2023 (4) TMI 1042 - AT - Income Tax

Long term capital gain - deduction claimed on account of indexed cost of acquisition - assessee is a non-resident individual - in which financial year the assessee can be said to have acquired the property for the purpose of granting indexation benefit of cost of acquisition? - HELD THAT - As in the allotment letter not only a specifically identifiable residential flat was allotted to the assessee but the assessee had made payments in accordance with the terms and conditions of the allotment letter. In Circular No. 471, dated 15.10.1996, the Central Board of Direct Taxes (CBDT) has clarified that in respect of flats allotted under the self-financing scheme of the Delhi Development Authority (DDA), the date of issuance of allotment letter would be considered to be the date of acquisition of the property. This is so because, the allotment is final unless it is cancelled or the allottee withdraws from the scheme. In case of assessee before us, as well, the allotment letter issued by the developer/builder is final, as, it is in respect of a specifically identifiable property and has ultimately culminated in execution of apartment buyer s agreement in financial year 2010-11 - thus the date of acquisition of the residential flat has to be reckoned from the date of the allotment letter. Thus benefit of indexed cost of acquisition should be available to the assessee based on the payments made beginning from financial year 2005-06 and not from the execution of the apartment buyers agreement, as directed by learned DRP. We direct the Assessing Officer to factually verify the computation of indexed cost of acquisition made by the assessee, basis payments made from financial year 2005-06, and allow the deduction. Assessee appeal allowed.

Summary

Issues:
1. Dispute over deduction claimed on account of indexed cost of acquisition for computing long term capital gain.

Analysis:
The appeal pertains to an assessment order under the Income-tax Act, 1961 for the assessment year 2019-20. The dispute revolves around the deduction claimed on account of indexed cost of acquisition for computing long term capital gain. The non-resident individual assessee sold a residential property and claimed deduction based on indexed cost of acquisition. The Assessing Officer rejected the claim and allowed only 1/4th of the sale consideration as deduction. The Dispute Resolution Panel (DRP) directed the Assessing Officer to allow deduction towards indexed cost of acquisition based on payments made from the financial year 2010-11 onwards. Consequently, the Assessing Officer revised the addition on account of long term capital gain.

The main issue before the tribunal was to determine in which financial year the assessee can be said to have acquired the property for the purpose of granting indexation benefit of cost of acquisition. The assessee contended that since the allotment letter was issued in the financial year 2005-06, payments made from that year should be considered for claiming indexed cost of acquisition. The tribunal analyzed the allotment letter and the payments made by the assessee towards the property from various financial years.

The tribunal observed that the allotment letter issued in 2005 clearly identified the property and linked payments to construction stages. Referring to Circular No. 471, the tribunal noted that the date of issuance of the allotment letter is considered the date of acquisition of the property in certain cases. The tribunal concluded that the benefit of indexed cost of acquisition should be available to the assessee based on payments made from the financial year 2005-06, rather than from the execution of the apartment buyers' agreement as directed by the DRP. Therefore, the tribunal directed the Assessing Officer to factually verify the computation of indexed cost of acquisition based on payments made from the financial year 2005-06 and allow the deduction. Consequently, the appeal was allowed.

This judgment clarifies the importance of the date of acquisition for claiming indexed cost of acquisition in the context of long term capital gains. It emphasizes the significance of documentary evidence such as allotment letters and payment records in determining the eligibility for deductions. The tribunal's decision provides guidance on interpreting relevant provisions and precedents to ascertain the correct financial year for calculating indexed cost of acquisition in such cases.