The Commissioner Of Income Tax, Ajmer v. M/S. India Motors Pvt. Ltd., Kutchery Road, Ajmer

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 901 / 2008 The Commissioner of Income Tax, Ajmer. ----Appellant Versus M/s. India Motors Pvt. Ltd., Kutchery Road, Ajmer. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain with Ms. Shiva GoyalFor Respondent(s) : Mr. Siddharth Ranka _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHJudgment 26/08/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby Tribunal has partlyallowed the appeal of theassessee. 2.This court while admitting the appeal on 10.2.2009 framedfollowing substantial question of law:- “(1) Whether under the facts andcircumstances of the case and in law thetribunal is justified in deleting the additionsmade on charging of tax on long termscapital gain of Rs.1,45,59,269/-? (2) Whether in the facts and circumstancesof the case, the ITAT was justified in denyingthe reference made to the DVO u/s 55A ofthe Act to ascertain the fair market value ofthe asset and not taking into considerationthe capital gain determined u/s 48 of the I.T.Act? (3) Whether on the facts and circumstancesof the case the ITAT was justified in not considering the capital gain determined u/s48 of the Act out of the sale of proceeds ofthe plot which is part of the net profit andfalls within the ambit of the provisions ofSection 115JA? (4) Whether on the facts and circumstancesof the case the ITAT was justified in allowingthe compensation paid by the assessee ofRs.2,00,000/- for cancellation of agreementtreating the same as cost of improvement ofasset for consideration to arrive the capitalgain as determined u/s 48 of the Act? (5) Whether on the facts and circumstancesof the case, the ITAT was justified inallowing the cost of expenditure incurred onreconstruction to get back the said propertyfrom liquidator/bank in 1995-96 forRs.40,91,111/- treating the same as cost ofimprovement of asset for the considerationof capital gain u/s 48 of the Act?” 3.The facts of the case are that during the year capital assets of the company were sold. Land admeasuring 1490 sq. yards wassold at Rs.81,91,000/-. Further land admeasuring 802 sq. yardswas sold to one Sh. Bal Mukand Parihar at Rs.47 lakhs for whichentire consideration was received during the year but possessionwas transferred to the buyer during the subsequent year when thesame was registered also. Hence, transfer was not complete asper Section 47 of I.T. Act, 1961 during the year and therefore saleconsideration of Rs.47 lakhs was not considered during the year.The contention was rejected by the AO and sale to Sh. Bal MukandParihar was also considered for the current year only. 3.1For rejection of the claim made by the appellant, the AOrelied upon para no.7 of sale deed wherein it was mentioned thatpeaceful possession of the said plot of land alongwith structure was delivered and handed over to the purchaser before executionof deed. This deed was registered on 27.9.2001. The AO has reliedupon the local inquires got conducted which revealed that thepurchaser took possession immediately after making full paymentand also started the business in the said premises. Thus theproperty in part performance of the contract as prescribed inSection 53A of Transfer of Property Act, 1882 stands transferredand liable for capital gain. 4.Counsel for the appellant contended that tribunal hascommitted serious error in dismissing the appeal of thedepartment. was delivered and handed over to the purchaser before executionof deed. This deed was registered on 27.9.2001. The AO has reliedupon the local inquires got conducted which revealed that thepurchaser took possession immediately after making full paymentand also started the business in the said premises. Thus theproperty in part performance of the contract as prescribed inSection 53A of Transfer of Property Act, 1882 stands transferredand liable for capital gain. 4.Counsel for the appellant contended that tribunal hascommitted serious error in dismissing the appeal of thedepartment. 4.1She has taken us to the order of AO and contended thatexpenses which are claimed under Capital Gain was wronglydeleted by the tribunal and the tribunal has committed error indirecting to accept the capital gain as declared by the assesseeu/s 55A whereas the same ought to have been rejected andcapital gain determined u/s 48 and the view of tribunal regardingcancellation of the agreement is also required to be reversed. 4.2Regarding question 1 & 2, the observations of the tribunalreads as under:- “10. The ld. A R. has questioned the actionof the Ld. CIT(A) in upholding theassessment order in this regard with thesubmission that the ld. CIT(A) has failedto appreciate that the provisions of section115JA being deemed income is relating tocertain companies. The Ld. A.R. whilereferring the provisions of Sec.115JAsubmitted that as per provisions of sub-of the Ld. CIT(A) in upholding theassessment order in this regard with thesubmission that the ld. CIT(A) has failedto appreciate that the provisions of section115JA being deemed income is relating tocertain companies. The Ld. A.R. whilereferring the provisions of Sec.115JAsubmitted that as per provisions of sub- section (2) of Sec.115 JA a company hasto prepare profit & loss account as perprovisions of Part II & Part lll of ScheduleVI of the Companies Act. 1956. As suchany profit & loss account prepared by acompany which