The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the indexation benefit against cost of acquisition should be available based on the index of the year in which payments actually had been made.
The assessee, Bushra Javed, was a non-resident individual residing in London with her husband Khalid Hussain Kureshi. The assessee filed her revised return of income for AY 2018-19 on 21.08.2018 and the case was selected under complete scrutiny. In his draft assessment order dated 25.09.2021 under Section 144C of the Income Tax Act. The AO computed the long-term capital gain against the sum declared by the assessee resulting in addition to the income of the assessee.
The assessee raised objections with the Dispute Resolution Panel (DRP) to the draft assessment order. DRP observed that all the grounds were related to issue of allowability of indexation from date of payment which was post absolute transfer of asset during F.Y. 2003-04 and proportionate cost of improvement.
DRP observed that according to which in F.Y. 2003-04 the assessee and her husband together entered into tri party agreement with Cosmos Builders and Developers Limited for purchase of residential property. The residential property was jointly owned since the date of tri party agreement and not from the date of registration on 08.12.2010.
It was also noted that the AO had not mentioned about the tripartite agreement and simply had mentioned that deed reflecting the name of the assessee was dated 08.12.2010 i.e. in the year 2010-11 and the assessee became half owner in the property, hence indexation under Section 48 was done accordingly. The AO had also allowed the index cost of improvement without recording any reasons as to how this figure has been arrived at.
Manish, on behalf of the assessee submitted that the agreement was not between two partners which could be altered subsequently. It was a tri party agreement between the builder, the assessee and her husband which had no possibility of unilateral revision.
Vizay Vasanta, on behalf of the revenue submitted that the agreement to sale was not in the name of the assessee. It was in the year 2010 that first time the assessee’s name appeared as co-owner in the sale deed.
The two-member Bench of G.S. Pannu, (President) and Astha Chandra, (Judicial Member) the observation of assessee referring the tripartite agreement and the sale deed, that the ownership of the property got transferred from the builder to joint owners in the F.Y. 2003-04 itself. The total cost of acquisition was also paid in F.Y. 2004-05 which had not been disputed by the AO. If that be so, the AO was not justified in disallowing indexation of the cost of acquisition from F.Y. 2004-05.
The Bench allowed the appeal filed by the assessee holding that, “The judicial consensus is that indexation benefit against cost of acquisition shall be available to the assessee on the basis of index of the year in which the payments were actually made.”
Further the AO was directed to compute the long-term capital gain keeping in view the facts of the assessee’s case, in the light of the definition of “indexed cost of acquisition” and “indexed cost of any improvement” contained in Explanation (iii) and (iv) to Section 48 of the Income Tax Act.
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