2021 (8) TMI 27 - AT - Income Tax

Tribunal adjusts capital gains from Joint Development Agreement date, disallows cost of improvement.

The Tribunal partially allowed the appeal, directing the AO to recompute the capital gains based on the date of the Joint Development Agreement (JDA) on ... Addition of capital gain - cost of indexation - JDA property - Cost of the previous owner - agreement to sell the undivided share and also the agreement for determination of value of the property were executed on 09.06.2006 and the Appellant had constructive possession of the land from that date as contemplated u/s 53A of the Transfer of Property Act read with Section 2(47)(v) - contention of the assessee is that for the purpose of computation of capital gain, indexation of cost of acquisition is to be made from the date of incurring various payments for the purpose of acquisition of capital asset which is subject matter of charging of capital gain - lower authorities considered the date of registration of the property in favour of assessee i.e., 17.5.2010 and determined the capital gain - HELD THAT:- Section 49 deals with the cost with reference to certain modes of acquisition. One such mode is, if the assessee acquires a capital asset by way of succession, inheritance or devolution, then the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be - when an asset is acquired by way of inheritance, the cost of acquisition of the asset should be calculated on the basis of the cost of acquisition by the previous owner and the said cost of acquisition of the previous owner has to be calculated on the basis of indexed cost of acquisition as provided in explanation (3) to Section 48. Though in the definition of 'indexed cost of acquisition', the word used are, 'in which the asset was held by the assessee' a harmonious reading of Sections 48 and 49 makes it clear that, for the purpose of 'Indexed Cost of Acquisition', it has to be understood as the first year in which the previous owner held the said property. Otherwise, if the date of inheritance is taken into consideration, then the cost of acquisition of the asset on that date corresponding to the market value is to be taken into consideration. Otherwise, take the cost of acquisition on the day the previous owner acquired it and apply the 'Indexed Cost of Acquisition' and then calculate the capital gains and the tax payable. Accordingly we direct the AO to recompute the cost of acquisition in the light of above discussion Disallowance of cost of improvement incurred by the assessee - lower authorities denied this claim of assessee towards improvement made to the interiors for which the assessee could not produce the requisite details of bills and vouchers - HELD THAT:- According to the ld. counsel for the assessee it was misplaced. Even before us the assessee has not produced an iota of evidence to suggest that the cost of improvement incurred on the interiors. In the absence of requisite details, we are not in a position to appreciate the argument of the assessee to allow such claim. Therefore, this ground of the assessee is dismissed. Issues Involved:1. Validity of the CIT(A) order.2. Confirmation of capital gain addition by CIT(A).3. Determination of possession date for Cost Inflation Index (CII) calculation.4. Consideration of apartment construction as purchase or development.5. Validity of the deemed holding period from the Joint Development Agreement (JDA) date.6. Judicial precedence supporting the appellant's claim.7. Allowance of cost of improvement claimed by the appellant.8. Rejection of cost of improvement due to lack of bills.9. Confirmation of interest under Section 234D.10. Overall arbitrary and excessive nature of the addition.Detailed Analysis:1. Validity of the CIT(A) Order:The appellant argued that the CIT(A) erred in passing the order confirming the addition of Rs. 42,28,768 as capital gain without appreciating the appellant's submissions. The CIT(A) did not consider the constructive possession of the land from 09.06.2006 as per Section 53A of the Transfer of Property Act read with Section 2(47)(v) of the IT Act.2. Confirmation of Capital Gain Addition:The CIT(A) confirmed the addition of Rs. 42,28,768 as capital gain. The appellant contended that the cost inflation index should be computed from the date of the Joint Development Agreement (JDA) on 09.06.2006, as the appellant had constructive possession of the property from that date.3. Determination of Possession Date for CII Calculation:The appellant argued that the cost inflation index should be calculated from the date of the JDA (09.06.2006) rather than the date of registration (17.05.2010). The Tribunal agreed with the appellant, citing the case of L. Vivekananda, where the cost of acquisition was considered from the date of incurring the expenditure to acquire the capital asset.4. Consideration of Apartment Construction as Purchase or Development:The appellant claimed that the apartment was constructed on their behalf and was not a purchase at the time of registration. The Tribunal supported this view, stating that the appellant had constructive possession from the date of the JDA, and the cost inflation index should be computed accordingly.5. Validity of the Deemed Holding Period from the JDA Date:The appellant argued that the apartment should be deemed to have been held from the date of the JDA (09.06.2006). The Tribunal agreed, referencing the case of A. Suresh Rao, which held that the date of allotment should be considered for computing the holding period for capital gains.6. Judicial Precedence Supporting the Appellant's Claim:The appellant cited judicial precedents, including the ITAT Delhi order in the case of Praveen Gupta and the Karnataka High Court decision in the case of A. Suresh Rao. The Tribunal found these precedents applicable and supported the appellant's claim for calculating the cost inflation index from the date of the JDA.7. Allowance of Cost of Improvement Claimed by the Appellant:The appellant claimed a cost of improvement of Rs. 5,72,000, which the CIT(A) disallowed due to a lack of bills. The Tribunal upheld the CIT(A)'s decision, as the appellant failed to provide sufficient evidence to substantiate the claim.8. Rejection of Cost of Improvement Due to Lack of Bills:The Tribunal noted that the appellant did not produce the requisite details of bills and vouchers for the claimed cost of improvement. Consequently, the Tribunal dismissed this ground of the appeal.9. Confirmation of Interest Under Section 234D:The appellant contested the interest charged under Section 234D. However, the Tribunal did not specifically address this issue, implicitly upholding the lower authorities' decision.10. Overall Arbitrary and Excessive Nature of the Addition:The appellant argued that the addition confirmed by the CIT(A) was arbitrary and excessive. The Tribunal partially allowed the appeal, directing the AO to recompute the cost of acquisition based on the date of the JDA, thereby reducing the capital gain addition.Conclusion:The Tribunal concluded that the cost of acquisition should be computed from the date of the JDA (09.06.2006) and directed the AO to recompute the capital gains accordingly. The appeal was partly allowed for statistical purposes, with the disallowance of the cost of improvement upheld due to insufficient evidence.