is not in connivance of theCompanies Act 1956 cannot be considered for the purpose of provisions ofSec.115JA. The ld. A.R. while referringPart ll of schedule VI of the CompaniesAct,1956 submitted that as per provisionsof Clause 2(a) of Part II of Schedule VI ofthe Companies Act.1956, profit & lossaccount have to be prepared to disclosethe working of the company. In the resentcase the company was under liquidationand was not working for more than 10years. The liquidation proceedings weredropped by the Hon'ble High Court and topay off the debts of the company, it hadliquidated its assets. In the present case,the company was dealing in trading ofmotor vehicles, parts, etc. and no suchbusiness was carried out by the companyin the relevant financial year and as such,there was no working of the company andwhereas profit & loss account as perprovisions of Companies Act,1956 canonly be prepared for the trading activities.All the provisions of Part II and Part III ofSchedule VI of the Companies Act, 1956relates to operations of the Company i.e.turnover, expenses, provisions etc.Nowhere it includes receipts/expenses ofcapital nature. The ld. A.R. submittedfurther that the gain on sale of property/capital assets are "capital profits" and assuch “capital receipts" are out of theprovisions of S.115JA of Income taxAct.1961. since it is not part of book profitfor working of the company. Even if thesame is considered in book profit and MATtax is charged, credit for the same shouldbe given in the subsequent year as perprovisions of S.115JA of Income-tax Act1961. 12. After considering the argumentsadvanced by the parties as discussedabove, we find substance in thecontentions of the assessce in support ofthe ground. Admittedly during the yearthe company was under liquidation and 12. After considering the argumentsadvanced by the parties as discussedabove, we find substance in thecontentions of the assessce in support ofthe ground. Admittedly during the yearthe company was under liquidation and was not working for more than 10 years.The liquidation proceedings were droppedby Hon'ble High Court and to pay off thedebts of the company, it had liquidated itsassets. There is also no dispute that thecompany was dealing in trading of motorvehicles, parts etc. and no such businesswas carried out company the relevantfinancial year and as such, there was noby the in working of the company whereasprofit and loss account as per provisions ofCompanies Act, 1956 can only beprepared for the trading activities. Theprovisions of Part-II and Part-III ofSchedule VI to the Companies Act, 1956relate to operations of the company i.e.turnover, expenses, provisions etc. Nowhere it includes receipt/expenses ofcapital nature. As per provisions of sub-section (2) of section 115JA. a company toprepare has Profit & loss account as perprovisions of Part-ll and Part-lll ofSchedule VI of the Companies Act. 1956.As such, any profit and loss accountprepared by company which is not inconnivance of the Companies Act, 1956cannot be considered for the purposes ofprovisions of Sec. 115JA. Under thesecircumstances. we concur our view withthe submissions of the ld. A/R that thegain on sale of property capitall assets arecapital profits and as such capital receiptand out of the provisions of section 115JAof the IT Act, 1961 since it is not part ofbook profit for working of the company.The adverse view taken by the lowerauthorities in this regard is thus set aside.The ground no. 1 is allowed in favour ofthe assessee. 21. After considering the arguments asdiscussed above, we are of the view thatdetermination of fair market value underthe Chapter on Capital Gains is alsorequired for determining the market valueof an asset as on 1.4.1981 under section55 of the Act. Section 55 of the IT Act1961 for the purpose of capital gain readsas under:- "55A With a view to ascertaining the fairmarket value of a capital asset for thepurpose of this Chapter, the Assessing Officer may refer the valuation of capitalasset to a valuation Officer- (a) in a case where the value of the assetas claimed by the assessee is inaccordance with the estimate made by aregistered valuer, if the Assessing Officeris of opinion that the value so claimed isless than its fair market value; (b) in any other case, if the AssessingOfficer is of opinion- (i) that the fair market value of the assetexceeds the value of the assets claimed bythe assessee by more than suchpercentage of the value of the asset as soclaimed or by more than such amount asmay be prescribed in this behalf or (ii) that having regard to the nature of theasset and other relevant circumstances, itis necessary so to do..…………...”. Officer may refer the valuation of capitalasset to a valuation Officer- (a) in a case where the value of the assetas claimed by the assessee is inaccordance with the estimate made by aregistered valuer, if the Assessing Officeris of opinion that the value so claimed isless than its fair market value; (b) in any other case, if the AssessingOfficer is of opinion- (i) that the fair market value of the assetexceeds the value of the assets claimed bythe assessee by more than suchpercentage of the value of the asset as soclaimed or by more than such amount asmay be prescribed in this behalf or (ii) that having regard to the nature of theasset and other relevant circumstances, itis necessary so to do..…………...”