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2019 (11) TMI 329 - AT - Income TaxCapital gain computation - Cost of acquisition - what is the transferred is the property right ? - Capital asset u/s 2(14) - Assessee retired from the firm and as per retirement deed he is entitled to receive certain amount in cash or certain share in property to be constructed by the firm - cost of acquisition shall be the market value as on 30.04.2005 or ₹Nil as adopted by the AO - assessee contended that the cost of acquisition shall be the market value of the property when first, the property was owned by the assessee since in the present case, the property was first owned by the assessee on 30.04.2005, the prevailing market rate as on 30.04.2005 will remain same - HELD THAT - What is the transferred is the property right therefore, the same is capital asset within the meaning of section 2(14) of the Act. In our view such right has been sold by the partnership firm M/s Keshav Co. and therefore, the same is a transfer within the meaning of section 2(47) of the Act and therefore capital asset. Even if the market value as on 30.04.2005 is not taken as cost of acquisition then the cost of acquisition remains unconclusive and cannot be determined and once the same cannot be determined, the decision of Hon ble Supreme Court in the case of B.C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME COURT comes into play and computation provision fails. In any eventuality, the assessee has not earned any profit because the cost of acquisition as on 30.04.2005 should be the market value of the entitlement as on 30.04.2005 because the same is the value in the books of accounts as on 30.04.2005 at ₹17,22,47,975/- as the date of retirement. Hence, in our view, the CIT(A) has rightly deleted the addition and we confirm the same. The appeal of Revenue is dismissed.
Issues Involved:
1. Deletion of addition made by AO amounting to ?17,22,43,975/- by considering the cost of acquisition by the assessee at nil. 2. Determination of cost of acquisition for 41,257 sq. ft. area. 3. Determination of cost of acquisition for 35,495 sq. ft. area and computation of capital gains. Issue-wise Detailed Analysis: 1. Deletion of Addition Made by AO (?17,22,43,975/-): The Revenue's primary contention is against the CIT(A)’s order deleting the addition of ?17,22,43,975/- by considering the cost of acquisition at market value, arguing that the assessee did not incur any cost in acquiring the constructed area of 41,257 sq. ft. from M/s Keshav and Co. The AO assessed this amount as a short-term capital gain, considering the cost of acquisition as nil. The CIT(A), however, held that the cost of acquisition should be taken as the market value on the date of receipt (30.04.2005), which was ?17,22,47,975/-, resulting in no capital gain. The CIT(A) relied on the Supreme Court’s decision in CIT v. B.C. Srinivasa Setty, which states that if the cost of acquisition cannot be determined, the computation provisions fail, and hence, no capital gain can be assessed. The Tribunal upheld the CIT(A)’s decision, confirming that the cost of acquisition should be the market value as on 30.04.2005. 2. Determination of Cost of Acquisition for 41,257 sq. ft. Area: The AO argued that the cost of acquisition should be nil, as the assessee did not incur any cost for acquiring the constructed area. However, the CIT(A) determined that the cost of acquisition should be the market value as on 30.04.2005, based on the retirement deed, which entitled the assessee to receive the property. The Tribunal agreed with the CIT(A) that the market value on the date of receipt should be considered as the cost of acquisition, resulting in no capital gain. The Tribunal also noted that if the cost of acquisition is not determinable, the computation provision fails, as per the Supreme Court’s ruling in B.C. Srinivasa Setty. 3. Determination of Cost of Acquisition for 35,495 sq. ft. Area and Computation of Capital Gains: For the subsequent year, the Revenue appealed against the CIT(A)’s order considering the cost of acquisition for 35,495 sq. ft. at market value. The AO had computed the entire sale consideration as capital gain, adopting the cost of acquisition as nil. The CIT(A) determined the cost of acquisition based on the market value as on 30.04.2005, which was ?4,175 per sq. ft., resulting in a capital gain of ?5,78,55,606/-. The Tribunal upheld the CIT(A)’s decision, confirming that the cost of acquisition should be the market value as on 30.04.2005, consistent with the earlier year’s decision. The Tribunal dismissed the Revenue’s appeal, affirming the CIT(A)’s order. Conclusion: The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s orders that the cost of acquisition should be the market value as on the date of receipt, resulting in no capital gain for the 41,257 sq. ft. area and confirming the computation of capital gain for the 35,495 sq. ft. area based on the market value as on 30.04.2005. The Tribunal's decision was consistent with the Supreme Court's ruling in B.C. Srinivasa Setty, emphasizing that if the cost of acquisition cannot be determined, the computation provisions fail.
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