Payments made to Occupants for Vacating Property Prior to Sale Allowable in Computing Capital Gains: ITAT [Read Order]
Payments made to occupants for vacating a property prior to its sale are allowable as expenditure incurred wholly and exclusively in connection with the transfer while computing capital gains under the Income Tax Act
The Delhi Bench of the Income Tax Appellate Tribunal held that payments made to occupants for vacating a property prior to its sale are allowable while computing capital gains, being an expenditure incurred wholly and exclusively in connection with the transfer under the Income Tax Act, 1961.
During reassessment proceedings under Section 147 read with Section 143(3) of the Income Tax Act, the Assessing Officer examined the sale of a property by the assessee in Assessment Year 2010–11. The assessee, Saroj Makan, a co-owner holding 1/3 share, stated that the property situated at Beedonpura, Karol Bagh, Delhi, was purchased in 2002 and sold in 2011 for ₹2.52 crore, with her share being ₹84 lakh.
💼 Make Tax Audit Filing Faster, Smarter & More Accurate | Click Here
It was claimed that out of the sale consideration, ₹53 lakh was paid to tenants for vacating the premises, which was essential for effecting the sale, and the balance was reinvested in another property, resulting in no taxable capital gains.
The Assessing Officer rejected the claim on the ground that the assessee failed to produce adequate municipal or tenancy records, and accordingly made an addition of ₹52,08,910 under the head “Capital Gains” while completing assessment at a total income of ₹53,63,910 under Section 147 read with Section 143(3) of the Income Tax Act. The Commissioner of Income Tax (Appeals) upheld the addition, citing lack of sufficient evidence and absence of recitals in the sale deed or separate agreements with occupants.
Before the Tribunal, it was submitted on behalf of the assessee that the expenditure incurred towards eviction of tenants had a direct nexus with the transfer of the property, as the property could not have been sold without clearing possession. It was further argued that all relevant documents had been furnished and the burden was on the Assessing Officer to disprove the genuineness of the claim.
The Department supported the orders of the lower authorities, contending that there was no reliable evidence to substantiate the alleged payments.
The Tribunal of S Rifaur Rahman, Accountant Member and Anubhav Sharma, Judicial Member observed that “The law in this regard is quite settled that if in order to acquire the encumbrances from the property and to acquire alienable title any payment is made to persons in occupation then the same should be considered to be cost of acquisition or an expense incurred wholly and exclusively in connection with the transfer.”
The Tribunal held that payments made to occupants for vacating the property prior to sale are allowable in computing capital gains, subject to verification of facts and genuineness of the expenditure.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