. We are thus of the view that under section55A (b)(ii) the AO is empowered to referthe matter for valuation to the DVO havingregard to the nature of the asset andother relevant circumstances, if it isnecessary to do so, we thus do not agreewith this contention of the Id. A/R thatreference for estimating fair market valueof the property as on 1.1.81 cannot bemade by the AO. We, however, to examineas to whether there were sufficientcircumstances before the AO to refer thematter for valuation to the DVO. As persection 55A(a), the AO can refer the caseto DVO for ascertaining the fair marketvalue of the asset as on 1.4.1981, if AO isof opinion that value so claimed is lessthan its fair market value. In the presentcase as evident from annexures 13 and 14i.e. copies of report by DVO and approvedvaluer respectively it is apparent that theDVO had assessed the value of asset as on1.4.81 at Rs. 58,00,401/- against theapproved valuer's report at Rs.59,67,981/-. Thus even the differencebetween the two figures is bound tohappen in case of two experts opinion.Thus in our view there was no reason onthe part of the AO in not accepting thereport furnished by the approved valuerthat too in absence of any specific defectin his report. Likewise, AO has not assigned any reason as to why he hadreferred the case for valuation of propertyas on 31.3.2001 without appreciating thatit is not the date of sale of the propertynor the alleged date of conversion ofcapital asset under section 45 (2) of theAct. In the present case during the yearthe assessee had sold 1490 sq. yds of landto different purchasers and 802 sq. yd ofland to someone else showing theconsideration at Rs. 81,91,000/- and Rs.47,00,000/- respectively. The AO on thebasis of DVO's report adopted the fairmarket value of the property at Rs3,38,84,704/- and after deducting cost ofacquisition at Rs. 1,93,25,435/- workedout the capital gains at Rs. 1,45,59,269/-as per the DVO, the fair market value of1490 sq. Yd of land during the year wasRs. 2,20,28,000/- and of 802 sq. yd ofland at Rs 1,18,56,704/-. The DVO hadvalued the land @ Rs. 14,784/- per sq.yard. Now the moot question before us isas to whether the AO was justified inignoring the sale consideration amountshown in the registered Sale Deed enteredinto between the parties to estimate thevalue of the property by referring thematter DVO on the basis that the Sub-Registrar had valued the property morethan the amount shown in saleconsideration in the deed. In the case ofSmt. Krishna Bai Tingre vs. ITO, 103 TIJ(Pune) 216 relied upon by ld. A/R it hasbeen held that reference to DVO can onlybe made in cases where the value ofcapital asset shown by the assessee is lessthan its fair market value minus value ofland asset as on 1.4.81, shown by theassessee on the basis of approved valuer'sreport was more than its fair marketvalue, hence reference under section 55Awas not valid- AO is empowered to makereference under clause (b) of section 55Aonly in the cases where valuer's report isnot given by the assessee. The Hon'bleGujarat High Court in the case of M.V.Shah, Official Liquidator, Anand Mills ltd.vs. U.J. Matain & Anothers, 209 ITR 568was pleased to hold that reference underclause (b)(ii) of section 55A could havebeen made if the ITO was of the opinion that having regard to the nature of assetsand other relevant circumstances, it wasnecessary so to do. In this case the assetwas a piece of land. There was nothingspecial about the nature of asset whichwould have justified the ITO to makereference to the valuation officer. No otherrelevant circumstances could be pointedout by the Valuation officer in his affidavitor by the ITO. No attempt was made tojustify the action of ITO under any of theprovisions of section 55A. The reference toDVO was not in accordance with law andhad to be quashed, held the Hon'ble HighCourt. section 48 of the IT Act, 1961 dealswith mode of computation of capital gainwhich reads as under:- "The income chargeable under the head"Capital gains" shall be computed, bydeducting from the full value of theconsideration received of accruing as aresult of the transfer of the capitalasset...". "The income chargeable under the head"Capital gains" shall be computed, bydeducting from the full value of theconsideration received of accruing as aresult of the transfer of the capitalasset...". Thus section 48 speaks about full value ofconsideration. Full value of considerationcannot be substituted by any hypotheticalvalue or assumptions. The Income tax Actclearly specifies the situations, where fullvalue of consideration is not available, toconsider fair market value for computationof capital gains. As such, where full valueof consideration is available, fair marketvalue cannot be considered for thepurposes of calculation of capital gains.The Hon'ble Supreme Court in the case ofK. P. Varghese vs ITO (supra) was pleasedto hold that what in fact never accrued orwas never received cannot be computedas capital gain under section 48. At thatpoint of time section 52 was in forceempowering AO to substitute fair marketvalue in certain conditions, even at thattime Hon'ble Supreme court had quashedthe adoption of fair market value againstactual consideration. Again in the case ofITO vs. Shivakami Co. Pvt. Ltd (supra),the Hon'ble Supreme Court was pleased tohold that unless there is evidence thatmore than what was stated was received,no higher price can be taken to be thebasis for computation of capital gains. Capital gains tax was intended