The Ahmedabad bench of the Income Tax Tribunal in recent ruling held that, under the provisions of the Income Tax Act, 1961,the amount paid by the assessee as settlement of dispute in connection with a sale executed before more than two years cannot be allowed as expenditure since the LTCG liability accrued on the date of sale.
The assessee, in the instant case, filed his return of income without disclosing any income from Long Term Capital Gains (LTCG). The case was selected for scrutiny and it was found that assessee had not disclosed LTCG on the sale of immovable property whose stamp valuation was registered at Rs.1,17,83,250/- and apparent consideration at Rs.80,00,000/-. On confrontation of these facts, the assessee, left with no choice, filed a revised return of income offering the LTCG thereon. However, a claim of Rs.20 lakhs was made towards cost of improvement on the reason that this to settle an alleged dispute with some relatives of vendor, the payment was made more than two years after the sale by an alleged notarized document. The AO, however, disallowed the same on ground that the so called settlement dispute appears to be concocted and fictitious to reduce the tax liabilities of the assessee. Further it was observed by the AO that the assessee has not shown the long term capital gain on sale of the said land. Therefore, the argument of the assessee that he had paid taxes on sale consideration does not hold any water.”
The assessee’s claims was further dismissed by the CIT(A) on appeal by holding that per the provisions of IT Act, the capital gain has to be taxed in the year the land was transferred. Hence, the payment as per settlement deed executed in writing on 07.06.2011, even if genuine, cannot be taken into consideration for working out the capital gain arising on sale of land. There is no provision under the IT Act which provides for allowing deduction on account of expenditure which has been incurred subsequently, i.e. after the execution of sale deed and after the end of financial year in which the transaction of sale took place.
The Assessee approached the ITAT on second appeal contending that the settlement of dispute being after more than two years of sale deed is of no bar for allowability inasmuch as the existence of disputes existed prior to the date of sale of property.
The Tribunal accepted the grounds mentioned in the orders of the lower authorities that the alleged settlement of dispute after two years of the sale date cannot be held admissible to the assessee as the LTCG liability accrued on the date of sale.Further, it was found that the claim of the assessee is not genuine. On this basis, the claims of the assessee were dismissed.
Read the full text of the order below.
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