Capital gains cost determination and compensatory filing interest require recognition of verifiable acquisition value and legally possible return filing.

Capital gains computation under sections 45 and 48 requires allowance for cost of acquisition, improvement and transfer expenditure. For identifiable properties supported by prior sale deeds or release records, unavailable historical documentation alone does not justify treating acquisition cost as nil. Fair market value, indexation, guidance value and related property particulars may require factual verification. Interest under section 234A is described as compensatory and limited to legally attributable delay. Where no valid return could legally be furnished after the periods under sections 139 and 139(4) expired and before notice under section 148, the intervening period should be excluded, applying the principle that law does not compel impossibility.

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Issues: (i) Whether the cost of acquisition of the two properties could be taken as nil while computing long-term capital gains. (ii) Whether interest under section 234A could be levied for the period during which the assessee could not legally furnish a valid return before issuance of notice under section 148.

Issue (i): Whether the cost of acquisition of the two properties could be taken as nil while computing long-term capital gains.

Analysis: Under sections 45 and 48 of the Income-tax Act, 1961, capital gains must be computed after allowing the cost of acquisition, cost of improvement and transfer expenditure. Section 55 of the Income-tax Act, 1961 permits adoption of fair market value as on the applicable statutory base date for qualifying old assets. The properties were identifiable and supported by sale deeds recording their earlier acquisition or release in favour of the society. The absence of complete historical records did not establish that the properties had no cost. The reverse indexation or time-gap method could not be rejected at the threshold where direct evidence of historical fair market value was unavailable, but the guidance value, acquisition year, Cost Inflation Index, property particulars, enhancement and computation required factual verification.

Conclusion: The adoption of nil cost of acquisition was unsustainable. The issue was restored to the Assessing Officer for determining the correct cost of acquisition, indexation and allowable expenditure in accordance with law.

Issue (ii): Whether interest under section 234A could be levied for the period during which the assessee could not legally furnish a valid return before issuance of notice under section 148.

Analysis: Interest under section 234A of the Income-tax Act, 1961 is compensatory and may be charged only for a legally attributable delay in furnishing the return. After expiry of the periods under sections 139 and 139(4) of the Income-tax Act, 1961 and before issuance of notice under section 148, the assessee had no statutory mechanism to furnish a valid return for the relevant assessment year. The principle of lex non cogit ad impossibilia therefore applied, and the assessee could not be treated as being in continuing default during that intervening period.

Conclusion: Interest under section 234A was not leviable for the period during which filing of a valid return was legally impermissible. The Assessing Officer was directed to recompute the interest after excluding that period and grant consequential relief.

Final Conclusion: The nil-cost computation was set aside for fresh determination, and the challenge to interest under section 234A succeeded to the extent of excluding the legally impermissible intervening period.

Ratio Decidendi: Capital gains cannot be computed by treating the cost of an identifiable capital asset as nil merely because old acquisition records are unavailable; and interest for delayed filing cannot be imposed for a period during which the assessee had no legal means to furnish a valid return.

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