2018 (7) TMI 1755 - AT - Income Tax

Capital gain computation - whether CIT(A) erred in not adopting the fair market value of the property at ₹ 10,69,065/- as on 01.04.1981? - whether the cost of acquisition of the property under question was allowable to the assessee and if yes, to what extent, it was allowable? - indexed cost of acquisition of the property at Rs. Nil - Held that - The property under question has been sold and undisputedly assessed to revenue. As a logical consequence, the property must have been acquired by the assessee by some mode of acquisition. The cost of acquisition, in terms of computational provisions as contained in Section 48, was clearly allowable to the assessee. Hence, we hold that notwithstanding the fact that cost was not claimed in the return of income, the same was allowable to the assessee. Proceeding further, we find that the FAA has accepted DVO s valuation of the flat on the date of sale. Nothing has been brought on record to suggest that the same has been contested by the revenue any further. Therefore, there was no reason for not adopting the valuation as on 01/04/1981. The flat, prima facie, was acquired by the assessee before 01/04/1981 and the law provides that in such a case the cost of acquisition would mean cost of acquisition or fair market value as on 01/04/1981, at the option of the assessee. AR, in support of cost of acquisition, has placed on record the copies of purchase documents which apparently have not been considered by Ld. AO. Hence, Ld. AO is directed to appreciate the same and re-compute the income of the assessee in terms of our directions bearing in mind that the assessee s share in the property was to the extent of 17.14%. Assessee s appeal stand allowed in terms of our order.

Summary

Issues Involved:

1. Adoption of fair market value of the property as on 01.04.1981.
2. Indexed cost of acquisition of the property and indexation benefit for the purpose of computation of capital gain.

Issue-wise Detailed Analysis:

1. Adoption of Fair Market Value as on 01.04.1981:

The assessee contested the valuation of the property as on 01.04.1981, which was determined by the District Valuation Officer (DVO) at ?6,27,000/-. The assessee argued that the fair market value should be ?10,69,065/- as on 01.04.1981. The Ld. CIT(A) did not accept the assessee's valuation and upheld the DVO's valuation. The Tribunal noted that the property was acquired before 01.04.1981, and as per Section 55(2)(b)(i), the cost of acquisition should be either the actual cost or the fair market value as on 01.04.1981, at the option of the assessee. The Tribunal directed the Ld. AO to re-compute the income considering the assessee's share in the property at 17.14% and to adopt the valuation as on 01.04.1981.

2. Indexed Cost of Acquisition and Indexation Benefit:

The assessee did not initially claim the cost of acquisition in the return of income, which was inadvertently shown as Nil. The Ld. AO computed the long-term capital gain (LTCG) without considering the cost of acquisition. The Ld. CIT(A) upheld this computation, stating that the assessee had opted to declare the cost of acquisition at Nil in the return of income. The Tribunal, however, held that the cost of acquisition was clearly allowable to the assessee as per Section 48, and the revenue could not benefit from the assessee's shortcomings or ignorance. The Tribunal directed the Ld. AO to consider the purchase documents provided by the assessee and re-compute the income accordingly, allowing the indexed cost of acquisition and indexation benefit for the computation of capital gain.

Conclusion:

The Tribunal allowed the appeal, directing the Ld. AO to re-compute the income by considering the fair market value as on 01.04.1981 and allowing the indexed cost of acquisition and indexation benefit. The assessee's share in the property was confirmed to be 17.14%. The order was pronounced in the open court on 25th July 2018.