2018 (12) TMI 1250 - AT - Income Tax

Capital gain computation - Disallowance of the claim of indexed cost of improvement - Held that - The assessee had produced the original purchase deed executed for the financial year 1993-1994 for a total consideration of 1, 54, 360. In the said sale deed the description of the property is enumerated as paddy field. The assessee has also produced a copy of the land acquisition notice u/s 9(13) of the Land Acquisition Act 1894 wherein it is clearly enumerated the land as a filled wet land . Therefore these documents clearly show that when the purchase of the impugned property was made it was a wet land and subsequently when it was compulsorily acquired the same was a filled wet land. AR in the course of hearing had produced old note book wherein the expenditure incurred for filling up of the land and constructing a compound wall was hand-written. The translated copies of the said note book was also enclosed therefore the conclusion of the CIT(A) that no evidences were produced before him for incurring cost for improvement of land was factually incorrect. There is no doubt that the land purchased by the assessee was paddy wet land which was subsequently filled up and the same is evidenced from both the purchase deed and the land acquisition notice. The assessee out of 34 cents had sold 6 cents of land in April 1996. The said 6 cents of land was sold after incurring cost for improvement and had fetched higher sale price of 45, 000 per cent compared to 4, 500 per cent for which it was purchased in the year 1993. The assessee has also produced the details of the expenses incurred for filling of land and compound wall which worked out to more than 8, 000 per cent. AO and the CIT(A) were not justified in denying the claim of indexed cost of improvement on the land. Accordingly we direct the A.O. to re-calculate the LTCG after taking into account the indexed cost of improvement of 8, 000 per cent which was incurred during the period July 1995 to March 1996.

Summary

Issues:
1. Disallowance of indexed cost of improvement.
2. Disallowance of stamp duty and registration charges while computing the cost of acquisition.

Analysis:

Issue 1: Disallowance of indexed cost of improvement
The appeal was against the Commissioner of Income-tax (Appeals)'s order regarding the disallowance of the claim of improvements and indexed cost thereof. The assessee, a retired ex-serviceman, had purchased land in 1993-1994. The Assessing Officer reduced the indexed cost of acquisition from the total compensation received for the land, leading to the determination of Long Term Capital Gains (LTCG) at a different amount. The assessee claimed cost of improvement in a revised computation statement, but it was rejected as it was not in the original return. The CIT(A) confirmed the assessment, leading to the appeal before the Tribunal. The Tribunal found that the land was initially wet but filled when compulsorily acquired. Evidence of improvement costs was presented, including expenses for filling land and constructing a compound wall. The Tribunal concluded that the claim of indexed cost of improvement was valid, directing the Assessing Officer to recalculate the LTCG considering the incurred improvement cost.

Issue 2: Disallowance of stamp duty and registration charges
Although the ground regarding stamp duty and registration charges was raised, it was not argued during the hearing before the Tribunal. The only issue argued was the indexed cost of improvement. The Tribunal focused on the evidence presented for improvement costs and did not address the stamp duty and registration charges aspect in the final decision. Therefore, the decision was primarily based on the indexed cost of improvement issue, which was allowed by the Tribunal.

In conclusion, the Tribunal partially allowed the appeal by directing the Assessing Officer to consider the indexed cost of improvement for recalculating the LTCG. The judgment highlighted the importance of presenting evidence for improvement costs and emphasized the relevance of such costs in determining capital gains.