Indexed cost of acquisition must be allowed where acquisition evidence exists, enabling computation as long term capital gain.

Where the sale deed and acquisition particulars were on record, the Tribunal held that the assessing officer was duty bound to allow deduction of the indexed cost of acquisition comprising the assessee's undivided 1/9th land share and the cost of construction and thereafter compute the receipt as long term capital gain in the hands of the legal heir. The Tribunal allowed the appeal limitedly on that ground, noting the claimant's primary relief sought was grant of indexed cost; other issues were not pressed.

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Issues: Whether the assessee is entitled to deduction of the indexed cost of acquisition (including land share and construction) under section 55(2)(ac) of the Income-tax Act, 1961 and to have the sale of the property treated as long-term capital gain, notwithstanding that the assessing officer treated the entire sale consideration as unexplained income without allowing cost of acquisition.

Analysis: The facts, as recorded, show that the property was acquired in 1994-95 (land purchased 4 February 1995; construction in 1995-96) and sold by registered deed on 11 January 2016 for Rs. 14 lakhs. The assessing officer and the first appellate authority treated the entire sale consideration as unexplained income without granting any deduction for cost of acquisition despite having the sale deed on record indicating date and components of acquisition. The Tribunal noted that the assessee held an undivided 1/9th share in the land and also bore the cost of construction; these elements constitute the cost of acquisition. Given the availability of information to the assessing officer regarding the date and nature of acquisition, the officer was duty-bound to allow the deduction of the indexed cost of land and construction and then compute long-term capital gain chargeable to tax in the hands of the legal heir. The Tribunal observed that the primary claim pressed before it was limited to grant of indexed cost and computation as long-term capital gain, and other issues were not pressed.

Conclusion: The appeal is allowed on the limited ground that the assessing officer shall grant deduction of the cost of acquisition of the land (1/9th undivided share) and the cost of construction, indexed to the year of acquisition, and thereafter compute the long-term capital gain chargeable to tax in the hands of the legal heir. The grounds impugning the non-grant of indexed cost are allowed in favour of the assessee.

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