Capital gains computation requires indexation of acquisition and improvement costs when sale of immovable property is assessed correctly.

Immovable property sale proceeds had to be computed on a capital gains basis where the purchase cost, indexed acquisition cost and supported improvement cost were available on record. The assessment had wrongly treated the entire sale consideration as short-term capital gain and had omitted the cost of improvement, even though the material showed the transaction and related costs were not in dispute. The correct computation required treating the transfer as giving rise to long-term capital gain and allowing indexation for both acquisition and improvement costs. The addition based on taxing the full sale consideration as short-term capital gain was not sustainable.

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Issues: Whether the assessee's sale of immovable property was liable to be assessed by taking the entire sale consideration as short-term capital gain, and whether the indexed cost of acquisition and indexed cost of improvement were required to be considered while computing long-term capital gain.

Analysis: The assessee had sold an immovable property for a stated consideration, and the purchase cost, indexed cost of acquisition, and supported cost of improvement were all ascertainable from the record. The assessment had proceeded without considering the cost of improvement and had treated the entire sale consideration as short-term capital gain. The assessee's non-response to notices had led to assessment under section 144 of the Income-tax Act, 1961, but the material before the Tribunal showed that the sale value, purchase cost, cost of improvement, and fixed deposits made out of the sale proceeds were not in dispute. In these circumstances, the computation had to be made on the actual capital gains basis after giving indexation benefit to both acquisition and improvement costs.

Conclusion: The assessment was required to be recomputed by treating the transaction as giving rise to long-term capital gain and by allowing the indexed cost of acquisition and indexed cost of improvement; the addition made by treating the entire sale consideration as short-term capital gain was not sustainable.

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