2023 (9) TMI 682 - AT - Income Tax

Computation of long term capital gain and indexation of the same - Determination of cost of Acquistion / construction - A.O noted that the assessee has not filed any evidence or proof for expenses and hence, the A.O denied the claim of exemption - HELD THAT - As total cost of construction/cost of improvement was declared by the assessee at Rs. 10,00,000/-. We admit that there exists building as per sale deed which is valued by stamp duty authority at Rs. 3.78 Cr. Hence, we cannot doubt the expenses of building as claimed by the assessee. We find the claim of the assessee of Rs. 10,00,000/- invested in cost of construction/cost of improvement as originally claimed and we allow the same. Capital gain on property acquired by way of inheritance - A.O has to determine the fair market value as on 01.04.2001 and thereafter, he has to allow indexation benefit to the assessee in term of Section 48, second Proviso and Explanation (iii) of the Act. We direct the A.O to adopt the cost of acquisition as fair market value in the present case of the assessee as on 01.04.2001 as the assessee has adopted this fair market value at Rs. 1,360/- per Sq. ft. and for this, the assessee has taken the basis. The indexation benefit from 01.04.2001 is available to the assessee in view of Section 2(42A) more particularly Explanation 1(b) Thus we direct the A.O to adopt the guideline value on as 01.04.2001 as the cost of acquisition and thereby, given index benefit accordingly. Indexation benefit - We direct the A.O to allow the indexation benefit to the cost of improvement as on the date of 01.04.2001 in term of the decision given above by taking the cost of construction/cost of improvement at Rs. 10,00,000/- and taking fair market value as on 01.04.2001 of the same and allow index accordingly. We direct the A.O accordingly. Denial of claim of tax exemption u/s. 54 - assessee invested a sum in the purchase of house property - As per the project completion certificate this property which is beyond stipulated time of 3 years as mandated in the Act - HELD THAT - We noted that as per project completion certificate, this property was handed over as on 01.04.2022 which is admittedly beyond three years from the date of sale, but assessee s contention was that this delay in getting completion certificate and handed over of possession of plot is attributable due to Covid-19 related lockdown and restrictions. As assessee has made payments to the builder in 2018 2019 only and the receipts are enclosed, we are of the view that the assessee has complied with the provisions of the Act and hence, he is entitled for the claim exemptions u/s. 54 of the Act.

Issues Involved:
1. Rejection of claim of cost of improvement.
2. Denial of indexation benefit from 01.04.2001 for computing capital gains.
3. Denial of adoption of guideline value as on 01.04.2001 as the cost of acquisition.
4. Denial of claim of exemption u/s 54 of the Act due to non-completion of property purchase within the stipulated period.

Summary:

Issue 1: Rejection of Claim of Cost of Improvement
The assessee claimed a total cost of improvement of Rs. 10,00,000 for various years, which was disallowed by the A.O due to lack of evidence. The DRP upheld this disallowance, stating that the assessee failed to substantiate the claim with documentary proof. However, the Tribunal found that the existence of the building was confirmed by the stamp duty authority valuing it at Rs. 3.78 Cr. Hence, it allowed the assessee's claim of Rs. 10,00,000 for cost of improvement.

Issue 2: Denial of Indexation Benefit from 01.04.2001
The A.O computed the capital gains by taking the cost of acquisition from the date the property was inherited (04.11.2013), which was upheld by the DRP. The Tribunal, however, held that in cases of inheritance, the cost to the previous owner should be considered. It directed the A.O to adopt the fair market value as on 01.04.2001 for indexation purposes, thereby allowing the indexation benefit from that date.

Issue 3: Denial of Adoption of Guideline Value as on 01.04.2001 as the Cost of Acquisition
The Tribunal directed the A.O to adopt the guideline value as on 01.04.2001 as the cost of acquisition and allow indexation benefit accordingly. It emphasized that the cost of acquisition should be the fair market value as on 01.04.2001, as opted by the assessee, and not the value on the date of inheritance.

Issue 4: Denial of Claim of Exemption u/s 54 of the Act
The A.O and DRP denied the exemption u/s 54 due to the property not being registered within three years. The Tribunal noted the delay was due to COVID-19 lockdowns and restrictions, referencing the Hon'ble Supreme Court's extension of limitation periods. It found that the assessee had made the necessary payments within the stipulated period and directed the A.O to allow the exemption u/s 54.

Conclusion:
The Tribunal allowed the appeals partly, directing the A.O to reconsider the cost of improvement, indexation benefits, and exemption u/s 54 as per the Tribunal's findings. The order was pronounced on 25th April 2023.

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