabad
Appellant Respondent
Appellant by: Sri S. Ravi/Sri A.V. Raghuram
Respondent by: Sri M. Jagadish Babu
Date of hearing: 22.11.2012
Date of pronouncement: 09.01.2013
ORDER
PER CHANDRA POOJARI, AM:
This appeal by the assessee is directed against the order of the CIT(A)-V, Hyderabad dated 26.7.2011 for assessment year 2007-08.
2. The assessee raised the following grounds of appeal:
1. On the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals)-V erred in dismissing the appeal of the Appellant and in confirming the order of assessment.
2. The order of the learned Commissioner of Income Tax (Appeals)-V is based on surmises and conjectures and not on evidence, facts and law as presented by the Appellant and is therefore vitiated by non application of mind or otherwise bad in law. \
3. The learned Commissioner of Income Tax (Appeals)-V erred in confirming the addition made by the Assessing Officer under Section 50C of the Income Tax Act, 1961 (hereinafter referred to as "the Act") without proper application of mind.
4. The learned Commissioner of Income Tax (Appeals)-V in this regard failed to appreciate that 2 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy ===================
(a) Initially the Appellant had executed a document of sale in respect of 15,311 Sq. Yards of land, while physically, on the ground, land to that extent was not available.
(b) Subsequently on realizing the actual area available the Appellant had executed a Rectification Deed rectifying the sale deed originally executed and substituting revised extent of land in the sale deed.
(c) That upon execution of such Rectification Deed original sale deed stood modified from the date of its execution.
(d) That to the whole world the title of the transferee was only referable to 13,500 Sq. Yards of land and not 15,311 Sq. Yards.
(e) And consequently the value as per the register maintained by the stamp authority had to be computed with reference to 13,500 Sq. Yards and not 15,311 Sq. Yards. In this behalf the learned Commissioner of Income Tax (Appeals)-V erred in giving hypothetical findings without any evidence and consequently the order of the learned Commissioner of Income Tax (Appeals)-V is bad in law.
5. The learned Commissioner of Income Tax (Appeals)-V failed to appreciate that the Rectification Deed modified the original sale deed and his assumption that it was necessary to cancel the original sale deed before the, execution of the Rectification Deed is absolutely without any basis and contrary to the settled principles of law.
6. The learned Commissioner of Income Tax (Appeals)-V also failed to note that any subsequent purchaser of the property would at once be sensitised to the execution of the Rectification Deed, as upon an application being made for grant of certificate and no encumbrance in respect of the property in question, not only would the sale deed be reflected in such certificate, but also the Rectification Deed that has been executed by the Appellant.
7. The Learned Commissioner of Income Tax (Appeals)-V erred in doubting the genuineness of the document only because it was executed after 31/2 years failing to appreciate that it was a public document, that anyone in the whole world can get a copy of the said document and that it is not a private document which was to be hidden from the public.
3 ITA No. 1618/Hyd/2011Smt. B. Sarada Reddy ===================
8. The learned Commissioner of Income Tax (Appeals)-V also erred in confirming the value of Rs. 11,000 per Sq.Yard adopted by the Valuation Office and the learned Commissioner of Income Tax (Appeals)-V ought to have taken actual market value of the property as reflected in the sale document read with Rectification Deed for the purposes of determination of the capital gains chargeable to tax.
9. The learned Commissioner of Income Tax (Appeals)-V ought to have taken into account the serious errors of fact and law committed by the District Valuation Officer in arriving at the market value of the land, by ignoring/ not considering in proper perspective the following evidence:
(a) The litigation which affected the title, possession and extent of land of the Appellant, the detailed list of various pending cases having been furnished to the District Valuation Officer.
(b) Failure on the part of the District Valuation Officer to physically measure the land available, having regard to the assertion of Mr. B. Vikram Reddy, son of the Appellant that the land as a matter of fact was never measured.
(c) The fact that the Collector had given "No Objection"
Certificate only in respect of 7139 Sq. Yards equivalent to Ac. 1.19 Guntas with respect to which layout was sanctioned, where as the land that was eventually sold was 13,500 Sq. Yards based on the link documents.
(d) The fact that the property was under the cloud of proceedings under Urban Land (Ceiling and Regulation) Act, 1976 having been in excess of limit of 1000 Sq. Mts., prescribed under the said Act.
