Income Tax Appellate Tribunal - Chandigarh
Sh. Anil Malhotra, Ludhiana vs Dcit, C-Vii, Ludhiana on 30 April, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A', CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.239/CHD/2018
Assessment Year:2008-09
Shri Anil Malhotra v. Dy. CIT
B-XIX-160, Col. Gurdial Singh Road Circle VII
Ludhiana Ludhiana
TAN/PAN:ACHPM4858R
(Appellant) (Respondent)
Appellant by: Shri Pankaj Bhalla, C.A.
Respondent by: Shri Abhishek Pal Garg, D.R.
Date of hearing: 02 04 2019
Date of 30 04 2019
pronouncement:
ORDER
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER:
The above captioned appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-4, Ludhiana, (in short referred to as CIT(A), u/s 250(6) of the Income Tax Act, 1961, (hereinafter referred to as "Act") and pertains to assessment year (A.Y) 2008-09.
2. Earlier the appeal had been dismissed for non-prosecution and thereafter recalled vide order in MA No.14/CHD/2018, dated 15/1/2019. Hence the present appeal before us. The assessee has raised the following grounds of appeal:-
ITA No.239/CHD/2018 Page 2 of 181. That on the facts and circumstances of the case, the order passed by the Assessing Officer and confirmed by the CIT(A), is bad in law.
2. That on the facts and circumstances of the case and in law the CIT (A) erred in confirming the addition of Rs. 24,290/- under head "Income from House Property" without any base & reasons thereof.
3. That the Ld. CIT(A) erred in law and facts in directing A.O. to make reference to the Valuation Officer (In remand proceeding u/s 250(4)) to determine FMV as on 01.04.1981 in contravention to the expressed provisions of section 55A of the Income Tax Act, 1961.
4. That without prejudice to above, the valuation report of the DVO is bad in law and void ab initio on account of contravention to the principles of natural justice.
5. That the Ld. CIT(A) erred in law & fact in failing to accept the valuation report of the Registered Valuer of the property as on 01.04.1981 without any base & reasons thereof.
6. That the Ld. CIT(A) erred in law & fact in failing to allow the extension fees paid as "cost" u/s 55 r.w.s. 48 without any base & reasons thereof.
3. Ground No.1 is general in nature and needs no adjudication.
4. Grounds No.2 and 4 were not pressed before us and are, therefore, treated as dismissed.
5. The rest of the grounds, it was pointed out, relate to the issue of computation of capital gains earned by the assessee on sale of asset. Drawing our attention to para 3 of the assessment order, where the issue was discussed and dealt with, it was pointed out that the assessee had ITA No.239/CHD/2018 Page 3 of 18 transferred a property situated at Plot No.606, Sector 15, Faridabad for Rs.39 lakhs during the year and computed the capital gain earned on the same at Rs.5.94 lakhs by adopting the cost of acquisition of the asset in financial year 1981-82, based upon the valuation report prepared by the Government Approved Valuer. The Assessing Offcer (A.O) noted,it was pointed out, that the plot had been allotted to Mrs. Vidya Rani Malhotra, mother of the assessee originally on 30/11/1967, but subsequently the sale deed was executed by Haryana Urban Development Authority (HUDA) in favour of the assessee on 15/10/1984 for a total consideration of Rs.15,210/-. The A.O. confronted the assessee as to why computation of capital gain not be made on the basis of transfer deed dt 15/10/1984. The assessee in reply stated that the plot was transferred in his name by way of the last Will of his mother who had expired in the year 1980 and, therefore, provisions of section 49(1)(ii) of the Act, requiring the cost of acquisition of asset acquired under a gift or Will, to be the cost for which previous owner of the property acquired it, to be not applicable. The A.O. rejected the contention of the assessee and stated that since the deed of conveyance of the plot in question was transferred by HUDA in favour of the assessee on 15/10/1984 for a total consideration of Rs.15,210/-, there was no need to ascertain the value of the plot for financial year 1981-82, since the date of conveyance deed was to be adopted as the date of acquisition and the cost of acquisition to be taken at Rs.15,210/-. Further the Assessing Officer (A.O.) found the valuation report defective, since he noted that the Valuer had reported the fair market value (FMV) of the plot at Rs.1,200/- per square yard, without giving any basis and the AO held that the same was only an estimate without any basis and thus could not be considered. Accordingly, the capital gain earned by the assessee was calculated at Rs.38,32,954/-, as under:-
ITA No.239/CHD/2018 Page 4 of 18 i) Date of acquisition of Plot 15.10.1984
ii) Cost of acquisition of plot Rs.15,210/-
ill) Cost of improvement NIL
Iv) Indexed cost of acquisition 15210 x 551 67,046/-
125
v) Full value of transfer/ consideration = 39,00,000/-
Capital Gains (v-vi) = 38,32,954/-
