Entire land rights surrendered in composite settlement: indexed cost could not be proportionately restricted, and capital gains addition failed.

Contemporaneous settlement documents and the conveyance deed were read together to determine that the taxpayer had surrendered all rights, title, interest and possession in the entire larger land parcel, not merely in a smaller portion. On that basis, the indexed cost of acquisition was allowable with reference to the whole land, and the Assessing Officer could not proportionately restrict the deduction by isolating only one later-conveyed segment; the related long-term capital gains addition was deleted. The objection of breach of natural justice was rejected because the record showed multiple hearings, a detailed show cause notice and a speaking assessment order.

---

---

Issues: (i) Whether the assessee had surrendered rights, title and interest in the entire larger land parcel so as to entitle him to deduct indexed cost of acquisition in full; (ii) whether the Assessing Officer was justified in restricting the deduction on a proportionate basis and making the addition of long-term capital gains; (iii) whether the objection regarding violation of natural justice had merit.

Issue (i): Whether the assessee had surrendered rights, title and interest in the entire larger land parcel so as to entitle him to deduct indexed cost of acquisition in full.

Analysis: The consideration of Rs. 33 crores arose from a composite settlement reflected in the consent terms and the conveyance deed. A conjoint reading of the foundational development agreement, possession receipt, consent terms and conveyance deed showed that the assessee's rights were not confined to a smaller carved-out portion but extended over the entire survey number measuring 35,600 sq. mtrs. The documents recorded surrender of all rights, title, interest and possession in the larger land, and the civil suit itself had been instituted for specific performance of the agreement relating to the whole parcel. The assessee's rights were therefore treated as a distinct capital asset acquired through development and possessory rights.

Conclusion: The assessee was held entitled to claim the indexed cost of acquisition with reference to the entire larger land, and the surrender was treated as covering the whole parcel, not merely a part.

Issue (ii): Whether the Assessing Officer was justified in restricting the deduction on a proportionate basis and making the addition of long-term capital gains.

Analysis: The proportionate restriction based on the area of 13,967.50 sq. mtrs. was found to rest on a misreading of the transaction and an isolated reading of select recitals. Since the assessee's extinguished rights related to the entire larger land, the cost could not be artificially scaled down by applying a fraction derived from the later conveyance of only one portion. The addition made by recomputing long-term capital gains on that basis was therefore unsustainable.

Conclusion: The addition of Rs. 20,28,10,757/- was held to be not sustainable and was deleted.

Issue (iii): Whether the objection regarding violation of natural justice had merit.

Analysis: The record showed multiple hearings, including video conference hearings, a detailed show cause notice and a speaking assessment order. The grievance that the assessment was made in breach of natural justice was not supported by the record.

Conclusion: The natural justice ground was rejected.

Final Conclusion: The Revenue's appeal failed on the substantive capital gains issue, while the procedural objection was rejected; the deletion of the addition was sustained.

Ratio Decidendi: Where contemporaneous settlement documents and conveyance recitals, read as a whole, show that a taxpayer relinquished the entire bundle of rights in a larger property, the cost of acquisition cannot be artificially apportioned by reference to only one physical portion later conveyed to a third party.

---