10. The District Valuation Officer also had committed serious error in relying upon three sale deeds of comparatively smaller plots and that too in Jubilee Hills without having regard to the fact that the Jubilee Hills land was more valuable and also while plotting the effective land available for actual sale would be reduced to 60%.
11. The Learned Commissioner of Income Tax (Appeals)-V erred in declining to grant relief with respect to market value of the property as on 1.4.1981 and in confirming the value at Rs. 25/- per Sq. Yard as determined by the assessing officer based on the alleged value as per the 4 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== stamp authority's registers. In this behalf the Learned Commissioner of Income Tax (Appeals)-V ought to have accepted the value of Rs. 300/ - per Sq. Yard as on 01.04.1981 which was shown by the Appellant, duly supported by the valuation report of the government approved valuation officer. The Learned Commissioner of Income Tax (Appeals)-V has conveniently ignored the documents submitted before him along with the written submissions by the Appellant.
12. The Appellant had submitted a certified copy of the document bearing No. 11973/1980 executed by one Smt. Sakena Sultana Begum alias Khadija Begum in which a plot of land admeasuring 733.60 Sq. Yards of land in Municipal No. 6-3-655, "Ali villa", Somajiguda at Rs. 500/- per Sq. Yard which was about 2 Kms from the property of the Appellant. The statement of the Learned Commissioner of Income Tax (Appeals)-V that no evidence was produced is therefore patently incorrect and the Learned Commissioner of Income Tax (Appeals)-V ought to have upheld the claim of the Appellant for computation of the market value as on 1.4.1981 at Rs. 300/- per sq. yard which is more than reasonable and ought to have directed the determination of cost on the said basis after due indexation as provided in the Act.
13. The learned Commissioner of Income Tax (Appeals)-V erred in disallowing compensation of a sum of Rs. 2,36,00,000/- paid by the Appellant to six individuals. The Learned Commissioner of Income Tax (Appeals)-V failed to appreciate that each of the six persons to whom compensation in the aggregate sum of Rs. 2,36,00,000/ - has been paid had an agreement of sale with respect to specified extents of land comprised in the property which was eventually sold during the year of account.
14. The Commissioner of Income Tax (Appeals)-V erred in not giving due weightage to the remand report given by the Assessing Officer at the instance of the Commissioner, which had confirmed the genuineness of the transactions with respect to the payment of compensation to various six persons with whom the Appellant had prior Agreements of Sale.
15. The Learned Commissioner of Income Tax (Appeals)-V failed to appreciate that merely because these persons had not enforced agreement of sale by filing a suit for specific performance in view of the various litigation which was going on in respect of the property in question, the legal 5 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== right of the respective parties was not extinguished. Having regard to the principles of law that only the remedy was barred and not right under the Agreement, it was perfectly just and proper for the Appellant to have honoured the Agreements in favour of third parties and to have agreed to pay them compensation in view of their foregoing right to receive the property by payment of consideration.
16. In any event the Learned Commissioner of Income Tax (Appeals)-V failed to appreciate that the Appellant had to give a representation / warranty in the sale deed executing in favour of the 3,,1 party to the effect that there were no prior agreements of sale in respect of the property that was sold and the Appellant would have made deliberate false statements had these agreements been suppressed. Consequently the payment of compensation which as a fact having not been disbelieved in as much as the payments were made through crossed cheques in favour of the Agreement holders. The Learned Commissioner of Income Tax (Appeals)-V ought to have summoned the payees who are agreement holders to question them about the TDS (which is obvious mistake made by the payee while acknowledging demand) and ought to have put the said fact against the Appellant.
17. The statement in para 7.6 of the order of the learned Commissioner of Income-tax (Appeals)-V that the Appellant created a web of false evidence was uncalled for and is not based on fact but on the surmises of the Commissioner and consequently deserves to be set aside.