6. Aggrieved by the same, the assessee carried the matter in appeal before the Ld. CIT(A) where, besides challenging the act of the A.O. in taking the cost of acquisition of the asset at Rs.15,210/-, the assessee also raised an additional ground stating that the A.O. had failed to take into consideration the extension fees paid by the assessee for the purpose of calculating the cost of acquisition of the asset. The Ld. CIT(A) invited the comments of the A.O. on the additional ground raised and further asked him to obtain report of the Valuer. After considering the reply filed by the A.O. and the report of the Valuer, procured by the A.O., the Ld. CIT(A) held that considering the fact that the plot was acquired by way of inheritance from his mother, the date of allotment of the plot by HUDA was to be taken as the date of acquisition of capital asset in favour of the assessee, which was taken as 30/11/1965. He further held that the cost of acquisition, therefore, would be the market value of the asset as on 1/4/1981. Thereafter, the Ld. CIT(A) considered the Valuation Report of the Government Approved Valuer, filed by the assessee and upheld the findings of the A.O. that the same was defective, thus rejecting the valuation report. He, thereafter, considered the valuation of the property got done by the A.O. under section 142A of the Act in the remand proceedings and found that the same had been made on the basis of sale instances of the property in the near vicinity. He accordingly directed the A.O. to determine the long term capital gain by taking the date of ITA No.239/CHD/2018 Page 5 of 18 acquisition of the property as 30/11/1967 and the fair market value as determined by the Valuation Officer as on 1/4/1981 at Rs.65,000/-. The cost of improvement of the property was directed by the Ld. CIT(A) to be taken at Nil. Accordingly, the long term capital gain was determined by the Ld. CIT(A) at Rs.35,41,850/- as under:-
Full value of consideration on transfer Rs.39,00,000/- Cost of acquisition as on 01.04.1981 Rs.65,000/-
Cost Improvement Nil
Indexed cost of acquisition 65000 x551
100
Long Term Capital Gain Rs.3,58,150/-
Rs.35,41,850/-
7. Before us, Ld.Counsel for the assessee first took up ground No.3 challenging the reference made to the Departmental Valuer and thus determining the value of the property at Rs.65,000/- on the basis of report of the Valuation Officer. It was contended that the reference made to the Valuation Officer under section 142A of the Act by the A.O. was bad in law, as the said section did not permit reference for the purposes of determining the cost of acquisition of asset for calculating the capital gains earned on sale of assets. Our attention was drawn to section 142A of the Act as prevalent for the impugned Assessment Year, as under:-
"142A.(1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.ITA No.239/CHD/2018 Page 6 of 18
(2) The Valuation Officer to whom a reference is made under sub-
section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).
(3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment:
Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A.
Explanation.--In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]"
8. Referring to the same, the Ld. Counsel for the assessee pointed out that under the provisions of section 142A of the Act, reference for valuation could have been made only for the purposes of sections 69, 69B or 69A of the Act. It was contended that there was no mention of section 48 in the said section and, therefore, reference under section 142A could not have been made for the purposes of determining the value of asset for determining the capital gains earned thereon. The Ld. Counsel for the assessee further referred to the following case law stating that reference under section 142A of the Act was illegal and not sustainable for the purposes of valuation under section 48 of the Act:-ITA No.239/CHD/2018 Page 7 of 18
ITO, Ward 2(4), Ahmedabad vs. Chandrakant R Patel [2011] 11 taxmann.com 180
9. The Ld. Counsel for the assessee further contended that even as per provisions of section 55A of the Act, which provided for reference to be made to the Valuation Officer for the purposes of determining the value of asset under section 48 of the Act, no reference could have been made in the impugned year as per the prevailing provisions of the said section. Our attention was drawn to the provisions of section 55A of the Act as prevailing for the impugned year, as under:-
"55A.With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the [Assessing] Officer may refer the valuation of capital asset to a Valuation Officer--
(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the [Assessing] Officer is of opinion that the value so claimed is less than its fair market value;
(b) in any other case, if the [Assessing] Officer is of opinion--
(i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or
(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-
section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) ITA No.239/CHD/2018 Page 8 of 18 of section 24, section 34AA, section 35 and section 37 of the Wealth- tax Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the [Assessing] Officer under sub-section (1) of section 16A of that Act.
