2022 (11) TMI 621 - AT - Income Tax

Capital gain computation - cost of acquisition considered by the AO - HELD THAT - From the perusal of the breakup of the cost acquisition extracted in the earlier part of this order and the assignment agreement it is noticed that the assessee has considered a sum paid to the assignment holders as per the assignment agreement dated 01.10.2007 as cost of acquisition. Also noticed that the assessee has paid towards covered car park charges, corpus deposit, etc. and also a sum as assignment fee to L T. From these facts, it is clear that the actual outflow in the hands of the assessee towards acquisition of the property includes the said amounts and is an undisputed fact as admitted by the AO in his order that the assessee has paid the above-mentioned amount through proper banking channels as mentioned in the Assignment Agreement. Therefore we see merit in the argument that merely for the reason that the assignment agreement is not registered, the actual outflow from the hands of the assessee towards acquisition of the property cannot be ignored for computing the capital gains.Assessee has claimed several items towards cost of improvement for which bills and invoices were submitted before the AO. The breakup of the amount considered by the AO as of acquisition i.e.Rs.40,94,980 is not available on record and the reference given in the assessment order as does not provide any clarity on how this amount is arrived at. In view of this discussion we remit the issue back to the AO for arriving at the cost of acquisition with proper breakup. AO while doing so is directed to consider the actual amount paid by the assessee as per the Assignment Agreement including amounts paid to L T and stamp duty based on evidences / supporting documents submitted in this regard. AO is also directed to verify the bills and documents with regard to cost incurred towards brokerage, interiors, painting etc., and consider these amounts for the purpose of arriving at the capital gains in accordance with law. Needless to say that the assessee may be given an opportunity of being heard. Appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Cost of acquisition considered by the AO.
2. Maintainability of the draft assessment order for a non-resident.
3. Non-consideration of brokerage/selling expenses in computing capital gains.

Detailed Analysis:

1. Cost of Acquisition Considered by the AO:
The primary issue in this appeal is the cost of acquisition considered by the Assessing Officer (AO) at Rs. 49,08,340 against Rs. 70,00,000 claimed by the assessee while computing capital gains. The assessee, a non-resident individual working in the Netherlands, filed a return of income for AY 2019-20 admitting a total income of Rs. 2,95,600. The AO issued a draft assessment order making an addition of Rs. 52,89,346 towards capital gains, which was later revised to Rs. 64,60,469 in the final assessment order after considering the correct indexation value.

The assessee argued that the cost of acquisition should include Rs. 49,44,000 paid to the assignment holders, Rs. 5,98,160 towards covered car park, corpus deposit, etc., and Rs. 1,54,500 as assignment fee to L&T. The AO, however, did not accept these amounts, citing that the assignment agreement was not registered and the registered value of the property was only Rs. 36,05,000.

The Dispute Resolution Panel (DRP) confirmed the AO's addition, rejecting the assessee's pleas regarding the cost of acquisition and cost inflation index, among others. The Tribunal, however, found merit in the assessee's argument that the actual outflow towards acquisition, including payments made through proper banking channels, should be considered for computing capital gains. The Tribunal remitted the issue back to the AO to arrive at the cost of acquisition with a proper breakup and to verify the bills and documents related to brokerage, interiors, painting, etc.

2. Maintainability of the Draft Assessment Order for a Non-Resident:
The assessee raised an additional ground regarding the maintainability of the draft assessment order for opting the DRP route for a non-resident for the year under consideration. The Tribunal referred to the Explanatory Memorandum to Finance Bill, 2020, which states that the amendment to include non-residents as eligible assessees is applicable from 1.4.2020. Since the AO issued the draft assessment order on 27.9.2021, the amended provisions of section 144C were applicable. Therefore, the Tribunal dismissed this additional ground raised by the assessee.

3. Non-Consideration of Brokerage/Selling Expenses in Computing Capital Gains:
The assessee also raised an additional ground regarding the AO not considering brokerage/selling expenses of Rs. 1,55,000 while computing capital gains. The Tribunal admitted this additional ground, noting that it is a pure legal issue that does not require investigation of new facts. The Tribunal directed the AO to verify the bills and documents related to brokerage and consider these amounts for the purpose of arriving at the capital gains in accordance with the law.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO to:
1. Reassess the cost of acquisition with a proper breakup, including amounts paid as per the Assignment Agreement and to L&T.
2. Verify the bills and documents related to brokerage, interiors, painting, etc., and consider these amounts for computing capital gains.
3. Provide the assessee an opportunity of being heard during this reassessment process.

The judgment ensures that the actual outflow towards the acquisition of the property is considered for computing capital gains, and the assessee is given a fair opportunity to present supporting documents.