to tax thegains of an assessee, not what anassessee might have gained. What is notgained cannot be computed as gained. Inthe present case before us there is noevidence showing receipt of more saleconsideration as against shown anddeclared and as such no higher price canbe taken for computation of capital gain.The Jaipur Bench of the Tribunal in thecase of ITO vs Bharat Kumar Mittal (supra)has held that no higher price can be takenfor working out the amount of capitalgains than stated in the sale deed. Theonus to prove receipt of higher saleconsideration than shown in sale deed ison the revenue. Unless departmentestablishes that more amount than whathas been shown in the sale deed has beenby the assessee beyond doubt, higherprice cannot be taken for working outcapital gain, held the Tribunal. We alsofailed to understand as to why the AO hadreferred for of property as on 31.3.2001though it was neither the date the casevaluation of sale or the alleged conversionof capital asset under section 45(2) of theIT Act. Admittedly, the business of thecompany was of purchase, sale etc. ofvehicles, motor parts etc. and for the last10 years company was not in operationand during the period had not done anybusiness of purchase, sale of vehicles,motor parts etc. Company was not aworking and had just sold its assets toliquidate the liabilities, which in our viewdoes not mean that the assets wereconverted into stock-in-trade. Admittedlythe company had not or was not doing anybusiness of sale, purchase, dealing in landand properties and when it is not doingsuch type of business, mere selling ofproperties cannot convert the nature ofproperty from capital asset into stock-in-trade. Selling of one's own property as awhole or in part does not make it hisbusiness. In the case ACIT vs. Janak RajChouhan (supra), the Amritsar Bench ofthe Tribunal held in the case of assesseewho was dealing in purchase of land thatdealing in sale or purchase of land doesnot mean that all the properties held by him are business properties. We are thusof the view that reference to DVO forascertaining the valuation of the propertyby the AO ignoring the sale considerationdeclared in the Sale Deed on the basisthat the Sub Registrar, properties hadvalued the property on higher amount wasnot justified. The valuation adopted by theSub-Registrar,Registration,isundisputedly for the purpose of paymentof stamp, which is a uniform rate of thearea whereas valuation of a property forits sale and purchase depends uponseveral factors. Besides location of theProperty and Besides location of theproperty and the area, these factors arethe need and suitability of the parties tosale and purchase the land in question.Depending on these factors, the partiesnegotiate with their respective aims andobjects as on the part of the seller to fetchmore price and on the part of thepurchaser to purchase the property onlesser price. Thus under a negotiationbetween the parties they arrive at aagreed consideration which cannot in anymanner be compared with the valueadopted by the Sub-Registrar, Registrationfor the purpose of payment of stamp andregistrationfee.Underthesecircumstances, there was no occasion onthe part of the AO to ignore the saleconsideration shown in the sale Deed forcomputation of the capital gains. Theamendment in section 50C of the Act witheffect from 1.4.2003 also makes theposition clear that before 1.4.2003 the AOwas to accept the amount in saleconsideration for working out the capitalgains out of sale of the property unlessthere is positive evidence to arrive at aconclusion that higher amount than theshown sale consideration in the Sale Deedhas been paid for the property. Section50C introduced in the Act with effect from1.4.2003 empowers the AO to substitutethe value adopted by stamp ValuationAuthoritiesagainsttheactualconsideration but prior to this introduction,The AO had not empowered to substitutethe market value for the purpose ofcomputation of capital gain. Under these facts and circumstances, we are of theview that in absence of any adversepositive evidence, the AO should haveadopted the sale consideration shown inthe sale deed and there was no occasionon his part in the present case to refer thematter to DVO to estimate the value ofproperty as on 31.1.2001 under 55A (a) ofthe Act. Thus the action of the AO inreferring the matter to the DVO forvaluation of the property as on 31.3.2001under section 55A(a) of the Act andadopted higher value of the property thanthat shown as sale consideration in theSale Deed was not justified. We thus whilesetting aside orders of the lowerauthorities in this regard direct the AO toaccept the capital gains as declared by theassessce against the sale of the propertyin question. The ground no. 2 is thuspartly allowed ground no. 3 is allowed. 