Explanation.--In this section, "Valuation Officer" has the same meaning, as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]"
10. Referring to the same, the Ld. Counsel for the assessee contended that as per sub-clause (a) of the said section, reference to a Registered Valuer could have been made by the A.O. only if in his opinion the value of the asset as claimed by the assessee on the basis of estimate made by a Registered Valuer was less than its fair market value. The Ld. Counsel for the assessee pointed out that in the present case, the value of asset claimed by the assessee on the basis of valuation made by the Registered Valuer was, as per the A.O., more than the fair market value and, therefore, the A.O. could not have made reference to the Registered Valuer as per provisions of section 55A of the Act. The Ld. Counsel for the assessee drew our attention to various decisions of ITAT wherein it was held that the A.O. could have referred the issue of valuation of Departmental Valuation Officer only if in his view the valuation of the property as in 1981 as made by the assessee was lower than the fair market value and not otherwise. The case laws referred to are, as under:-
1. CIT vs. Puja Prints [2014] 43 taxmann.com 247 (Bombay)
2. DCIT vs. Bombay Oxygen [2017] 86 taxmann.com Corporation Ltd. 88 (Mumbai)
3. Mrs. Anjali Bhjarat Kabra vs. [2016] 75 taxmann.com 5 ITO (Pune-Trib.) ITA No.239/CHD/2018 Page 9 of 18
4. Pradeep G. Vora vs. ITO [2015] 58 taxmann.com 110 (Mumbai)
5. Seksaria Industries (P) Ltd. vs. [2016] 69 taxmann.com ITO 342 (Mumbai - Trib.)
6. ITO, Ward 3(3), Kolkata vs. M/s ITA No.203/KOL/2016 Pioneer Iron & Steel (ITAT, Kolkata)
7. Ram Prakash & Co. Pvt. Ltd. vs. ITA No.1030/DEL/2013 ITO, New Delhi (ITAT, Delhi)
11. Ld.DR on the other hand supported the action of the AO.
12. We have heard the rival contentions and perused the orders of the authorities below. The assessee has contested the computation of capital gains earned by the assessee, by the Ld. CIT(A) at Rs.35,41,850/-
as against Rs.5.94 lakhs computed by the assessee by challenging the reference made to the Valuation Officer by the A.O. for determining the cost of the asset as on 1/4/1981 under the provisions of section 142A of the Act who in turn had determined the cost of the asset as on 01-04-81 at Rs.65,000/-. The Ld. Counsel for the assessee has also stated that even as per the provisions of section 55A of the Act, the A.O. could not have made reference to the Valuation Officer for determining the cost of the asset as on 1/4/1981 as per the facts of the present case.
13. We are in agreement with the contention of the Ld. Counsel for the assessee. Undeniably, reference under section 142A of the Act, as per the then prevailing provisions of the law for the impugned Assessment Year, could have been made only for the purposes of determining the value of any investment for the purposes of sections 69, 69B or the value of any bullion, jewellery or any other valuable article referred to in sections 69A or 69B of the Act. Section 142A of the Act does not authorize reference to the Valuation Officer for the purposes of computing ITA No.239/CHD/2018 Page 10 of 18 the cost of a capital asset for computing capital gains earned on the sale thereof.We, therefore, hold that the reference made by the A.O. u/s 142A of the Act was bad in law and the valuation, therefore, done in accordance with the said reference by the Valuation Officer could not have been adopted for the purpose of determining the cost of acquisition of the asset for computing the capital gains earned by the assessee in the impugned case.
