ITAT directs AO to allow Indexation on cost of acquisition and improvement while Computing Long term capital gain for Computation done separately makes assessee Pay additional Tax [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) helx that even if capital gain computed on the land and on the buiing separately as a long term capital asset and as a short term capital asset respectively still there is no liability arises on the assessee to pay additional tax on account of capital gains.

The assessee is an individua who filed his return of income on 24.07.2019 declaring total income of Rs.60,24,620/- comprising of long term capital gains of Rs.59,10,401/- and income from other sources at Rs.1,24,222/-. The Assessing Officer in the draft assessment order passed under Section 144C of the Income Tax Act dated 29.09.2021 denied long term capital gain claimed by the assessee in the absence of copy of purchase deed of the property, bills, vouchers, etc.

To prove the cost of improvement as the assessee did not furnish the details as called for by the Assessing Officer. The long term capital gain declared by the assessee at Rs.59,10,401/- was denied and the Assessing Officer computed the long term capital gain at Rs.1,13,39,599/- on the sale of property. Accordingly a draft assessment order was passed.

The assessee filed his objections before the DRP along with various details including purchase deed, sale deed, copy of bank statements, copy of approval from Municipal Corporation of Delhi for construction of the buiing and provided the details of cost of construction and contended that the land on which the construction was made constituted long term capital asset since the land was acquired in 1979 and, therefore, it was contended that the nature of capital gain was long term capital gain.

The assessee also contended that the floors constructed after demolition of the o super structure does not alter the nature of capital gain. Alternatively the assessee claimed that the capital gain on land and buiing will be long term capital assets and short term capital assets respectively.

The DRP felt that all these evidences have to be examined by the Assessing Officer and accordingly direction was given to the Assessing Officer to compute the capital gain. However, the DRP observed that since the floors came into existence in the FY 2018-19 and were so within the same financial year the transaction is of the nature of short term capital gain and not long term capital gain.

The DRP he that in such situation indexation is not allowable. In so far as the alternative claim of the assessee that land has to be assessed as capital gain and buiing as short term capital gain is concerned the DRP did not entertain the assesse’s claim citing the decision of the Supreme Court in the case of Goetze (India) Limited.

On the directions of the DRP the Assessing Officer passed final assessment order on 22.07.2022, wherein the Assessing Officer examined all the evidences furnished and accepted the claim of the assessee in respect of cost of improvement and cost of acquisition. However, the Assessing Officer computed the short term capital gain on the sale of property both land and buiing under the head “short term capital gain” at Rs.1,03,01,202/- without allowing indexation.

After hearing both the parties, the tribunal noted that even if capital gain computed on the land and on the buiing separately as a long term capital asset and as a short term capital asset respectively still there is no liability arises on the assessee to pay additional tax on account of capital gains.

The two member bench consisting of Narendra Kumar Billaiya (accountant member) C.N Prasad (Judicial member) directed the AO to allow indexation on cost of acquisition and cost of improvement while computing the long term capital gain as was done in the case of the co-owner and the assessee’s brother Harsh Bansal. Thus the appeal was allowed.

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