4.3With regard to question 3, the tribunal observed as under:- 4.3With regard to question 3, the tribunal observed as under:- 24. We, however, considering thearguments advanced by the parties and inview of decisions relied upon by the ld.A/R, find substance in the contention ofthe ld. A/R as the provisions of sections 45to 48 of the Act on capital gainscategorically state that if any amountreceived as token money for sale ofproperty and the agreement is cancelledon account of buyer, the said token moneyis forfeited, is a capital receipt and isreduced from the cost of acquisition.Likewise, any amount paid on account ofcancellation of agreement by the seller tothe buyer is to be added as capitalexpenditure to the cost of said assets. Ifan income of cancellation is deducted fromcost of acquisition that negative incomefor cancellation will certainly added to thecost of acquisition. In the case of CIT vs.Ramaswamy Mudaliar (supra). it was heldthat the word improved' has variousshades of meaning and it includeseverything by doing which there is anenhancement in the value of asset orthere is rise in its price or the asset is made to grow better. In the case of CTTvs. Miss Piroja C. Patel (supra). Hon'bleBombay High Court was pleased to heldthat on eviction of the hutment dwellersfrom the land in question, the value ofland increase and, therefore, theexpenditure incurred for having the landvacated would certainly amount to cost ofimprovement. We, thus, are of the viewthat the compensation paid for getting thepossession of the property andcancellation of agreement is amount spenttowards the improvement of asset. Weaccordingly direct the AO to include theamount of Rs. 2 lacs in the cost ofproperty for the purpose of working outthe capital gains. Ground no. 4 is thusallowed. 4.4With regard to capital expenditure allowable u/s 48, counselfor the respondent relied upon following decisions:- 4.5In CIT vs. Piroja C. Patel (2000) 242 ITR 582 (Bombay)wherein Bombay High Court held as under:- “3. The short point which arises for considerationin the present matter is whether compensationpaid by the assessee and other co-owners to thehutment dwellers for vacating the land was anallowable expenditure within the meaning ofSection48read with Section55of the Income TaxAct, 1961. The answer to this question will dependon whether the expenses incurred by the assesseeand other co-owners constitute cost ofimprovement under Section48(ii). The said pointis covered by the judgment of the Division Benchof this court in the case of CIT v. ShakuntalaKantilalMANU/MH/0294/1991:[1991]190ITR56(Bom) and the judgment of theDivision Bench of this court in the case ofHardialliaChemicalsLtd.v.CIT MANU/MH/0190/1995: [1996] 218 ITR 598.On eviction of the hutment dwellers from the landin question, the value of the land increases and,therefore, the expenditure incurred for having theland vacated would certainly amount to cost ofimprovement. Accordingly, the above question is answered in the affirmative, i.e., in favour of theassessee and against the Department.” 4.6In CIT vs. Bradford Trading Co. Pvt. Ltd. (2003) 261 ITR 222(Madras) wherein Madras High Court held as under:- answered in the affirmative, i.e., in favour of theassessee and against the Department.” 4.6In CIT vs. Bradford Trading Co. Pvt. Ltd. (2003) 261 ITR 222(Madras) wherein Madras High Court held as under:- 8. The submission of the learned counsel for therevenue was that A.M. Buhari initiated legalproceedings against the respondents in thecompany petition in his capacity as a shareholderand a payment of Rs. 2 lakhs was made to A.M.Buhari in settlement of his rights as a shareholderand it has no connection with the transfer ofcapital asset effected by the assessee-company infavour of India Tobacco Company Ltd. Though theargument appears to be attractive, we are unableto accept the same. A.M. Buhari, no doubt,initiated proceedings under the provisions of theCompanies Act to enforce his rights as a minorityshareholder, but the main purpose of the litigationwas to prevent the transfer of the hotel buildingsin favor of India Tobacco Company Limited. Hismain case in the company petition before thiscourt was that he had contributed share capital inthe assessee-company and he had also lentmoney for participation in hotel business and inthe running of hotel as Managing Director and ifthe assessee-company was allowed to transfer itshotel undertaking in favor of India TobaccoCompany Limited, the substratum of theassessee-company would be lost and the mainobject with which the assessee-company wasformed would be defeated. His case was that theshareholders are to participate in the running ofthe hotel and if the hotel undertaking of theassessee-company was disposed of in favor ofM/s. India Tobacco Company Limited, it would doaway with the entire business for which thecompany was formed and hence, he sought forinterim injunction restraining the ManagingDirector of the assessee-company fromtransferring the hotel in favour of India TobaccoCompany Limited. The proceedings in thelitigation clearly show that a sum of Rs. 2 lakhswas paid to A.M. Buhari in settlement of his claimagainst the transfer of the assets of the company,more particularly, against the hotel undertakingwhich was to be transferred in favor of IndiaTobacco Company Limited and he received the money in full and final settlement of his claimsagainst all the respondents in the companypetition including the assessee-company. As far asthe sum of Rs. 5 lakhs contributed by A.M. Buhariis concerned, it was paid to him under the samecompromise. We are concerned only with thebalance amount of Rs. 2 laks. We are of the viewthat if a sum of Rs. 2 laks was not paid, thelitigation would go on and the assessee-companywith a view to purchase peace with A.M. Buhari toenable it to transfer the property in favor of IndiaTobacco Company Limited had paid the money toA.M. Bubari. We are of the view that the entirechain of events started from the contributionmade by A.M. Buhari to the company and thepayments made by the company to