3. The crux of first ground is with regard to sustaining addition made by the CIT(A) at Rs. 1,81,10,000 by invoking provisions of section 50C of the Income-tax Act, 1961. The second ground is with regard to sustaining an addition of Rs. 2,18,52,625 towards indexed cost of acquisition. The third ground is with regard to sustaining an addition of Rs. 2,36,00,000 towards compensation paid with whom agreement for sale was entered into by the assessee in the year 1993 which was not honoured. The fourth ground is with regard to sustaining an addition towards compensation paid to Sri B. Rajendra Prasad of Rs. 28,00,000. The assessee also raised one more additional ground with regard 6 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== sustaining disallowance of Rs. 7,12,932 towards municipal taxes. The assessee also filed a petition seeking admission of additional ground wherein it is stated that this issue was raised before the CIT(A) but, inadvertently, it was missed out while filing the appeal before the Tribunal and requested the Tribunal to admit the additional ground. We have considered the request of the assessee and satisfied about the reasons advanced by the assessee. Accordingly, we admit the additional ground also for adjudication.
4. First we will take up the ground relating to addition of Rs. 1,81,10,000 made by invoking the provisions of section st nd 50C of the Income-tax Act, 1961. The 1 and 2 grounds of appeal relate to the addition of Rs. 1,81,10,000 invoking the provisions of section 50C of the Act. The facts are that the assessee filed her return of income admitting a total income of Rs. 6,97,66,941. The assessee entered into an agreement on 31.3.2006 for sale of land at Survey No. 121/139, Shaikpet village in Town Survey No. 3 of Ward 12, Block - K, Road No. 12, Banjara Hills, Hyderabad. This agreement was entered into with Zade Realtors for a consideration of Rs. 13.5 crores. The possession of the land was handed over on 01.04.2006. The Assessing Officer found that 15,311 sq. yards of the property had been sold and the market value was Rs. 15,31,10,00. The appellant, on the other hand, had shown the sale consideration only at Rs. 13,50,00,000/-. By giving the following reasons, an addition Rs. 1,81,10,000/- was made under section 50C of the Act:
"It is noticed from the Registered Sale Deed that market value of the property was Rs. 15,31,10,000/- whereas, the consideration offered by the assessee is Rs. 13,50,00,000/- only. The Authorized Representative was asked vide order sheet entry dated 23.11.2009 to explain why the sale consideration should not be adopted at Rs. 15,31,10,000/- as per the 7 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== provisions of section 50C of the I.T. Act. Section 50C reads as under:
"where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer."
The assessee had not furnished the explanation till date. Hence, it is deemed that he has no objection for adopting the sale consideration as per the provisions of section 50C of the I.T. Act. Hence the difference of Rs. 1,81,10,000/- is treated as Capital Gains in the hands of the assessee as per the provisions of section 50C."
4.1 On further appeal, the CIT(A) confirmed the action of the Assessing Officer. Against this, the assessee is in appeal before us.
4.2 The learned AR submitted that the assessee actually transferred only 13,500 square yards (for short sqy) and it is not 15,311 sqy. Further, he submitted that the DVO who has inspected the property on 12.12.2009 has wrongly stated that the land in question is of 15,311 sqy. He submitted that the valuation officer valued the property wrongly mentioning 15,311 sqy instead of 13,500 sqy. He also drew our attention to the valuation report wherein the measurement of land is mentioned at 15,311 sqy. He also drew our attention to the Rectification Deed dated 11.12.2009 which was duly registered with the Sub-Registrar on 16.12.2009, as per which the total area is 13,500 sqy. He submitted that as evidenced from the rectification deed an extent of 1,811 sqy land which was large area belonging to the owners of neighbouring Survey Nos. mentioned in the area covered by 8 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== roads and available area is only 13,500 sqy. Accordingly he submitted that at any stretch of imagination this cannot be considered as assessee transferred 15311 sqy of land vide sale deed dated 13.3.2006.
4.3 The DR submitted that the area of land transferred by the assessee is only 15311 sqy and it was duly mentioned in both agreement of sale and sale deed dated 1.4.2006. He submitted that rectification deed has no legal value. The original sale deed was not cancelled by rectification deed. The original sale deed was made in April, 2006. However, the rectification deed was made after three years i.e., on 29.10.2009. According to the DR it is beyond human probability and too in present days it does take such a long time to locate the mistake in mentioning the area of land transferred. He submitted that the DVO inspected the property on 12.12.2009 and confirmed the area transferred is 15,311 sqy. He submitted that the valuation report submitted by the registered valuer cannot be acted upon as it is very vague and the value mentioned cannot be adopted. He relied on the order of the CIT(A).
