2018 (5) TMI 44 - AT - Income Tax

Taxing of capital gains - indexed cost of acquisition - Held that - We find that the entire sale consideration has been considered as capital gains and no indexation benefit has been considered while working out the capital gains. The mode and manner of computing capital gains is given in Section 48 of the Act. The 2nd proviso to Section 48 provides that where long term capital gains arise from the transfer of a long term capital asset, the cost of acquisition of the asset has to be read as indexed cost of acquisition . Indexed cost of acquisition has been defined in Clause-(iii) of the Explanation to Section 48 as an amount which bears to the cost of acquisition the same proportion as the cost inflation index for the year in which the asset is transferred beard to the cost inflation index for the first year in which the asset was held by the Assessee or for the year beginning on the 1st day of April, 1981, whichever is later. It is not the case of the Revenue that the asset sold by the Assessee is not a long term capital asset and the gains arising thereto are not long term capital gains. We are of the view that the capital gains have to be computed after considering the indexed cost of acquisition, which has not been done in the present case. At this juncture, it would be relevant to refer to CBDT Circular No.14 (XL-35) dated 11/04/1955 which states that the Officers of the Department must not take advantage of the ignorance of an Assessee as to his rights & it is one of their duties to assist a tax-payer in every way particularly in the matter of claiming and securing relief. It is also a settled law that the Circulars issued by CBDT are binding on the Department. We are of the view that in the interest of justice, the matter needs to be remanded to the file of Assessing Officer to work out the capital gains in accordance with law. We, therefore, without deciding the issue on merits, restore the issue back to the file of Assessing Officer and direct him to decide the issue afresh in accordance with law.

Summary

Issues:
1. Assessment of capital gains on the sale of jointly held immovable property.
2. Claim of deduction under section 54F of the Income Tax Act.
3. Delay in filing the appeal and condonation of the same.

Issue 1: Assessment of Capital Gains
The case involved two separate appeals by different assessees against the orders of the Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The Assessing Officer noted that the assessees had sold immovable property jointly and that capital gains had escaped assessment. The assessees filed returns of income declaring 'Nil' income, but the Assessing Officer determined the total income and made additions for long-term capital gains. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, disallowing deductions claimed under section 54F of the Act. However, the Income Tax Appellate Tribunal (ITAT) found that the capital gains were not computed considering indexed cost of acquisition, as required by Section 48 of the Act. The ITAT remanded the matter to the Assessing Officer for proper computation of capital gains, emphasizing the importance of assisting taxpayers in claiming their rights as per CBDT Circular No.14 (XL-35).

Issue 2: Claim of Deduction under Section 54F
The assessees had claimed deductions under section 54F of the Income Tax Act, which were disallowed by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals). The ITAT concurred with the Assessing Officer's decision regarding the disallowance of deductions under section 54F, as the investments were made in the name of the assessees' sons and not in their own names, contrary to the provisions of the Act. Therefore, the ITAT upheld the disallowance of deductions under section 54F.

Issue 3: Delay in Filing Appeal and Condonation
In one of the appeals, there was a delay of 65 days in filing the appeal due to the ill health of the elderly assessee. The ITAT, considering the principle of substantial justice, condoned the delay and admitted the appeal for hearing. Despite the absence of the assessee during the hearing, the ITAT proceeded to dispose of the appeal after hearing the arguments of the Departmental Representative. The ITAT supported the Assessing Officer's order in this regard.

In conclusion, the ITAT allowed both appeals for statistical purposes, remanding the matter of computing capital gains back to the Assessing Officer for proper assessment in accordance with the law. The ITAT emphasized the importance of assisting taxpayers in claiming their rights and ensuring that substantial justice is upheld in tax matters.