A.M. Boharishow that there is an inextricable link betweenthe payment to A.M. Buhari and the transfer ofthe capital asset. We are of the view that the sumof Rs. 2 lakhs was paid to A.M. Buhari over andabove his contribution of Rs. 5 lakhs so as to paveway for easy transfer of the property in favour ofIndia Tobacco Company Ltd. In other words, weare of the view that only by the payment of Rs. 2lakhs, the assessee was in a position to transferthe property, viz., capital asset in favour of IndiaTobacco Company Limited, and hence we holdthat the payment was made wholly andexclusively in connection with the transfer of thecapital asset. It was not a payment made partlyfor the transfer of the asset and partly for thesettlement of A.M. Buhari's right as a shareholderas the sum of Rs. 5 lakhs was paid to himseparately in settlement of the amountscontributed by him. Hence, the payment of thesum of Rs. 2 lakhs would be referable to thetransfer of the assets. Though the litigation wasinstituted by A.M. Buhari in his capacity of ashareholder of the company, it will be too much toexpect on the part of the assessee-company tokeep quiet and to allow the litigation to go onthus rendering itself helpless to transfer theproperty and unable to realise the sale price,when an agreement was entered into on behalf ofthe assessee for the sale of its property in favourof India Tobacco Company Ltd., though thepurchaser was willing to take the property withthe risk of litigation. the expression used in section 48 of the Act,'expenditure incurred wholly and exclusively inconnection with such transfer' has widerconnotation than the expression, 'for the transfer'. We are of the view that but for thepayment of Rs. 2 lakhs, the transfer would nothave taken place and the payment has necessarilyto be made for the transfer of the hotel in favourof India Tobacco Company Limited. Hence, we areof the view that the sum of Rs. 2 lakhs wasexpended by the assessee wholly and exclusivelyin connection with the transfer of the capital assetand not de hors the transfer. 14. We, therefore, hold that the amount of Rs. 2lakhs was paid to get over the difficulties createdby A.M. Buhari for the sale of the property andunless the amount was paid, the transfer ofproperty would not have taken place at all. We,therefore, hold that the Appellate Tribunal wasright in holding that the payment had an intimateconnection with the transfer of the undertaking asby allowing the litigation to go on the hands ofthe company would be tied against the transfer ofthe undertaking in favour of India TobaccoCompany Limited and the assessee would nothave realised the sale consideration from theprospective purchaser. 14. We, therefore, hold that the amount of Rs. 2lakhs was paid to get over the difficulties createdby A.M. Buhari for the sale of the property andunless the amount was paid, the transfer ofproperty would not have taken place at all. We,therefore, hold that the Appellate Tribunal wasright in holding that the payment had an intimateconnection with the transfer of the undertaking asby allowing the litigation to go on the hands ofthe company would be tied against the transfer ofthe undertaking in favour of India TobaccoCompany Limited and the assessee would nothave realised the sale consideration from theprospective purchaser. 15. Insofar as a sum of Rs. 1.5 lakhs paid byIndia Tobacco Company Limited is concerned, weare of the view that though the sum of Rs. 1.5lakhs was paid by the said company only to settlethe claim of A.M. Buhari, the money was receivedby the assessee in connection with the transfer ofthe hotel undertaking and it would form part ofsale consideration. However, since the money waspaid by the assessee-company, it would alsoconstitute an expenditure wholly and exclusivelyin connection with the transfer. In the case ofpayment of Rs. 50,000, the same analogy wouldapply. In so far as the litigation expenditure of asum of Rs. 16,000 is concerned, we hold that theAppellate Tribunal was right in holding that thelitigation expenditure was also incurred whollyand exclusively in connection with the transferand thus, it was deductible. 4.7In Gopee Nath Paul & Sons vs. DCIT (2005) 278 ITR 240 (Calcutta) wherein it has been held as under:- “8. Section 48(1), as it stood in 1992-93, whileproviding for computation of capital gainspermitted in Clause (i) deduction of the"expenditure incurred wholly and exclusively inconnection with such transfer". The expression "in connection with such transfer" is wider than theexpression "for the transfer". Any amount thepayment of which is absolutely necessary to effectthe transfer will be an expenditure covered byClause (i) of Section 48(1). In other words, ifwithout removing any encumbrance, sale ortransfer could not be effected, the amount paid forremoving that encumbrance will fall under Clause(i). 9. From the facts as disclosed above, it appearsthat the amount was received out of the sale ofassets of both the firms under the orders of thisCourt subject to meeting of the liability of theAllahabad Bank since confirmed only upon priorpayment. Inasmuch as, unless this liability wasmet, the transferee could not derive any title. Inother words, the sale consideration receivable bythe assessee was less the liability of the AllahabadBank. Thus, meeting this liability of one of thefirms, when the entire assets were being sold, wasan absolute necessity to effect the transfer. Inother words, it was an encumbrance withoutremoving which the sale or transfer could not beeffected and the amount spent for removing thisencumbrance would definitely attract Clause (i) ofSection 48(1). 