2018 (2) TMI 598 - AT - Income Tax

Capital gains taxabilty on sale of land - FMV determination - land was awarded free of cost by the Government - AO has also taken the cost of acquisition at nil - Held that - Land in question does not fall in the category for which the cost of acquisition cannot be ascertained. Therefore, cost of acquisition of land in question would be fair market value as on 01.04.1981. Since, the AO has taken the cost of acquisition at nil. Therefore, we direct the AO to recomputed the capital gain by taking the cost of acquisition of the land as fair market value as on 01.04.1981.

Issues Involved:
1. Confirmation of addition of ?80,000 as income from undisclosed sources instead of agricultural income.
2. Sustaining addition of ?21,43,470 on account of capital gain based on remand report.
3. Admissibility of additional ground regarding non-taxability of capital gains on land awarded free of cost by the Government.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of ?80,000 as Income from Undisclosed Sources:
The assessee contended that the income of ?80,000 was from agricultural activities. However, the CIT(A) confirmed this amount as income from undisclosed sources. The Tribunal did not provide a detailed discussion on this issue as the assessee did not press this ground during the appeal hearing. Consequently, this ground was dismissed as not pressed.

2. Sustaining Addition of ?21,43,470 on Account of Capital Gain:
The CIT(A) sustained an addition of ?21,43,470 as capital gains based on a remand report, which was a reduction from the original addition of ?25,15,980. The Tribunal did not delve into this issue in detail either, as the assessee did not press this ground during the appeal hearing. Hence, this ground was also dismissed as not pressed.

3. Admissibility of Additional Ground Regarding Non-taxability of Capital Gains:
The assessee raised an additional ground arguing that no capital gains are taxable on the sale of land awarded free of cost by the Government. The Tribunal admitted this additional ground for adjudication on merits, citing the decision of the Hon’ble Supreme Court in National Thermal Power Co. Ltd. vs. CIT, which allows questions of law arising from facts on record to be considered.

Merits of Additional Ground:
The assessee argued that the land was allotted by the Government of Rajasthan due to participation in the second world war, with a cost of acquisition being nil. The assessee relied on the decision of the Hon’ble Supreme Court in CIT vs. B.C. Srinivasa Setty, which held that where the cost of acquisition is nil, no capital gain is chargeable. The Revenue, however, countered with the Full Bench decision of the Hon’ble Punjab and Haryana High Court in CIT vs. Raja Malwinder Singh, which held that even if the cost of acquisition cannot be ascertained, section 55(3) prescribes the cost to be equal to the market value on the date of acquisition.

Tribunal's Decision:
The Tribunal acknowledged the conflicting judicial precedents but leaned towards the Full Bench decision of the Hon’ble Punjab and Haryana High Court, which mandates taking the fair market value as on 01.04.1981 for computing capital gains. The Tribunal directed the AO to recompute the capital gain by taking the cost of acquisition as the fair market value on 01.04.1981, rejecting the assessee's argument that no capital gain is chargeable due to nil cost of acquisition.

Conclusion:
The appeal was partly allowed. The Tribunal admitted the additional ground regarding the non-taxability of capital gains but ruled against the assessee by directing the AO to compute the capital gain based on the fair market value as of 01.04.1981. The original grounds related to the ?80,000 addition and the ?21,43,470 capital gain were dismissed as not pressed.

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