2016 (3) TMI 17 - AT - Income Tax

Calculation of capital gain - entitlement to benefit of indexation - appreciated compounded cost of appreciation applied - selection of cost of acquisition - Held that - Capital gain is required to be calculated in case of transfer of capital asset by calculating the cost of acquisition of the capital asset and for the purpose of calculating the cost of acquisition, the fair market value is required to be determined as would have been prevailed as on 01.04.1981 and thereafter the benefit of indexation is required to be given with a view to calculate the cost of acquisition. In the present case, the property was purchased by the assessee s father on 27.09.1965 @ ₹ 55.88 per bigha and was sold by the assessee @ ₹ 5500/- per bigha. The assessee has calculated the fair market value as on 1.4.1981 @ ₹ 5500/- per bigha as claimed by the assessee on the basis of DLC rate with effect from 01.04.1993, whereas the AO has applied the rate of ₹ 4002.65 per bigha by giving the compounded appreciation of 30.6% on the original cost of acquisition. Cost inflation index has been duly applied by the AO on the initial cost of acquisition of capital assets. Since the initial cost of acquisition is available, in our view, the AO has rightly applied the appreciated compounded cost of appreciation @ 30.6% in accordance with provisions of law. In the light of above, the appeal of the assessee is dismissed and the order passed by the ld. CIT (A) is upheld. - Decided against assessee

Issues Involved:
1. Jurisdiction and validity of the addition made under section 147/143(3).
2. Enhancement of Long Term Capital Gain by adopting different fair market values.
3. Charging of interest under sections 234B and 234C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of Addition under Section 147/143(3):
The assessee contested the jurisdiction and the legality of the additions made under section 147/143(3) of the Income Tax Act. However, during the hearing, the assessee's representative did not press this ground. Consequently, the tribunal dismissed this ground as not pressed.

2. Enhancement of Long Term Capital Gain:
The core issue here was the determination of the fair market value (FMV) of the property as of 01.04.1981 for calculating the indexed cost of acquisition. The assessee declared the FMV at Rs. 5,500 per bigha, whereas the Assessing Officer (AO) adopted Rs. 4,002.65 per bigha after applying a compounded appreciation rate of 30.6% on the original purchase price of Rs. 55.88 per bigha (purchased in 1965).

The AO issued a notice under section 148 after finding that the assessee had overstated the cost of acquisition and suppressed income from capital gain. The AO recalculated the capital gain by adopting the FMV as Rs. 4,002.65 per bigha and added the long-term capital gain of Rs. 33,87,989 to the total income.

The assessee argued that the FMV should be determined based on the DLC rate effective from 01.04.1993, which was Rs. 1 lakh per bigha, and then indexed back to 01.04.1981, resulting in an FMV of Rs. 17,825 per bigha. However, the assessee conservatively adopted Rs. 5,500 per bigha. The CIT(A) rejected the assessee's method, stating that the reverse working of cost inflation index from 1993 to 1981 was not a sound method. The CIT(A) upheld the AO's adoption of the FMV at Rs. 4,002.65 per bigha.

The tribunal found that the AO's method of applying a compounded appreciation rate of 30.6% on the initial cost of acquisition was reasonable and in accordance with the provisions of the law. The tribunal upheld the order of the CIT(A) and dismissed the assessee's appeal on this ground.

3. Charging of Interest under Sections 234B and 234C:
The assessee contested the charging of interest under sections 234B and 234C of the Income Tax Act. However, since the primary grounds for contesting the capital gains calculation were not accepted, the tribunal did not find merit in this ground either. The interest charged under these sections was upheld as it was consequential to the reassessed income.

Conclusion:
The tribunal dismissed the appeal filed by the assessee, upholding the orders of the lower authorities. The additions made to the long-term capital gains and the consequential interest charged under sections 234B and 234C were found to be in accordance with the law. The tribunal pronounced the order in the open court on 22/01/2016.

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