COST OF AQUISITION

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CA Bharat Aggarwal (Querist)
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27 August 2008
My client purchased a plot in the year 1988. But till the year 2004 no construction was done on the plot. As per the norms of the Haryana Urban Developement authority, if construction is not done,an extension fee is charged every year for extending the time period of construction. If the extension Fees is not paid then the possession of the plot will be taken by HUDA. The Plot was sold in the year 2004. My question is
1. whether the extension Fees is a part of Cost of aquisition or not ????
2. The Extension Fee will be treated as penalty or not ???

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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27 August 2008 The fee is paid with application to extend the period of construction by one year. As a result the fee is paid suo moto by the applicant on his own will and can not be categorised as a penalty.
Another thing is that it is paid after the plot has been acquired and the amount spent in this way is not giving any benefit which may be said to be an addition or improvement to the property.
Also, the amount is not being paid for the betterment of the title to the property. In case the amount would have been paid to get the property free from any encumbrances or resumption orders, then also we may treat the amount as an addition to the property.