ITAT rules in favor of assessee, directing reevaluation of property cost & emphasizing due process

The ITAT allowed the assessee's claim for the cost of acquisition, holding that the property transfer under a settlement deed should not result in a 'Nil' cost. The ITAT directed a reevaluation of the cost of improvement due to discrepancies, remitting the issue back to the AO for proper examination. The judgment favored the assessee, emphasizing the necessity of thorough verification and due process in determining LTCG deductions.

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Issues:
Disallowance of deduction on account of cost of acquisition and cost of improvement while computing long term capital gain (LTCG).

Analysis:

Issue 1: Disallowance of deduction on account of cost of acquisition
The assessee claimed deduction on account of cost of acquisition and cost of improvement while computing LTCG. The AO disallowed the claim as the property was received by the assessee through a settlement deed without any monetary consideration. The AO also questioned the lack of evidence to substantiate the claimed cost of improvement. The CIT(A) upheld the AO's decision, stating that the provisions of section 47 did not apply as the transfer was under a settlement deed, not a gift or will. However, the ITAT held that the property was given to the assessee out of natural love and affection, akin to a gift, and therefore, the cost of acquisition should not be considered as 'Nil'. The ITAT also highlighted that without a cost of acquisition, the computation provision under section 48 would fail. Therefore, the disallowance of the cost of acquisition was deemed impermissible in law, and the assessee's claim was allowed.

Issue 2: Disallowance of deduction on account of cost of improvement
Regarding the cost of improvement, the ITAT noted discrepancies in the built-up area received by the assessee and the area sold, indicating potential construction of extra space. However, as this aspect was not adequately examined by the AO or CIT(A), the ITAT remitted the issue back to the AO for reevaluation. The ITAT directed the AO to verify the documentary evidence submitted by the assessee and provide a fair opportunity for the assessee to be heard before making a decision on the claimed cost of improvement. Consequently, the ITAT allowed the appeal of the assessee for statistical purposes.

In conclusion, the ITAT's judgment favored the assessee by allowing the claim for cost of acquisition and directing a reevaluation of the cost of improvement, emphasizing the importance of proper verification and due process in such matters.

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