Cost of acquisition in capital gains can include prior agreement payments; revision under section 263 fails where inquiry was adequate.

For capital gains under section 48, cost of acquisition may include amounts paid under a prior agreement to sell where the intermediary had an enforceable interest in the property. The record showed that the assessee paid through banking channels and that the Assessing Officer had examined the relevant materials before adopting a permissible view; on that basis, the Principal Commissioner could not invoke section 263 merely by relying on the sale deed recitals or by expanding the inquiry beyond the reassessment issue, so the revisionary order was unsustainable.

---

---

Issues: Whether the revisionary order under section 263 of the Income-tax Act, 1961 was sustainable on the ground that the Assessing Officer had not made proper inquiries regarding the cost of acquisition of the property and the source of repayment of the housing loan, and whether the amount paid under the prior agreement to sell could be treated as part of the cost of acquisition for computing capital gains under section 48.

Analysis: The record showed that the assessee had paid the consideration through banking channels and that the property transaction involved the original allottee and the builder, with the allottee's rights and payments forming part of the overall acquisition chain. In computing capital gains, section 48 requires deduction of the cost of acquisition, and that expression is wider than the mere value recited in the registered sale deed. Amounts paid under a preceding agreement to sell to an intermediary having an enforceable interest in the property can legitimately form part of the acquisition cost. The Assessing Officer had examined the relevant materials and adopted a permissible view. The Principal Commissioner, by confining attention to the sale deed recitals and by enlarging the inquiry beyond the escapement issue recorded for reassessment, could not treat the assessment order as erroneous and prejudicial to the interests of the Revenue.

Conclusion: The revision under section 263 was not justified and the assessee succeeded.

Final Conclusion: The assessment order was restored in substance by rejecting the revisionary interference, and the assessee's capital gains computation based on the agreement-linked acquisition cost was upheld.

Ratio Decidendi: For capital gains purposes, the cost of acquisition may include amounts paid under a prior agreement to sell to an intermediary with a transferable interest, and a revision under section 263 cannot be sustained where the Assessing Officer has taken a permissible view after relevant inquiry.

---