INCOME TAX ACT, 1961

Section 48

Capital gains - Computation of cost of acquisition - Addition on account of reducing the cost of acquisition - FMV as on 1-4-1981

Assessee had declared long-term capital gain on sale of land. In the year 1972 the assessee had purchased a land and valued the land for the purpose of indexation as on 1-4-1981 at Rs. 8,24,000. After indexation benefit, its indexed cost representing acquisition cost was worked out at Rs. 58,58,640. Assessee thereafter enhanced the acquisition cost by a sum of Rs. 20 lakhs on the ground that above land was given on rent to M/s. P who constructed a shed on the said land, and in order to get vacant possession, assessee had to pay a sum of Rs. 20 lakhs to M/s. P. AO, ignoring the report of registered valuer, adopted the purchase value of the land as on 1-4-1981. He calculated the fair market value at Rs. 5,21,835, and after giving indexation benefit worked out value at Rs. 37,10,246 as against Rs. 58,58,640. Similarly, he did not allow alleged improvement cost of Rs. 20 lakhs. Held: AO was not justified in rejecting contentions of assessee and it was pertinent to note that M/s. P had shown gains from business or profession at Rs. 13,31,916. Contrary to this, assessee would show long-term capital gain on sale of this shed. Assessee had disclosed sale value of the land at Rs. 7,92,00,000. Hardly inclusion of Rs. 20 lakhs or exclusion would make any difference to the assessee who is filing return of more than Rs. 7.76 crores. Modus operandi at the end of assessee could be construed, had there been a bigger allocation made by assessee for reducing the tax liability. All these factors were to be weighed while appreciating the stand of assessee vis-a-vis reasoning given by AO. Therefore, AO was directed to delete the addition of alleged Rs. 20 lakhs.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2011-12

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