14. We also agree with the Ld. counsel for assessee that even as per the provisions of section 55A of the Act the A.O. could not have made a reference in the present case to the Valuation Officer for determining the cost of the acquisition of the asset.As is evident from a bare reading of the section, in cases where the value of the asset has been claimed by the assessee in accordance with an estimate made by a Registered Valuer, as in the present case, the A.O. in such circumstances can refer the valuation to a Valuation Officer only if in his opinion, the value so claimed by the assessee is less than its fair market value. In the present case, undeniably the opinion of the A.O. was that the value of the asset claimed by the assessee on the basis of an estimate made by a Registered Valuer was more than its fair market value since the Valuation Officer has clearly valued the property at far less than the value estimated by the Registered Valuer. The A.O., therefore, as per the prevailing provisions of law ,as brought out in section 55A of the Act, could not have referred the valuation of the asset to the Valuation Officer.
15. We therefore hold that the reference made by the A.O in the present case,under the provisions of section 142A of the Act was not in accordance with law and the valuation, therefore, made by the Valuation Officer cannot be adopted for the purpose of determining the capital gains earned by the assessee. Ground of appeal No.3 raised by the assessee is, therefore, allowed.
ITA No.239/CHD/2018 Page 11 of 1816. In ground No.6, the assessee has agitated the act of the Ld. CIT(A) in not giving benefit of the extension fees paid by the assessee for the purpose of calculating the cost of acquisition of the asset.
17. Briefly stated the facts relating to the issue under consideration are that before the Ld. CIT(A), the assessee had raised an additional ground that the A.O. had wrongly calculated income under the head capital gain, having failed to deduct indexed amount of Rs.5,20,480/- on account of payment of extension fees. The ground raised by the assessee as reproduced at para 4.1 of the Ld. CIT(A)'s order is, as under:-
"Ground No. 5:- The Ld. A.O. has wrongly calculated the income under the head 'Capital Gain' as he failed to deduct the indexed amount of Rs.5,20,480/- on account of payment of extension fees though the evidences were placed on records.
The Ld. A.O. failed to allow the Indexed cost of payment of Rs.10,536/- as detailed here under:-
04.03.1980 855/-
08.12.1988 241/-
20.12.1988 1890/-
07.02.1991 7570/-"
18. The Ld. CIT(A) invited the comments of the A.O. on the same. The assessee further clarified the nature of extension fees paid to HUDA, after considering which the Ld. CIT(A) held that extension fees paid by the assessee was only to delay the construction of the plot and had no way improved or added to the assessee. He, therefore, denied addition of the said fees to the cost of asset.
19. Before us, the Ld. Counsel for the assessee explained the nature of the extension fees paid. Referring to para 4.5 of the Ld. CIT(A)'s order, ITA No.239/CHD/2018 Page 12 of 18 the Ld. Counsel for the assessee contended that according to HUDA policy, allottees are required to complete the construction of residential or commercial plot within two years from the date of offer of possession and the offer of possession was given after completing of the development work in the sector. It was pointed out that the provision of further extension of time for construction up to 13 years had also been made on same terms and conditions. The Ld. counsel for assessee contended that the completion of construction was essential for obtaining position of the flat, failing which the assessee would have lost his title over the plot and, therefore, the extension fees paid for extending the period of construction of plot was to be treated as cost of improvement of the asset. The Ld. counsel for assessee relied upon the following decision in support of its above contention:
1. Smt.Shanno Devi Bhatia Vs. ITO, ITA No.1199/Del/2011 dated 11.6.2012
20. Referring to the facts of the said case, the Ld. counsel for assessee pointed out that the issue before the I.T.A.T. was identical as in the present case as to whether extension fees paid for failing to construct house was to be treated as part of cost of construction of the house. It was pointed out that the ITAT held the extension charges paid for failing to construct the house within the stipulated time as representing the character of the composition fee and amount spent on improvement/defending the title of construction of house property and thus to be treated as part of acquisition of the asset. Our attention was drawn to the findings of the I.T.A. T. para 2 and at para 5 of the order as under:
"2. Brief facts are: The assessee sold property A-16, Geetanjali Enclave, New Delhi. While working out the cost of acquisition and improvement thereon, assessee included an ITA No.239/CHD/2018 Page 13 of 18 amount of Rs. 6 lacs paid to DDA as extension charges for failing to construct the house within the stipulated time as per the DDA rules. The amount was termed as composition fee for delay in construction for the period 1-10-1971 to 31-10- 1983, excluding the period upto 31-12-1975 (being amnesty period) and further extension upto 31-7-2007. The factum of payment is not disputed. The assessee claimed it to be capital expenditure incurred in connection with the removal of encumbrance for the construction of the house. AO, however, treated the same as payment of penalty and excluded the above amount from indexed cost of acquisition.
