Income Tax Tribunal decision favors assessee on indexed cost of acquisition & capital gain bonds

The ITAT Chennai allowed the appeal of the assessee in a case involving the computation of indexed cost of acquisition of property and addition of investments in capital gain bonds under sec.54EC of the Act. The Tribunal held that the indexed cost of acquisition should be considered from the date the father became the owner of the property, not the date of his death. Additionally, the Tribunal granted the exemption for investments made in capital gain bonds, citing legislative changes and precedents in favor of the assessee.

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Issues involved:
1. Computation of indexed cost of acquisition of property devolved on the assessee.
2. Addition of investment made in capital gain bonds under sec.54EC of the Act.

Issue 1: Computation of indexed cost of acquisition of property devolved on the assessee

The appeal was against the order of the Commissioner of Income-tax(Appeals) regarding the assessment year 2012-13. The primary issue was whether the indexed cost of acquisition of the property devolved on the assessee should be considered from the date of death of the assessee's father or the date on which the father became the owner of the property. The Income-tax Officer computed the total income at Rs. 64,20,600, taking indexed cost of acquisition only from the year in which the property devolved on the assessee, resulting in a disputed amount of Rs. 120,17,739. The CIT(Appeals) confirmed the AO's finding, leading the assessee to appeal before the ITAT Chennai.

The Tribunal referred to previous decisions and held that the cost of acquisition for capital gains computation should be revised upwards by applying the appropriate cost of inflation index. It was established that the assessee inherited the property on 21.5.2002, purchased by the mother in 1960. The Tribunal concluded that the capital gains had to be assessed as long term capital gains by fixing the cost of the asset as on 1.4.1981 and applying the cost of inflation index. The Tribunal allowed the appeal, citing precedents and settled propositions favoring the assessee.

Issue 2: Addition of investment made in capital gain bonds under sec.54EC of the Act

The second ground of appeal concerned the addition of Rs. 50 lakhs made in respect of investments in capital gain bonds under sec.54EC of the Act. The assessee sold a house property and made investments in financial years 2011-12 and 2012-13, claiming a deduction of Rs. 1 crore under sec.54EC. However, the CIT(Appeals) granted an exemption of Rs. 50 lakhs, leading the assessee to appeal.

The ITAT Chennai referred to the Madras High Court decision in the case of CIT v. Jaichander, which clarified the ambiguity in the proviso to section 54EC(1) of the Act. The Court emphasized that the time limit for investment is six months from the date of transfer, and even if the investment falls under two financial years, the benefit claimed by the assessee cannot be denied. The Tribunal allowed this ground of appeal, noting that the ambiguity had been removed by the Legislature with effect from April 1, 2015, in relation to subsequent years.

In conclusion, the ITAT Chennai allowed the appeal of the assessee on both issues, directing the computation of indexed cost of acquisition from the year the father became the owner of the property and granting the exemption for investments made in capital gain bonds under sec.54EC of the Act.

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