4.4 We have heard both the parties and perused the material on record. Admittedly, in this case the assessee made a rectification deed correcting the area mentioned therein in the sale deed. The assessee also explained the reasons for delay in executing the rectification deed that the assessee is an old lady of 86 years old and she is not aware of the income-tax law. On behalf of the assessee, assessee's son B. Vikram Reddy has been appearing before the Revenue authorities. The mistake mentioned in the area in the sale deed was found at a later stage and on this count rectification deed was executed on 11.12.2009 and registered on 9 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== 16.12.2009. Further on calling the Remand Report by CIT(A) from the Assessing Officer, the Assessing Officer observed as follows:
"1.2 The assessee filed a copy of rectification deed dated 11.12.2009 registered as document No. 3842/09 and requested the CIT(A) to admit the same as additional evidence. I have called for the Original Deed and examined the same. On verification of the deed, it is noticed that the rectification deed was executed for the purpose of recording the correct extent of the land area transferred to the purchaser. As per the Original Deed the site area was 15,311 sq. yds where as the site area transferred as per rectification deed is 13,500 sq. yds.
1.3 It is explained that the difference of 1,811 sq yds is due to the fact that the site of 977 sq yds belonged to Late Aziz Ahmed Khan owners if neighbouring survey no. 129/48 and extent of 834 sq yds was acquired by the Municipal Corporation, Hyderabad. The assessee produced a copy of proceedings of the Special Officer and Competent Authority, Urban Land Ceiling, Hyderabad In F. No. EI/13497/76, dated 12.5.2007 In proof of transfer of land from the assessee to the legal heirs of Aziz Ahmed Khan. The assessee furnished a copy of the approved lay out plan in permit No. 457/28/93/SD dated 14.7.95 stipulating certain conditions.
1.4 Inspector of Income Tax of this office was deputed to enquire from the purchasers of the land regarding the actual extent of site area transferred by the assessee. A copy of the Enquiry report of the Inspector and the letter obtained from the Purchasers, viz M/s. Jade Realtors are forwarded herewith. In view of the above facts, the actual area transferred is 13,500 sq yds only."
4.5 As seen from the contents of the Remand Report, the Assessing Officer confirmed that the area transferred is 13,500 sqy instead of 15,311 sqy. The only reason for not accepting the area transferred at 13,500 sqy by the CIT(A) is that the rectification deed was belatedly executed. In our opinion, the assessee explained the reasons for executing the Rectification Deed belatedly and we are in agreement with the Remand Report submitted by the Assessing Officer that the area transferred is only 13500 sqy. Being so when we 10 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== consider the area at 13,500 sqy as per Rectification Deed which is duly registered with the Sub-Registrar and in the circumstances the value mentioned by the assessee for transferring of 13500 sqy is not less as compared to the value adopted by the State authorities for stamp duty valuation. Being so, the addition cannot be sustained on this count. Accordingly, this addition is deleted. This is so, because the Rectification Deed is in writing duly executed by both the parties and then it would reckon back to the date of sale deed and it is to be considered as correct as per Evidence Act s. 114 unless it is proved contrary by the Department. Accordingly, we allow this ground.
5. The next ground is with regard to the disallowance of indexed cost of acquisition at Rs. 2,18,52,625. Brief facts of the issue are that while calculating the capital gains, the Assessing Officer took the SRO value as on 1.4.1981 at Rs. 25 per sqy and gave the benefit of indexing on this amount. On the other hand, the assessee submitted that a valuation report from a private valuer stating that the cost of land as on 1.4.1981 was Rs. 300 per sqy. The Assessing Officer did not accept the plea of the assessee and made an addition of Rs. 2,18,52,625 by giving the following reasons:
"The assessee claimed the cost of land as on 1.4.1981 at Rs. 300 per sq. yards as per the valuation report of a private valuer. The SRO value as on 1.4.1981 is only Rs. 25 per sq. yard. The Authorised Representative could not give proper reasons for adopting the value at a higher price than the value of SRO. Hence, the cost of acquisition is taken at Rs. 25/- per sq. yard and the excess indexed cost of acquisition of Rs. 2,18,52,625 is disallowed."
5.1 The AR submitted that as per registered valuer report dated 2.8.2007 the market value of the property as on 1.4.1981 being at Rs. 300 per sqy and the same has to be followed. He submitted that the property is located at a 11 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== prime locality in the heart of the city and at any stretch of imagination it cannot be considered at Rs. 25 per sqy. The assessee's land is situated at Sy. No. 129-31, Banjara Hills Road No. 12, Hyderabad. The valuation report from the registered valuer shows the value at Rs. 250 to Rs. 300 per sqy. So, it can reasonably estimated at Rs. 300 per sqy. According to the AR guidance value for stamp duty purposes cannot be considered as a basis for valuing the property. It gives misleading picture of the value of the property. He relied on the order of the Tribunal dated 29th April, 2005 in ITA No. 276/Hyd/2003 & Ors., in the case of Shri G. Vijay, Hyderabad & Ors., wherein the Tribunal held that reliance to be placed on the highest sale value instance in the area and not on the sale instances showing the least rate in the area. When there are several sale instances, it is advisable to select the one where the highest value has been declared. He relied on the judgement of P & H High Court in the case of CIT vs. Mohan Singh (112 ITR 43). He further relied on the order of the Tribunal dated 29th October, 2010 in ITA No. 107/Hyd/2010 in the case of Ashven Datla wherein held that it is safe to the Department to estimate the FMV as on 1.4.1981 on the basis of the valuation officer's report.
5.2 On the other hand, the learned DR submitted that the SRO rate cannot be considered which very vague. He further submitted that a plain reading of the above shows that extremely vague and highly subjective words are written by the private valuer. He states that infrastructure facilities like water supply, power supply, etc., were available and markets, schools, hospital are located close to the property. These facts are very general in nature and it would be inconceivable that these facts are not known to the Collector of the District as well as to the District Administration who fix the SRO 12 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== rates. The SRO rates may not reflect the exact sale price of each and every property but they are scientifically based on the actual market rates of the area. They are not at all fixed randomly on whims and fancies. The difference between the SRO rates and market rates is never 1200% as has been claimed by the assessee. A further look at the valuation report of the private valuer shows that he has not quoted a single instance of sale and purchase above the SRO rates in the area. He merely stated that he had made some local enquiries and adopted the rate of Rs. 300/- per sq. yard. Such vague and fanciful statements have no evidentiary value whatsoever. The valuer has not even quoted the name and address of any agent or contractor whom he had contacted. It is also worth noting that he is stated to have visited the site on 30.07.2007 and has collected all the relevant information, without stating any details of any information collected.
5.3 We have heard both the parties on this issue. The Assessing Officer adopted the FMV of the land as on 1.4.1981 at Rs. 25 per sqy. The assessee wants to substitute it at Rs. 300 per sqy as per SRO rate. In our opinion, the value is to be considered at Rs. 300 per sqy which is based on the Registered Valuer report which is very reasonable as compared to the value of the property as on the date of sale at Rs. 11,000 per sqy. Considering the Registered Valuer report and by applying the reverse indexation method, in our opinion, the value is to be considered at Rs. 300 per sqy as on 1.4.1981 is very reasonable and we agree with the assessee. This ground is allowed.
6. The third ground is with regard to disallowance of compensation at Rs. 2.36 crores paid to various persons and Rs. 28 lakhs paid to Mr. B. Rajendra Prasad. Brief facts of 13 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== the issue are that the during the course of assessment proceedings, it was noticed that the assessee had shown as paid an amount of Rs. 2,36,00,000/- to five persons with whom the agreement of sale of plots were entered into in the year 1993 and which were not honoured by the assessee. Similarly, Rs. 28,00,000/- was claimed to have been paid to Sri B. Rajendra Prasad and his wife with respect to the litigation. The Assessing Officer rejected the above claim and made the additions by giving the following reasons:
"8. Disallowance of compensation claimed to have been paid:
It is claimed by the assessee that an amount of Rs. 2,36,00,000/- was paid to 5 persons with whom agreements for sale of plots were entered in the year 1993 which were not honoured. The assessee produced Xerox copies of agreement of sale with two persons namely Smt. K. Jayasree and Sri M. Narasimha Reddy both were unregistered and in which the sale consideration was not mentioned. The assessee had not have been filed such copies of agreement with other persons i.e. Ram Reddy, Prathap Reddy, K.S.N. Reddy and Smt. Chandrakala. Leave alone producing the persons or providing proof, even confirmation from the above persons was not filed. Hence, the claim of the assessee is devoid of any merit and the claim of payment of compensation amounting to Rs. 2,36,00,000/- is hereby disallowed.
9. Compensation paid to Sri B. Rajendra Prasad:
The assessee claimed to have paid an amount of Rs. 28 lakhs to one Sri B. Rajendra Prasad in the computation of Long Term Capital Gains. It is the claim of the assessee that as per the agreement dated 10.03.2006 entered with Sri B. Rajendra Prasad and his wife, an amount of Rs. 28 lakhs was paid to surrender the land which they have legally accepted and in order to get rid of long pending litigation. The assessee furnished copies of cheques dated 10.03.2006 for Rs. One lakh and Rs. 4 lakhs respectively and also two receipts for Rs. 13 lakhs each. Thus, as per the agreement dated 10.03.2006 the assessee claimed to have been paid Rs. 28 lakhs. Further, the assessee had not furnished any further evidence such as confirmation from Sri Rajendra Prasad. In view of the above, the claim of the assessee is rejected."14 ITA No. 1618/Hyd/2011
Smt. B. Sarada Reddy =================== 6.1 The AR submitted that the assessee had paid compensation because of breach of contract. The assessee had entered in to agreements of sale with five persons for sale of plots in 1993. She had also produced the copies of the agreements before the Assessing Officer. She had committed breach of agreements and had to pay compensation aggregating to Rs. 2,36,00,000 to those parties. She had explained that she had committed breach of contract and was legally liable to compensate the parties before she could go ahead with the present deal. Actually she had obtained confirmations from the parties and approached the Assessing Officer to furnish the same. The Assessing Officer without giving opportunity had disallowed the entire claim of Rs.
2,36,00,000 paid towards compensation. The compensation of Rs. 2.36 crores was paid and confirmation letters were obtained from three recipients namely K. Jayasree, P. Pratap Reddy and K.V. Narasimha Reddy. The assessee could not furnish confirmation from Mr. M. Narasimha Reddy, as that person has expired. The AR submitted that the entire compensation of Rs. 2.36 crores was paid through account payee cheques only. The addresses of persons to whom compensation was paid are on record.
6.2 The AR submitted that the assessee had paid a compensation of Rs. 28,00,000 to Mr. B. Rajendra Prasad towards his claims on the land, which was agreed to vide agreement dated 10.3.2006. The assessee claimed the compensation of Rs. 28.00.000 paid to B. Rajendra Prasad as deduction from sale consideration received. The assessee had furnished the copy of the agreement with B. Rajendra Prasad and also copies of cheques issued and receipts given by B. Rajendra Prasad. The Assessing Officer declined to accept the evidence furnished by the assessee and disallowed the 15 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== claim for payment of compensation of Rs. 28,00,000 and added the same. The AR submitted that the entire set of documents evidencing payment of Rs. 28,00,000 compensation to B. Rajendra Prasad are on record.
6.3 The DR submitted that the claim of the assessee is that in 1993, the assessee is stated to have entered into an agreement of sale with one Sri Pratap Reddy, Smt. Jayasree, Sri K V Narasimha Reddy and later with Sri B Rajendra Prasad, etc., for the sale of land in question. As per the assessee, the sale never materialized and in 2006 a total compensation amounting to Rs. 2,36,00,000 + Rs. 28,00,000 was given to these people. Letters of confirmations were filed, some during appeal proceedings and some during assessment proceedings. The assessee has also filed uncertified photocopies of some agreements supposed to have been entered in 1993. The entire evidence along with the additional evidence was sent to the Assessing Officer for his remand report, who clarified that some of the persons received the money in 2006. The DR submitted that the assessee failed to prove the genuineness of the transaction.
6.4 We have heard both the parties and perused the material on record. During the course of appellate proceedings with the CIT(A) Remand Report was called from the Assessing Officer. The Remand Report on this issue reads as follows:
"2. Disallowance of compensation claimed to have been paid:
2.1 During the course of assessment proceedings, the assessee claimed the payment of compensation of Rs. 2,36,00,000, but no confirmations were filed. Hence, the claim of the assessee was disallowed devoid of merit.
