Tribunal allows Assessee's appeal, upholds fair market value but changes acquisition date.

The appeal by the Assessee was partly allowed. The Tribunal upheld the Assessee's claim to adopt the fair market value of the property as on 1.4.1981. However, the Tribunal reversed the CIT's order regarding the date of acquisition, holding that the Assessee acquired ownership before 1.4.1981. The Tribunal also upheld the CIT's direction for the AO to examine the cost of acquisition and expenditure related to the transfer for computing capital gain.

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Issues Involved:
1. Validity of the CIT's initiation of proceedings under Section 263 of the Income Tax Act, 1961.
2. Determination of the date of acquisition of the property for computing long-term capital gain.
3. Validity of the Assessee's claim for adopting the fair market value of the property as on 1.4.1981.
4. Examination of the cost of acquisition and expenditure incurred in connection with the transfer.

Issue-wise Detailed Analysis:

1. Validity of the CIT's Initiation of Proceedings under Section 263:
The Assessee argued that under Section 263 of the Income Tax Act, 1961, only the CIT could initiate proceedings suo motu and that the AO's proposal for revision invalidated the CIT's order. The Tribunal rejected this argument, stating that there is no prohibition under Section 263 for the CIT to act based on the AO's proposal. As long as the CIT applies his mind to the errors and the conditions under Section 263 are satisfied, the initiation of proceedings is valid.

2. Determination of the Date of Acquisition of the Property:
The CIT contended that the Assessee became the owner of the property only on 19.4.1994 when a registered conveyance was executed. The Assessee argued that it became the owner by virtue of the assignment deed dated 3.3.1971 and had complied with all conditions, thus becoming the de facto owner before 1.4.1981. The Tribunal held that the Assessee's title to the property could be traced to the original assignment deed dated 3.3.1970, and the property became the Assessee's before 1.4.1981 due to the payment of the entire consideration and compliance with conditions. Therefore, the Assessee was entitled to adopt the fair market value as on 1.4.1981.

3. Validity of the Assessee's Claim for Adopting the Fair Market Value as on 1.4.1981:
The CIT argued that the Assessee could not adopt the fair market value as on 1.4.1981 because it did not have absolute ownership before that date. The Assessee relied on various legal precedents, arguing that the term "held" in Sections 2(14), 2(42A), and 48 of the Act refers to possession and not legal ownership. The Tribunal agreed with the Assessee, stating that the expression "where the capital asset became the property of the Assessee before 1st April, 1981" in Section 55(2)(b)(i) does not necessarily refer to legal ownership. The Assessee had a vested right over the property before 1.4.1981, and thus, it was entitled to adopt the fair market value as on 1.4.1981.

4. Examination of the Cost of Acquisition and Expenditure Incurred:
The CIT directed the AO to examine the actual cost of acquisition and the expenditure incurred in connection with the transfer, as these aspects were not verified during the initial assessment. The Tribunal upheld this direction, stating that the AO should examine these aspects and compute the capital gain accordingly.

Conclusion:
The appeal by the Assessee was partly allowed. The Tribunal reversed the CIT's order to the extent that it directed the AO to adopt 19.4.1994 as the date of acquisition. The Tribunal upheld the Assessee's claim to adopt the fair market value as on 1.4.1981. However, the Tribunal upheld the CIT's direction for the AO to examine the cost of acquisition and the expenditure incurred in connection with the transfer.

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