2021 (4) TMI 114 - AT - Income Tax

Tribunal directs AO to compute long-term capital gains with indexed cost from original ownership for co-owner.

Mr. Jaiprakash A. Mishra Versus Income Tax Officer (Erstwhile ITO 19 (1) (3), Mumbai) Now ITO-22 (1) (4), Mumbai

The Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the AO to compute the long-term capital gains by considering the indexed ... Capital gain tax - cost of acquisitionn - Date of index cost of acquisition for computation of capital gain - whether should be the year in which the previous owner acquired the property and not the year in which the assessee became the owner of such property? - AO held that the property in question has devolved onto the assessee upon the dissolution of the partnership firm on account of the death of his father and in such a situation, the cost in the hands of the assessee would be the cost at which the firm transfers its assets in the hands of a partners after paying the due capital gains tax, if any, that arises on dissolution of the firm as per provisions of section 45(4) - AO estimated the value of the property for the purpose of calculation of long term capital gains in the hands of the assessee by allowing cost inflation index from the financial year 2000-01- HELD THAT:- To ascertain the facts, we had asked the Ld. counsel to file a copy of ‘Deed of Conveyance’. The same was filed on 15.02.2021. The facts in the present case and in Shri Nandlal R. Mishra are similar [2015 (10) TMI 1074 - ITAT MUMBAI] wherein held t in the case of an assessee covered under s. 49(1) of the Act, the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition. For determining the capital gain, the cost of acquisition of capital asset is crucial. We hold that the long terms capital gains has to be from the date from which the capital asset in question was held by the previous owner and the indexed cost of acquisition also has to be determined on the very same basis, consequently, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of such asset. See Commissioner of Income-tax Versus Manjula J. Shah [2011 (10) TMI 406 - BOMBAY HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Non-compliance with ITAT directions by CIT(A).2. Joint ownership and misrepresentation of facts regarding Mr. Ramakant Mishra.3. Adjudication of long-term capital gains on the sale of property.Detailed Analysis:1. Non-compliance with ITAT Directions by CIT(A):The appellant argued that the CIT(A) erred by not honoring the ITAT's directions and justifying the contempt with the irrelevant analogy that orders of other income tax officers are not binding on the AO. The ITAT had previously directed the AO to consider the assessment order of Mr. Ramakant R. Mishra in the set-aside proceedings and adjudicate the issue afresh, providing a reasonable opportunity for the assessee to be heard. The AO admitted Mr. Ramakant R. Mishra's order but did not follow it, leading to the CIT(A) upholding the AO's decision, which the appellant contested as a disregard of the ITAT's directions.2. Joint Ownership and Misrepresentation of Facts:The appellant claimed that the CIT(A) erred in not treating Mr. Ramakant Mishra as a joint owner and accused the assessee of misrepresentation of facts. The AO noted that Mr. Ramakant Mishra held a 1/8th share of the property, while the assessee represented before the Tribunal that they were joint owners. The CIT(A) agreed with the AO, stating that the order of Mr. Ramakant Mishra had been considered but did not need to be followed if deemed incorrect. The CIT(A) found no judicial precedence requiring one AO to follow another AO's order, even in the case of co-owners.3. Adjudication of Long-term Capital Gains on Sale of Property:The AO had initially taxed long-term capital gains on the sale of property at Rs. 43,71,675/- against the claimed long-term capital loss of Rs. 1,01,169/- by the assessee. The AO, following the Tribunal's directions, considered the cost of acquisition in the year 2000-01, noting that the property devolved onto the assessee after the dissolution of the partnership firm due to his father's death. The AO estimated the property's value for long-term capital gains calculation at Rs. 11,28,000/- after considering cost inflation index from the financial year 2000-01. The CIT(A) upheld this valuation, dismissing the appeal.Tribunal's Decision:The Tribunal, upon reviewing the case, noted the similarity with another co-owner's case (Shri Nandlal R. Mishra) where the Tribunal had dismissed the Revenue's appeal, directing the AO to adopt the cost inflation index from 01.04.1981. The Tribunal emphasized that the long-term capital gains should be computed from the date the previous owner held the asset, not the date the assessee acquired it. Consequently, the Tribunal set aside the CIT(A)'s order and allowed the appeal, directing the AO to follow the precedent set in the co-owner's case.Conclusion:The Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the AO to compute the long-term capital gains by considering the indexed cost of acquisition from the date the previous owner first held the asset, in line with the precedent in the co-owner's case.