2022 (5) TMI 887 - AT - Income Tax

Capital gain computation - indexed cost of acquisition - correct date and year for the computing indexation - declining the benefit of indexation w.e.f 1997 - benefit of indexation for the purpose of computing Long Term Capital Gain arising from sale of a residential flat from the year of registration of the flat in 2003 and not from the year of execution of sale agreement and taking possession of the flat by the appellant in the year 1997- HELD THAT - Benefit of indexation was declined on the ground that the possession was given to the original owner by Ghaziabad Development Authority ( GDA ) vide letter dated 25.12.1997. However flat was registered in the name of the assessee in the year 2003 only after making balance installments. The case of the assessee is that the house was allotted to the original owner and possession was given to the original owner by GDA. The original owner by way of Agreement to Sale and registered Power of Attorney transferred the ownership in favour of the assessee and handed over the possession to the assessee way back in the year 1997. After obtaining the possession the assessee had installed electric connection provided by the Electricity Department and has been paying house tax to the Ghaziabad Municipal Committee. Assessee has proved his possession of the property which is evident from the installation of electricity connection in his name and house tax charged by the local tax authority. Therefore the Ld.CIT(A) under these undisputed facts ought to have taken a liberal approach for granting benefit of indexation as requested by the assessee. I therefore set aside the impugned order on this issue and direct the AO to give benefit of indexation to the assessee as per law treating him in the possession of the flat since 1997. Ground raised by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Indexation benefit for computing Long Term Capital Gain (LTCG) from the year of registration vs. the year of possession.
2. Reopening of assessment under Section 147 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Indexation Benefit for Computing Long Term Capital Gain (LTCG):
The primary issue in this case is whether the indexation benefit for computing LTCG should be granted from the year of registration of the flat (2003) or from the year of taking possession (1997). The assessee argued that the indexation should be from 1997, the year when the possession was taken and a sale agreement and power of attorney were executed. The Assessing Officer (AO) and the Commissioner of Income-Tax (Appeals) [CIT(A)] held that the indexation benefit should be from 2003, the year when the property was registered in the assessee's name. The CIT(A) dismissed the appeal on the grounds that the possession of the property was not evidenced to be taken in 1997-98. However, the Tribunal found that the assessee had provided sufficient evidence, such as electricity connection and house tax receipts, proving possession since 1997. The Tribunal directed the AO to grant the indexation benefit from 1997, treating the assessee in possession of the flat since then.

2. Reopening of Assessment under Section 147:
The AO reopened the assessment under Section 147 of the Income Tax Act, 1961, on the grounds that the indexed cost of acquisition was calculated incorrectly, leading to an underreporting of capital gains by Rs. 2,93,166/-. The assessee contested this reopening, but the AO disposed of the objections and made an addition to the income. The Tribunal did not explicitly address the validity of the reopening but focused on the main issue of the correct year for indexation.

Conclusion:
The Tribunal concluded that the assessee should be granted the benefit of indexation from 1997, the year of taking possession, rather than 2003, the year of registration. The appeal was allowed for statistical purposes, directing the AO to compute the LTCG with the indexation benefit starting from 1997.