2023 (4) TMI 792 - AT - Income Tax

Computation of Long term capital gains - transfer of capital asset acquired by assessee by way of gift or will - applicability of provisions of section 49(1) - as per AO assessee had computed indexed cost of acquisition by adopting Fair Market Value of the property as on 01.04.1981 contrary to the provisions of Sec.49 - assessee has acquired his 1/4th share of property by inheritance, but remaining 3/4th share of property, has been acquired from other legal heirs by way of Release Deed by payment of consideration - benefit of indexation from the date previous owner held asset - HELD THAT - In so far as 1/4th share of property is concerned, the assessee is acquired right over the property by inheritance as per provisions of Sec.49 of the Act and thus, he is entitled to claim the benefit of indexation from the period the previous owner held the property or from 01.04.1991, whichever is later - we direct the AO to allow benefit of indexed cost of acquisition towards 1/4th share of property from the date of previous owner held the asset or from 01.04.1991 as claimed by the assessee. Remaining 3/4th share of property, admittedly other three legal heirs had released their right in property in favour of the assessee on 16.02.2006 for a consideration of Rs.3 lakhs. Since, the assessee has acquired right over the property in respect of 3/4th share of property from 2006, he cannot claim indexed cost of acquisition from the date previous owner held asset, because, 3/4th share of property, has not been acquired in any one of the modes specified u/s.49 - AO to allow the benefit of indexation for 3/4th share of property from the year 2006 - we direct the AO to re-compute capital gains arising out of transfer of property by adopting cost of acquisition as directed by us hereinabove. Deduction claimed u/s.54 - amounts spent for construction of new building - We find that the assessee has obtained Demolition Re-construction Permission from Corporation of Chennai on 15.05.2012 and also obtained Building Plan Permission on 19.05.2012. If you go by the date of permission given by the Corporation of Chennai, then, it is within three years from the date of sale of original asset, which expires on 30.07.2012. But, fact remains that on the basis of Building Permission Plan obtained on 19.05.2012, it cannot be assumed that the assessee has completed construction of house property on or before 30.07.2012. The assessee had also filed Estimate for construction of residential building and Valuation Report obtained from approved Valuer along with photos taken, but fact remains that Valuation Report obtained from approved Valuer specified probable date of completion of construction of house property and further, the photographs alone cannot give any indication of completion of house property. On the basis of said evidences, it cannot be concluded that the assessee has satisfied conditions prescribed u/s.54 of the Act, to allow the benefit. But fact remains that if you go by cumulative of all evidences filed by the assessee, there seems to be merit in the arguments of the Ld.Counsel for the assessee that the assessee has constructed a new house by demolishing old structure on property purchased in the year 2012 and hence, facts need to be further verification from the AO. We set aside the issue of deduction claimed u/s.54 of the Act, to the file of the AO and direct the AO to re-examine the claim of the assessee considering Building Plan Permission, EB Card and Valuation Report obtained from approved Valuer along with photographs of the building. The assessee is directed to furnish all evidences before the AO to justify his case.

Summary

Issues:
1. Dispute over re-computation of long term capital gains.
2. Disagreement on the adoption of Fair Market Value as the cost of acquisition.
3. Claim of tax exemption under section 54 of the Act.
4. Allegation of lack of opportunity and violation of natural justice principles.

Analysis:

Issue 1: Re-computation of long term capital gains
The appellant contested the re-computation of long term capital gains, arguing that it was erroneous and unjustified. The appellant claimed that the Commissioner of Income Tax (Appeals) erred in sustaining the re-computation without proper reasons. The Tribunal directed the Assessing Officer to allow the benefit of indexed cost of acquisition for the 1/4th share of the property from the date the previous owner held the asset or from 01.04.1991, as claimed by the assessee. However, for the remaining 3/4th share acquired through a Release Deed in 2006, the benefit of indexation was to be allowed from that year.

Issue 2: Adoption of Fair Market Value as cost of acquisition
The appellant challenged the adoption of Fair Market Value as the cost of acquisition, contending that it was contrary to law. The Tribunal found that the appellant correctly computed the cost of acquisition based on the period the previous owner held the property. The Assessing Officer was directed to re-compute the capital gains accordingly.

Issue 3: Claim of tax exemption under section 54 of the Act
The appellant's claim for tax exemption under section 54 of the Act was disputed by the authorities. While the AO allowed deductions for the purchase of a residential house property site, expenses for construction were disallowed due to lack of evidence of completion within the prescribed timeline. The Tribunal acknowledged the evidence presented by the appellant, including building permissions and valuation reports, but found the proof insufficient to conclusively establish completion. The issue was remanded to the AO for further examination based on the evidence provided.

Issue 4: Lack of opportunity and violation of natural justice
The appellant raised concerns regarding the lack of a proper opportunity before the order was passed, alleging a violation of natural justice principles. The Tribunal did not find merit in this argument, as the appellant had the opportunity to present evidence and arguments during the proceedings.

In conclusion, the appeal was partly allowed for statistical purposes, with directions given to the Assessing Officer to re-compute the capital gains and re-examine the deduction claim under section 54 of the Act based on the evidence provided by the appellant.