11. As discussed above, in this case, the sale couldnot be effected without meeting the liability, as itappears from the different orders passed by thisCourt in the latter suit wherefrom it is apparentthat the former suit was transferred to this Courtand was ultimately settled between the partiesthrough Lok Adalat. 12. But from the facts as discussed above, we areof the view that the orders passed by this Courtdirecting the sale of the assets of the two firmsand its confirmation thereof are staring on the faceof the inference drawn by the Commissioner ofIncome Tax (Appeals). Thus, we are of the viewthat the liability met by the assessee towards thedues of the Allahabad Bank was an expenditureincurred wholly and exclusively in connection withthe transfer. 11. As discussed above, in this case, the sale couldnot be effected without meeting the liability, as itappears from the different orders passed by thisCourt in the latter suit wherefrom it is apparentthat the former suit was transferred to this Courtand was ultimately settled between the partiesthrough Lok Adalat. 12. But from the facts as discussed above, we areof the view that the orders passed by this Courtdirecting the sale of the assets of the two firmsand its confirmation thereof are staring on the faceof the inference drawn by the Commissioner ofIncome Tax (Appeals). Thus, we are of the viewthat the liability met by the assessee towards thedues of the Allahabad Bank was an expenditureincurred wholly and exclusively in connection withthe transfer. 17. The criteria is the perfection of title in order toeffect the sale. In this present case, withoutremoving the liability of the Allahabad Bank, thetitle of the purchaser could not be perfected.Having regard to the facts and circumstances ofthis case and the position in law as discussedabove, the meeting of the liability of the AllahabadBank relating to the assets of Gobindo Sheet Metal was an expenditure incurred wholly andexclusively in connection with the transfer.” 4.8In June Perett vs. ITO (2008) 298 ITR 268 (Karnataka)wherein it has been held as under:- 9. The executors could have sold the propertyeven without evicting the unauthorised occupant.If such an attempt were to be made by theexecutors, no man of prudence would have cometo buy the property, since the unauthorisedoccupant were claiming adverse possession of theproperty. In order to clear the cloud cast on theproperty, me executors were required to file a civilsuit. Any expenses incurred in connection withsuch suit has to be treated as expenditure in orderto transfer the property. Our view is supported bythe judgment of the Bombay High court in thecase of Commissioner of Income Tax (Appeals) v.Miss.PirojaCPatilreportedin[2000]242ITR582(Bom) . In the aforesaid case,certain eviction proceedings were initiated to evictthe unauthorised occupant from the land. Due toeviction of the unauthorised occupant from thehouse, the value of the property was increasedand the expenditure incurred for vacating the landhas been treated as cost of improvement.Similarly, in this case also, if the unauthorisedoccupant had not been evicted, the value of theproperty would have been decreased instead ofincreasing. Therefore, we have to treat theexpenditure incurred by the executors to evict theunauthorised occupant as an amount spenttowards cost of improvement of the property. Inthe circumstances, we have to answer thequestion of law framed in favour of the assessee. 4.9In CIT vs. Eagle Theatres (2012) 19 taxmann.com(Delhi) wherein it has been held as under:- 10. In the present case, as per the facts found bythe tribunal and the CIT (Appeals), there was acanteen/refreshment stall in the cinema hallwhich was in occupation of a tenant/licensee since1971. The property was to be sold. In order toprocure and get proper value and effectuate thesale, the respondent assessee paid rs. 1.48 crores to the tenant/licensee to vacate the property.These are the factual findings recorded by thetribunal and have been noticed above. We fail tounderstand why the said sum cannot be set offrom the sale consideration as it was incurredsolely and exclusively in connection with thetransfer. We, therefore, need not examine and gointo the question whether the amount paid wastowards "cost of improvement". The said amounthas to be allowed because it was incurred in viewof facts found, wholly and exclusively connectedand linked with transfer/sale. In similarcircumstances, the Andhra High Court in NaozarChenoy v. Commissioner of Income-taxMANU/AP/0965/1998MANU/AP/0965/1998:[1998] 234 ITR 95 (AP) has observed as under: to the tenant/licensee to vacate the property.These are the factual findings recorded by thetribunal and have been noticed above. We fail tounderstand why the said sum cannot be set offrom the sale consideration as it was incurredsolely and exclusively in connection with thetransfer. We, therefore, need not examine and gointo the question whether the amount paid wastowards "cost of improvement". The said amounthas to be allowed because it was incurred in viewof facts found, wholly and exclusively connectedand linked with transfer/sale. In similarcircumstances, the Andhra High Court in NaozarChenoy v. Commissioner of Income-taxMANU/AP/0965/1998MANU/AP/0965/1998:[1998] 234 ITR 95 (AP) has observed as under: As regards the expenditure incurred by theassessee towards payment of the amount to thetenants for vacating the premises, which is thesubject-matter of the sale transaction, we are ofthe view that it has nexus with the transaction aswithout the tenants vacating the premises, thebuilding cannot be sold. Therefore we are of theview that the said expenditure was incurred foreffecting the transaction and therefore he isentitled for deduction of the amounts incurredtowards vacation of the tenants, in computing thecapital gain of the building sold. The stand of the Revenue cannot be accepted on thesecond contention. 