2.1. Aggrieved, assessee preferred first appeal, before CIT(Appeals) it was pleaded that there were certain disputes between the assessee and DDA, consequently it initiated proceedings to take over possession of the plot. Assessee in order to defend her title, approached the Hon'ble Delhi High Court and as per their directions this amount was paid. The amount being towards defending the title for the construction of house, was allowable towards cost of acquisition/ improvement on the title of the property. Reliance was placed on Hon'ble Bombay High Court judgment in the case of CIT Vs. Abrar Alvi 247 ITR 312. Ld. CIT(Appeals), however, confirmed the order of AO. Aggrieved, assessee is before us."
"5. We have heard rival contentions and gone through the relevant material available on record. The sole question for our consideration is, whether the amount in question is by way of penalty or composition and whether it can be attributed to the cost of acquisition cost or improvement of the assessee's title. In the facts and circumstances of the case we have no hesitation to hold that assessee would have lost her title over the construction of house if the issue was not agitated before the Hon'ble High Court and the amount was not paid for any criminal activity on the part of assessee but for not constructing the house property on the vacant DDA plot within stipulated time. Delay in construction may depend on so many factors including financial difficulties and other exigencies. The compensation paid in accordance with rules and as per direction of Hon'ble High Court, cannot be construed as penalty. The amount clearly represent the character of composition fee and amount spent on improvement/defending of her title on construction of house property. In our considered view, the same is to be included in ITA No.239/CHD/2018 Page 14 of 18 the cost of acquisition, which is allowable as per the scheme of computation of capital gains in income tax law. Thus, we allow the ground taken by the assessee."
The Ld. counsel for assessee also relied upon the decision of the I.T.A.T. Delhi Bench in the case of Capital Rubber Industries Vs. DCIT in ITA No.3581/Del/1996 dated 10..7.1997 pointing out that it was held in the said case that the extension fee paid was to be treated as cost of improvement and to be allowed while computing capital gains.
21. The Ld. DR, on the other hand, relied upon the order of the Ld.CIT(A) and contended that the extension fee paid neither resulted in any addition to the capital asset, nor in any alteration thereto but was only a payment made to defer the construction of the capital asset i.e. construction of the plot allotted by HUDA to the appellant and thus could not be treated as cost of improvement on the asset. The Ld. DR heavily relied upon the judgment of the Hon'ble High Court of Madras in the case of Smt.S Valliammai Vs. CIT, 6 Taxman 240 (Mad)(1981)(FB), which was relied upon by the Ld.CIT(A) while dismissing the assessee's plea in this regard. Our attention was drawn to the findings of the CIT(A) at paras 4.6 and 4.7 of the order as under:
4.6 As per the provisions of the Income Tax Act, 1961 quoted above, cost of improvement means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property. The expenditure incurred by the appellant for seeking of extention of time for construction from HUDA by the appellant can neither be stated to be resulting in addition to the capital asset nor resulting in alteration to the capital asset. The extention fees paid is the payment made to defer the addition or alteration of the capital asset i.e. construction on the plot allotted by HUDA to the appellant. Reliance in this regard is placed on the judgement ITA No.239/CHD/2018 Page 15 of 18 of Hon'ble High court of Madras in the case of Smt. S. Valliammai vs CIT 6 Taxman 240 (Med)(1981) (FB) wherein it was held that estate duty paid in respect of assets could not be treated as part of the Cost of acquisition' as defined in section 55(2) of the Income Tax, 1961.
