Appellate Tribunal reevaluates capital gains computation, rules on Joint Development Agreement costs.

The Appellate Tribunal allowed the appeals of the assessees, emphasizing the need for reevaluation of the computation of capital gains, specifically the deduction of the cost of acquisition of flats sold by the assessees. The Tribunal held that capital gains liability arises at the time of entering the Joint Development Agreement (JDA) and that the fair market value of the constructed area should be considered as the cost of acquisition. The decision was pronounced on 3rd December 2020.

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Issues:
- Determination of cost of acquisition of flats sold by the assessees

Analysis:
The appeals before the Appellate Tribunal ITAT Bangalore involved the determination of the cost of acquisition of flats sold by the assessees. The assessees had entered into Joint Development Agreements (JDAs) with developers for two properties, resulting in the receipt of flats. The assessees did not declare capital gains at the time of entering into the JDAs. Subsequently, when the assessees sold the flats, they claimed deductions for the cost of acquisition and improvement. The Assessing Officer (AO) adopted the sale consideration mentioned in the "Agreement to sale" for computing capital gains and allowed deduction only for the cost of land, rejecting the claim for the cost of improvement due to lack of evidence.

Before the Ld. CIT(A), the assessees provided evidence for the cost of improvement, and a remand report suggested allowing a deduction for improvement costs. However, the Ld. CIT(A) upheld the AO's decision regarding the cost of acquisition, citing a previous decision by a coordinate bench that permitted deduction of the cost of land only. The assessees argued that capital gains should be computed at two stages: at the time of entering the JDA and at the time of sale, based on a High Court decision and contended that the fair market value of the constructed area should be considered as the cost of acquisition.

The Appellate Tribunal noted that the capital gains liability arises at the time of entering the JDA, as per a High Court decision, and the fair market value of the constructed area should be considered as the cost of acquisition. The Tribunal disagreed with the Ld. CIT(A)'s interpretation of the previous decision by the coordinate bench. It emphasized that failure to declare capital gains at the appropriate time should not disentitle the assessee to claim the correct cost of acquisition. Therefore, the Tribunal set aside the Ld. CIT(A)'s decision and remanded the issue back to the AO for a fresh examination in accordance with the law.

In conclusion, the Appellate Tribunal allowed the appeals of the assessees for statistical purposes, emphasizing the need for a reevaluation of the computation of capital gains, specifically the deduction of the cost of acquisition of the flats sold by the assessees. The decision was pronounced on 3rd December 2020.

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