In Brief
The Commissioner of Income Tax sought to revise an assessment order under Section 263 of the Income Tax Act, challenging the Assessing Officer's allowance of Rs. 31.05 crores claimed as cost of improvement while computing capital gains from the sale of a property. The assessee, after family litigation among shareholders settled via arbitration, paid amounts to shareholders and claimed this as cost of improvement. The Supreme Court held that such payments to shareholders for settling litigation do not constitute cost of improvement under Section 55(1)(b), nor do they remove encumbrances on the property. The AO's order was erroneous and prejudicial to revenue, justifying the Commissioner's revisional intervention under Section 263. The Court set aside the High Court's judgment and restored the Commissioner's order."
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