The scope of the expression, "cost of acquisition of asset" and "cost of any improvement thereto", occurring ins, 48 of the Act, came up for consideration before a Division Bench of this court in CIT v. K Indira [1979] 111 ITR 837. In that case, the assessee's father had gifted to her a house property. A third party filed a suit claiming title to an area of land forming part of the gifted property. The assessee compromised with the said third party by paying him a sum of Rs. 6,943, She claimed that in computing the capital gains arising on the sale of the property, the said sum of Rs. 6,943 should be deducted as representing the cost of improvement to the property under s. 48 read with ss. 49(1) and 55(1 )(b) of the Act. That claim was rejected by the ITO as well as by the AAC. When the matter went before the Tribunal, it held that by paying the said amount the assessee perfected her title to the property by removing the cloud cast on it by a rival claimant and this involved an improvement to the assessee's title to the property and, therefore, (he amount in question would constitute the cost of acquisition within the meaning of s. 49(1) of the Act and the assessee is eligible to the deduction claimed by her. When the matter came to this court on a reference, the same contentions, which are now put forward before us, were urged. The Division Bench rejected those contentions and held that ,v. 48 of the Act provides for the deduction of cost of acquisition of the capital asset and also the cost of any improvement thereto subject to the terms of the other sections, that as the asset became the property of the assessee by way of gift, the cost of acquisition had to be the cost to the previous owner in accordance with s. 49(1), that as the previous owner had not paid the amount of Rs. 6,943 and the same had been paid only by the assessee, it could not be treated as the cost of acquisition to the previous owner and that, therefore, it could not qualify for deduction as the cost of acquisition of the asset. The court also held that the amount could not also be treated as "cost of any improvement thereto" as the expression "thereto" would appear to cover a case where the amount is expended on the asset itself. In the context, Sethuraman J. Speaking for the Bench, observed (p, 841) :
ITA No.239/CHD/2018 Page 16 of 18'We have now to examine whether the amount can be allowed as deduction as 'cost of any improvement thereto'.
The expression 'thereto' would appear to cover a case where the amount is expended on the asset itself. Improving the owner's title to the asset is different from improving the asset itself. Therefore, the amount paid as and by way of settlement of a claim to the person who disputed the title of the assessee, cannot be said to be an expenditure by way of any improvement to the asset as such."
4.7 The appellant has paid extention fees only to delay the construction on the plot. The extention fees payments has in no way improved or added to the asset i.e. plot allotted to the assessee. In view of the above, the payment of extention fees paid by the appellant for deferring the construction of the plot allotted by HUDA can not be said to be resulting in addition to or improvement to the capital asset. Therefore, claim of the appellant of extention fees as 'Cost of improvement' is rejected. The ground of appeal no. 5 is dismissed."
22. We have heard the rival contentions. The issue before us is whether the extension fees paid by the assessee to HUDA can be treated as being in the nature of cost of improvement of the asset and thus added to the cost of the asset.
23. Undoubtedly the extension fees are paid for seeking further time for completing the stipulated construction on plots allotted by Development authorities, failing which the plot is resumed by the authority. As per the policy of Development authorities , a stipulated percentage of construction is required to be completed within a specified period of time from allotment of plots ,failing which the plots are resumed by the authorities. Further extension in time period for construction is provided by payment of extension fees. Therefore there is no doubt that the extension fees paid is for securing the title to the asset and is therefore to be included as part ITA No.239/CHD/2018 Page 17 of 18 of cost of asset .The ITAT has ,we find, held so in the case of Shanno Devi Bhatia (supra) and also in the case of Capital Rubber Industries (supra).The contention of the Ld.DR that it does not result in any addition or alteration to the asset and therefore should not be treated as part of cost of asset ,merits no consideration since, it secures the title over the asset and therefore is a part of cost of asset. The reliance placed by the Ld.DR on the decision of the Hon'ble Madras High Court in the case of S. Valliammai(supra) ,we find is misplaced since it is distinguishable on facts as the issue in that case was whether estate duty could be treated as cost of asset. In the light of the said fact it was held by the Hon'ble Court that since the duty had been paid after the acquisition of the asset, it could not be said to have been incurred for acquiring the asset and hence could not be in the nature of cost of asset. It was further held that since the duty was not expended on the asset it could not be treated as cost of improvement also. The court held that the estate duty only improved the title over the asset. In the present case since the extension fees is paid for securing title over the asset and not improving title, it is distinguishable on facts from the case of the Hon'ble Madras high court and the proposition laid down therein will therefore not apply to the present case.
24. In view of the same we have no hesitation in holding that the extension fee paid by the assessee was in the nature of a composition fee, failing which he would have been deprived from construction over the property and title over the property would have been jeopardized. The same is, therefore, to be included in the cost of acquisition for the purpose of determining the capital gain earned on the sale/transfer thereof. The ground of appeal No.6 is, therefore, allowed.
ITA No.239/CHD/2018 Page 18 of 1825. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 30/04/2019.
[SANJAY GARG] [ANNAPURNA GUPTA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
DATED: 30/04/2019
JJ:
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR