2022 (9) TMI 451 - AT - Income Tax

Capital gain computation - Property acquired by inheritance - cost of acquisition and benefit of indexation - Determination of Original cost and the period of acquisition of the property by the previous owner - plot/property was originally acquired by Assessee s father in the year 2006-07 which was subsequently acquired by inheritance by the Assessee and his brothers on demise of his father - HELD THAT - The plot/land under consideration was acquired by the Assessee s deceased father on 05.02.2007 and after his demise, the Assessee along with his 02 brothers by dividing the assets on dated 11.12.2013, got executed a conveyance deed with M/s. BPTP Ltd. (seller). Subsequently, on 08.07.2015, the Assessee along with his two brothers sold the plot jointly on a consideration of Rs.65 lacs after paying brokerage of Rs.60,000/- and consequently received 1/3 of the said amount and accordingly claimed the benefit of cost u/s. 49 read with section 55 of the Act by working out cost of acquisition of 16,74,212/- and capital gain of Rs.4,72,455/-on the premise that the Assessee had acquired the right in plot/property on the death of his father on dated 18.11.2009. As per section 49 of the Act, where the capital asset became the property of the Assessee on any distribution of assets on the total or partial partition of a Hindu undivided family etc. etc. etc., the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the Assessee, as the case may be. Hence, the original cost and the period of acquisition of the property by the previous owner which in the instant case is the father of the Assessee, who got allotted the property on dated 05.02.2007 from M/s. BPTP Ltd, is relevant for computation cost of acquisition and benefit of indexation for claim of capital gain. Consequently, the Assessing Officer is directed to recompute the capital gain while considering the cost of acquisition and benefit of indexation period, as the cost incurred and date of the acquisition respectively, by the father of the Assessee as on 05.02.2007.

Summary

Issues:
1. Disallowance of claimed cost of acquisition by the Assessing Officer.
2. Enhancement of income by the Commissioner based on the Memorandum of Settlement.
3. Appeal against the affirmation of adhoc addition and enhancement of income.

Issue 1: Disallowance of claimed cost of acquisition by the Assessing Officer

The Assessee's father acquired a plot/property in 2007, which was later divided among the Assessee and his brothers in 2013. The Assessee sold the plot in 2015 and claimed the benefit of cost and indexation. The Assessing Officer disallowed a portion of the claimed cost of acquisition due to lack of supporting documents and made an adhoc disallowance of Rs. 8,37,106 along with complete brokerage amount, adding it back to the Assessee's income.

Issue 2: Enhancement of income by the Commissioner based on the Memorandum of Settlement

The Commissioner confirmed the adhoc addition and further enhanced the income by revising the disallowance to Rs. 12,74,512. The Commissioner noted that the Memorandum of Settlement did not mention the plot in question, leading to the conclusion that the Assessee was liable for short-term capital gain. The Assessee challenged this decision, claiming it was against the facts of the case.

Issue 3: Appeal against the affirmation of adhoc addition and enhancement of income

The Assessee appealed against the affirmation of the adhoc addition and the enhancement of income. The Assessee argued that the order was improper and against the facts of the case. The DR supported the Commissioner's order, stating that no interference was warranted as the order was not perverse, improper, or illegal.

The Tribunal considered the Assessee's claim that the cost of acquisition and indexation should be based on the original cost and the period of acquisition by the Assessee's father. The Tribunal noted that the conveyance deed executed in 2013 was an offshoot of the original allotment to the Assessee's father, making the rejection of the claim and enhancement of income unsustainable. The Tribunal directed the Assessing Officer to recompute the capital gain based on the original cost and acquisition period by the Assessee's father in 2007.

In conclusion, the Tribunal allowed the Assessee's appeal, emphasizing the relevance of the original cost and acquisition period in determining the capital gain. The order was pronounced on 28/07/2022.