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- Employees’ PF/ESI Contribution Deposited After Statutory Due Date is Disallowed u/s 36(1)(va).
- Ex-Parte Disallowance of Scientific Research Donation Remanded; Retrospective Rescission of Approval to be Re-examined.
- Registration of Educational Trust Restored; Cancellation on Technical Grounds and Internal Disputes Quashed.
- Delay in Filing Form 9A Condoned Due to “Genuine Hardship” and First Year of New Procedure
- Director’s Remuneration Classified as Salary in Absence of Proof of Specific Professional Services.
- 10% Ad Hoc Disallowance of Commission Deleted as Assessee Furnished PAN, TDS, and Bank Details.
- **Payments to Clear Mortgages and Settle Disputes are Deductible Transfer Expenses Under Section 48** *** ### **Issue** Whether amounts paid by a purchaser directly to banks (to clear mortgages where the assessee was a guarantor) and to a third party (to settle a rival ownership dispute) can be claimed by the seller as a deduction under **Section 48(i)** of the Income-tax Act as expenditure incurred “wholly and exclusively in connection with the transfer.” — ### **Facts** * **The Transaction:** The assessee sold immovable properties for a total consideration of **₹12.04 crores**. * **Direct Payments:** Out of this amount, the purchaser paid **₹9 crores** directly to third parties: 1. **₹7 crores** (₹3.50 Cr each) to two banks to clear mortgages. The property had been given as collateral security by the assessee (acting as a guarantor) for loans taken by third-party concerns. The banks had initiated **SARFAESI proceedings** to attach the property. 2. **₹2 crores** to a Society to settle a **rival claim of ownership** over the property. * **AO’s Stand:** The Assessing Officer (AO) treated the full ₹12.04 crores as sale consideration but **disallowed the deduction** for the ₹9 crores paid to the banks and the society. The AO argued that these payments were “gratuitous” (voluntary) and not incurred in connection with the transfer, as the loans belonged to third parties. * **Assessee’s Defense:** The assessee argued that the clearing of these debts and disputes was a **condition precedent** for the sale. Without lifting the bank attachments and settling the title dispute, the property could not be sold. — ### **Decision** ⚖️ * The Tribunal/Court ruled decisively **in favour of the assessee**. * **Necessity of Payment:** The Court held that the property was heavily encumbered under SARFAESI proceedings and faced a title dispute. No buyer would purchase the property unless these encumbrances were removed to obtain a clear and marketable title. * **Nexus with Transfer:** The payments were not “gratuitous” or voluntary; they were mandatory to effectuate the sale. Therefore, they possessed an immediate and direct nexus with the sale. * **Deductibility:** The Court concluded that these payments constituted expenditure incurred **”wholly and exclusively in connection with the transfer”** under Section 48(i). Consequently, the assessee was entitled to deduct these amounts from the total sale consideration to arrive at the capital gains. — ### **Key Takeaways** * **Perfecting Title is a Transfer Expense:** Any expenditure incurred to remove an encumbrance (like a mortgage) or settle a litigation to make the property title “marketable” is a deductible transfer expense under Section 48. * **Guarantor’s Liability:** Even if the loan was taken by a third party, if the assessee’s property is the collateral and is facing attachment/auction by the bank, the payment to clear that liability is a necessary cost of transfer for the assessee. * **Substance of Transaction:** The fact that the purchaser paid the banks directly does not change the nature of the transaction. It is effectively the assessee discharging a liability to facilitate the sale. * **Real Income Theory:** Tax is levied on the real income (Capital Gain). If a significant portion of the sale price is diverted at the source to clear encumbrances, the assessee cannot be taxed on that portion as if it were profit available for enjoyment.
- Incorrect Calculation of Section 54F Deduction is Not “Misreporting” of Income; Penalty u/s 270A Deleted
- Addition for Bogus Purchases Deleted: Statement of Third Party Without Cross-Examination is Insufficient Evidence
- Rejection of Additional Evidence by CIT(A) Overturned; Accountant’s Departure Held as “Sufficient Cause”
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