5.In ACIT vs. Kamlakar Moghe (2015) 378 ITR 561 (Bombay)wherein it has been held as under:- 7. This situation, therefore, shows that after theexpiry of Shri P.M. Moghe on March 20, 1996, theassessee and his three daughters were faced in apeculiar position. They resolved the situation and afamily settlement was reduced into writing. It wasagreed that at the time of sale, each sister shall begiven Rs. 15 lakhs and each niece shall be givenRs. 5 lakhs. Accordingly, when the property wassold on July 7, 2006, this family settlement hasbeen given effect to. It is, therefore, obvious thatin the absence of such family settlement andpayment, the sale of property on July 7, 2006, bythe assessee could not have materialised. TheCommissioner of Income-tax (Appeals) in theappeal filed by the assessee has not accepted thepayment of Rs. 5 lakhs each given to three nieces and that finding has been maintained even by theIncome-tax Appellate Tribunal. The assessee hasnot questioned it in further appeal. As such, theonly question is whether the amount of Rs. 45lakhs paid to his sisters has been rightly acceptedas expenditure in connection with the transfer ofproperty. The sisters had a title in the propertyand without their co-operation there could nothave been any sale. In this situation, we do notfind any error in the concurrent findings reachedby the Commissioner of Income-tax (Appeals) asalso by the Income-tax Appellate Tribunal. In thelight of the arguments advanced before us, we findthat question No. 1 attempted to be raised by theRevenue before us does not arise here fordetermination as the substantial question of law. 5.1Regarding question 4, the tribunal observed as under:- 5.1Regarding question 4, the tribunal observed as under:- 27. After considering the arguments advanced bythe parties. we find that in the present case theassessee had incurred expenses to get back thetitle of the property, clear the encumbrances aswell as to enhance the value of the property andas such expenses incurred in such proceedings areof capital nature. The Hon'ble Calcutta high Courtin the case of CIT vs. Bengal Assam Investor Ltd.(supra) was pleased to hold that if any expensesare incurred to complete the title or to enhancethe value of asset was expenses of capital natureincurred for making additions and alterations tothe assets within the meaning of Income-tax Act.In that case assessee's title to shares was notcomplete until the assessee succeeded in havingthe shares registered in its name through therectification proceedings instituted by it. TheHon'ble Court held that the expenses incurred inconducting those proceedings were nccessary forcuring or perfecting or completing the assessee'stitle to the shares and hence was a capitalexpenditure forming part of the actual cost of theasset to the assessee. The Hon'ble Court heldfurther that by incurring expenses for the suits foramending Articles of Association, the assessee wastrying to enhance the value of shares and hencethe expenditure was also of capital nature incurredfor making additions or alterations to assets withinthe meaning of section 12B(2)(ii)(Under the oldAct.). The Hon'ble Bombay High Court in the caseof CIT vs Abrar Alvi (Supra) was pleased to Hold thatexpenditureincurredinremovingencumbrances was deductible. The amount washeld to be deductible even on the fact that theamount was paid by father to son to clearencumbrances. Likewise, the Hon'ble AndhraPradesh High Court in the case of Naozar Chenoyvs. CIT (supra) was pleased to hold that even theexpenditure incurred in getting the premisesvacated from tenants was deductible. We are thusof the view that the expenses incurred in theproceedings for getting back the title of theproperty, clear the encumbrances as well as toenhance the value of the property are of capitalnature. We thus direct the AO to include Rs40,91,111/- as cost of improvement asset whileworking out the capital gain. The ground no. 5 isthus allowed. 6.Counsel for the respondent has relied upon following judgments with regard to DVO report:- 6.1In CIT vs. Bhanwarlal Murwatiay (2008) 215 CTR 489 (Raj.)wherein it has been held as under:- “7. We have considered the submissions, and aftergoing through the impugned orders, are of the viewthat all said and done, the question as to what wasthe price of the land at the relevant time, is a purequestion of fact. Apart from the fact, that even if, itwere to be assumed, that the price of the land wasdifferent than the one, recited in the sale deed,unless it is established on record by theDepartment, that as a matter of fact, theconsideration, as alleged by the Department, didpass to the seller from the purchaser, it cannot besaid, that the Department had any right to makeany addition