2016 (7) TMI 22 - AT - Income Tax

Tenancy rights property acquisition cost based on market value. Revenue appeal dismissed for 2008-09 assessment.

The Dy. CIT Central Circle-44, Mumbai Versus Smt. Kantaben C. Mehta.

The Tribunal upheld the CIT (A)'s decision, determining that the cost of acquisition for the property acquired in lieu of tenancy rights should be based ... Sale of flat acquired by her in lieu of surrender of tenancy rights - working out the taxable gains the assessee - cost if acquistion - AO made addition of the entire amount as Long Term Capital Gain treating the cost of acquisition of the tenancy as ‘NIL’ - Held that:- In the case of Atul G.Purnaik vs. ITO (2011 (5) TMI 576 - ITAT, Mumbai ) the assessee was allotted a plot of land to the assessee as compensation in lieu of agricultural land acquired by the government under “12.5% Expansion Scheme and the issue was determination of cost of acquisition of the said plot of land for the purpose of computing capital gain. It was held that market value of the plot of land on the date of allotment shall be the cost of acquisition for the purpose of computing capital gains. - Decided against revenue Issues: Determination of Long Term Capital Gain based on cost of acquisition of property acquired in lieu of tenancy rights.Analysis:1. The appeal was filed by the revenue against the order passed by the CIT (Appeals)-36, Mumbai regarding the assessment year 2008-09. The assessee had sold her flat in Mumbai, acquired in lieu of surrender of tenancy rights, for a total consideration of Rs. 1,01,00,000. The AO treated the cost of acquisition as NIL and added the entire sale amount as Long Term Capital Gain, resulting in a higher total income assessment.2. The CIT (A) allowed the appeal based on the decision in Dr. D.A. Irani's case, stating that the surrender of tenancy amounts to a transfer of capital asset, with the fair market value of the flat received being the consideration. The appellant argued that the cost of acquisition was Rs. 54,72,000 as on the possession date. The revenue challenged this decision on grounds of failure to prove acquisition cost and admitting additional evidence without opportunity under Rule 46A of the I.T. Rules.3. The revenue contended that the cost of tenancy being NIL, the entire sale value should be considered as capital gain. The appellant cited precedents like Shri. G. Atul Puronik vs. ITO and legal principles from jurisdictional High court cases. The appellant argued that the impugned order was legally sound.4. The Tribunal referred to the Atul G.Purnaik vs. ITO case, where market value on the date of allotment was considered the cost of acquisition for computing capital gains. This decision was applied to the present case, emphasizing the relevance of market value at the time of acquisition. No contradictory case law was presented, leading to the dismissal of the revenue's appeal for the assessment year 2008-09.5. The Tribunal upheld the CIT (A)'s order, citing consistency with legal provisions and established principles. The decision was in line with previous judgments and did not exhibit any legal flaws. The appeal was dismissed, affirming the order passed by the CIT (A) for the assessment year in question.