Limited scrutiny and proportionate section 54 attribution govern capital-gains computation in joint development arrangements.

In a limited scrutiny assessment, capital-gains examination remains confined to the permitted scope, and the year of taxability cannot be shifted on an inconsistent or unsupported alternative claim. For joint development transactions, the gains were treated as taxable in the year of sale deeds, while additional evidence and a plea based on earlier possession were rejected. On computation, only proportionate land cost was allowable where only part of the land was transferred, and section 54 relief had to be linked to the relevant flat area on a proportionate, fact-based basis. The fair market value of the old building as on 01-04-1981 was directed at Rs. 20 lakhs, with recomputation accordingly.

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Issues: (i) Whether the year of taxability of capital gains arising from the joint development arrangement and the additional evidence sought to be filed could be accepted. (ii) Whether the computation of capital gains, including the cost of land, cost of old building and deduction under section 54, required interference.

Issue (i): Whether the year of taxability of capital gains arising from the joint development arrangement and the additional evidence sought to be filed could be accepted.

Analysis: The assessee had offered the gains in the year in which the sale deeds were executed and not in any earlier year. The claim that the gains were taxable in an earlier year based on the joint development agreement and alleged handing over of possession was not supported by the assessee's own return history. The scope of limited scrutiny was confined to the correctness of deduction from capital gains, and the year of taxability could not be travelled into by the Assessing Officer beyond that scope. The additional evidence and alternative plea based on completion of construction did not alter the position, as the assessee had not consistently offered the gains in any other year.

Conclusion: The challenge to the year of taxability and the related additional evidence was rejected.

Issue (ii): Whether the computation of capital gains, including the cost of land, cost of old building and deduction under section 54, required interference.

Analysis: Only a part of the land had been transferred, so only proportionate cost could be allowed and the claim to the entire land cost was unsustainable. The claim relating to cost of the old building was not fully substantiated, but the fair market value adopted for the building as on 01-04-1981 did not warrant further depreciation once such value was accepted. As regards section 54, the cost attributable to the new asset had to be worked out proportionately for the relevant flat area and not by loading the entire construction-related outgoings of all flats to the two combined flats. The Assessing Officer's method on section 54 was therefore upheld, subject to correcting the building value as directed.

Conclusion: The computation was upheld in principle, except that the fair market value of the building as on 01-04-1981 was directed to be taken at Rs. 20 lakhs and the gains recomputed accordingly.

Final Conclusion: The appeal succeeded only to the limited extent of modification in the valuation of the old building, while the remaining additions and the disallowance of the claimed deduction were sustained.

Ratio Decidendi: In a limited scrutiny assessment, the Assessing Officer may examine the correctness of capital-gains computation within the permitted scope, and deduction under section 54 must be computed on a proportionate and fact-based attribution of the cost of the new asset.

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