2.2. The assessee filed confirmations from the payees of 16 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== compensation viz., Shri P. Pratap Reddy for Rs. 64,00,000/-, Smt. K. Jayasree for Rs. 64,00,000, from Shri K.V. Narasimha Reddy for Rs. 24,00,000, Shri B. Rajendra Prasad for Rs. Rs.
4,00,000, Rs. 1,00,000 and Rs. 13,00,000 respectively and requested the CIT(A) to admit the same as additional evidence.
2.3 I have examined the bank account pass book of the assessee and the entries regarding the debit of these payments. Inspector of Income Tax of this office was deputed to enquire from the persons who have received the compensation paid by the assessee. A copy of the Enquiry report of the Inspector and the letters along with copies of Bank Accounts obtained from the S/Sri K. Jayashree, Dr. Chandra Lekha Reddy and K. V. Narasimha Reddy are forwarded herewith. A copy of confirmation letter from The Senior Manager, The Federal Bank Ltd, Sultan Bazar Branch, Hyderabad dated 26-5-2011 showing the realisation of cheque issued by the assessee to Sri P. Pratap Reddy is enclosed. In view of the above facts and after verifying the confirmation and the Bank statement, payment of an amount of Rs. 1,72,00,000/- is acceptable. As far as payment of Rs. 64,00,000/- to late M.M. Narasimha Reddy by the assessee is not acceptable in the absence of confirmation letter by the payee.
3. Disallowance of compensation paid to Sri B. Rajendra Prasad:
3.1 During the course of assessment proceedings, the assessee was asked to furnish the confirmation from Sri B. Rajendra Prasad regarding the payment of compensation. As the assessee failed to furnish the confirmation, the amount of Rs.
28,00,000/- was disallowed. The assessee filed a copy of agreement with Sri. B. Rajendra Prasad for payment of Rs. 28,00,000/- towards compensation and requested the CIT(A) for admission of the same as additional evidence.
3.2 I have examined the agreement and the payment details. There is confirmation from Sri. B. Rajendra Prasad for Rs. 13,00,000/- only being paid in cash. However, the assessee produced corroborative evidence for Rs. 15,00,000/- in the form of Bank pay-in-slip and withdrawals from the Bank account of the assessee. Hence, the above payment is acceptable."
6.5 Being so the Assessing Officer has no grievance for allowability of Rs. 1.72 crores and the only objection is with regard to Rs. 64 lakhs out of Rs. 2.36 crores. Accordingly this payment is genuine to the extent incurred by the 17 ITA No. 1618/Hyd/2011 Smt. B. Sarada Reddy =================== assessee in relation to the transfer of property. Accordingly, this ground is partly allowed.
6.6 Regarding the payment of Rs. 28 lakhs paid to Mr. B. Rajendra Prasad, the Assessing Officer accepted the payment of Rs. 15 lakhs as genuinely incurred for the purpose of transfer of property. However, he has not accepted payment of Rs. 13 lakhs. In our opinion, when the Assessing Officer himself accepted the payment of Rs. 15 lakhs as genuine, there is no reason to disallow the same and the same is accepted and allowed. This ground is partly allowed.
7. The next ground, additional ground, is with regard to municipal taxes at Rs. 7,12,932. We have heard both the parties and perused the material on record. Municipal taxes paid by the assessee on yearly basis cannot be considered as a cost of acquisition or cost of improvement allowed while determining the capital gain. On the other hand, if it is incurred as a betterment/development charges which is a onetime payment, that is to be considered as part of cost of acquisition of the capital asset and the same has to be considered while computing the capital gain. This issue is remitted back to the file of the Assessing Officer to decide the same accordingly.
8. In the result, assessee's appeal is partly allowed.
Order pronounced in the open court on 9th January, 2013, Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 9th January, 2013
tprao
18 ITA No. 1618/Hyd/2011
Smt. B. Sarada Reddy
===================
Copy forwarded to:
1. Smt. B. Sarada Reddy, c/o. M/s. Sandeep Reddy Sama, st Uma Sankar, V. Basava Raju, Advocates, Flat No. D, 1 Floor, Uma Enclave, Rd No. 9, Banjara Hills, Hyderabad-34.
2. The Addl. Commissioner of Income-tax, Range-4, Hyderabad.
3. The CIT(A)-V, Hyderabad.
4. The CIT-IV, Hyderabad.
5. The DR - B Bench, ITAT, Hyderabad.