Assessee wins appeal as indexed cost exceeds sale consideration creating long-term capital loss under section 147

ITAT Kolkata allowed the assessee's appeal regarding LTCG calculation on immovable property sale. The case was reopened under section 147 for a 50% property owner. AO failed to determine circle rate as on 01.04.1981 and only reduced cost without proper indexation. ITAT accepted registered valuer's FMV of Rs. 5,00,370 as on 01.04.1981, resulting in indexed cost of Rs. 54,09,000 exceeding sale consideration, thereby creating long-term capital loss. The addition was deleted and CIT(Appeals) finding was set aside.

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Issues involved:
The judgment involves a dispute regarding the calculation of long-term capital gain u/s 147 of the Income Tax Act for the assessment year 2016-17.

Issue 1 - Addition of long-term capital gain:
The assessee's grievance was against the addition made by the Assessing Officer on account of long-term capital gain. The Assessing Officer estimated the indexed cost of acquisition due to the absence of Circle rate of the property as on 01.04.1981, resulting in an addition for long-term capital gain. The CIT(Appeals) confirmed this addition, dismissing the appeal of the appellant.

Issue 2 - Valuation report and indexation benefit:
The Registered Valuer valued the property sold at Rs. 1,08,18,000/- as on 22.12.2015, but the Assessing Officer calculated the cost of acquisition at Rs. 5,00,370/-. The appellant claimed to incur long-term capital loss, arguing that the indexation benefit was not given on the cost of the property. The Tribunal found that the Assessing Officer and the CIT(Appeals) did not consider the benefit of indexation, which resulted in the incorrect calculation of the long-term capital gain.

Judgment Summary:
The Tribunal observed that the Assessing Officer did not give the benefit of indexation while calculating the long-term capital gain, even though the cost of acquisition was noted at Rs. 5,00,370/-. Considering the fair market value of the property as on 01.04.1981 accepted by the Assessing Officer, the Tribunal held in favor of the assessee. It was concluded that the indexed cost of acquisition would be Rs. 54,09,000/-, resulting in a long-term capital loss higher than the sale consideration. Therefore, the Tribunal set aside the CIT(Appeals) decision and deleted the impugned addition made in the hands of the assessee. The grounds of appeal of the assessee were allowed, and the appeal was allowed in favor of the assessee.

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