Original Cost and Period of Acquisition of Property by previous owner is relevant for Claim of Capital Gain: ITAT [Read Order]

Original cost and period of acquisition of property by previous owner is relevant for claim of capital gain, so was held by the Income Tax Appellate Tribunal (ITAT), New Delhi.

The Assessee’s, Kulvinder Singh Kohli’s father had acquired the plot/property under consideration situated at J-2-25, B-Block, Park Land, Sector 84, Faridabad vide plot buyer’s agreementdated 05.02.2007. Father of the Assessee expired on 18.11.2009. Thereafter memorandum of settlement was made amongst the Assessee and his two brothers and the asset of Assessee’s father were divided amongst themequally on 31.03.2010.

Thereafter, in order to give effect to the settlement conveyance deed was executed by M/s. BPTP Ltd. in favour of all the three brothers on 11.12.2013 and during the year under consideration, the Assessee along with other two brothers sold the plot of land for consideration of Rs.65 lacs after paying brokerage of Rs.60,000/- on 08.07.2015 in which the Assessee got 1/3rd share.

Consequently, the Assessee claimed the benefit of cost and indexation u/s 49 read with section 55 of the Act and declared the cost of acquisition of the property to the tune of Rs.16,74,212/- and offered the capital gain of Rs.4,72,455/- to tax under Section 54 of the Act.

The Assessing Office finding no supporting documents qua Assessee’s declared cost of acquisition, restricted the cost of acquisition to the tune 50% of the amount claimed, while considering the principle of natural justice and consequentlymade the ad hoc disallowance of Rs.8,37,106/-(50% of Rs.16,74,212/-) along with complete brokerage amount of Rs.20,000/- and added back to the income of the Assessee.

The Assessee being aggrieved with the disallowance of Rs.8,37,106/- u/s. 54 of the Act, challenged, along with other additions, which are not in controversy herein in this appeal, before the ld. Commissioner. The Commissioner after considering the case of the Assessee not only confirmed the adhoc addition of Rs. 8,37,106/- but also enhanced the income by revising the disallowance of Rs. 8,37,106/- to Rs. 12,74,512/-.

The Bench consisting of N K Billaiya, Accountant Member and N K Choudhry, Judicial Member held that “As per section 49 of the Act, where the capital asset became the property of the Assesseeon any distribution of assets on the total or partial partition of a Hindu undivided family, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the Assessee, as the case may be.

Hence, theoriginal cost and the period of acquisition of the property by the previous owner which in the instant case is the father of the Assessee, who got allotted the property on dated 05.02.2007 from M/s. BPTP Ltd, is relevant for computation cost of acquisition and benefit of indexation for claim of capital gain.”

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