Benefit of Indexation of Cost is Statutory Consequence Flowing from Section 48 of Income Tax Act, rules ITAT [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) held that the benefit of indexation of cost is a statutory consequence flowing from Section 48 of the Income Tax Act, 1961, and cannot be denied when the material necessary for determining the cost of acquisition and cost of improvement is available on record.

The assessee, Ramatas Revathi, filed the return of income for the relevant assessment year and the loss was computed after claiming indexed cost of acquisition of land and indexed cost of construction of the building standing thereon. According to the assessee, the property transferred comprised both land and a building, and the indexed cost was computed in accordance with Section 48 of Income Tax Act.

During assessment proceedings, the Assessing Officer (AO) held that the assessee had failed to substantiate the indexed cost claimed in respect of the property. Consequently, the AO rejected the computation of Long-Term Capital Loss and treated the entire sale consideration as Short-Term Capital Gain, resulting in an addition of the said amount.

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) directed the AO to verify the purchase deeds and allow indexed cost of acquisition of land, if found correct. However, the CIT(A) treated the details relating to the building and cost of construction as additional evidence.

Before the Tribunal, the assessee contended that once the CIT(A) had accepted that the registered sale deed was a public document and not additional evidence, there was no justification for treating the details relating to the building contained in Annexure 1-A as additional evidence. It was argued that the cost of construction was clearly discernible from the registered sale deed and that the plan approval and other supporting documents merely corroborated the particulars already available on record. The assessee further submitted that denial of indexation on the cost of construction had resulted in an erroneous computation of capital gains.

The Department supported the orders of the lower authorities and contended that the assessee had failed to furnish adequate documentary evidence before the AO in support of the cost of construction claimed.

The Tribunal of Gagan Goyal, Accountant Member and Manu Kumar Giri, Judicial Member observed that “The benefit of indexation of cost is a statutory consequence flowing from section 48 of the Act. Where the material necessary for determining the cost of acquisition and cost of improvement is already available on record, such benefit cannot be denied on hyper-technical grounds. The plan approval and other supporting documents relied upon by the assessee merely corroborate the particulars already contained in the registered sale deed and its annexure.”

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