Cost of acquisition as on 01.04.1981 taken as per valuer report by reverse indexing of FMV

Cost of acquisition as on 01.04.1981 taken as per valuer report by reverse indexing of current FMV to be further indexed for calculating capital gain

In a recent case, the ITAT has deleted the addition on account of Long Term Capital Gain holding that cost of acquisition as on 01.04.1981 taken by reverse indexing as per registered valuer report to be further indexed for calculating capital gain

ABCAUS Case Law Citation:
ABCAUS 3979 (2024) (04) ITAT

In the instant case, the assessee had challenged the ex-parte order passed by the National Faceless Appeal Centre/CIT(A) confirming the addition made by the Assessing Officer on account of long-term capital gain.

The assessee was an individual and on the basis of information about sale of immovable property, case of the assessee was reopened under section 147 of the Act after obtaining necessary approval from the Competent Authority.

The Assessing Officer observed that the assessee being 50% owner of immovable property and he had taken the cost of acquisition as on 01.04.1981 based on registered valuer report.

The Assessing Officer noticed that the cost of property has been computed by Registered Valuer on the reverse method of indexation and practically the sale consideration and indexed cost of acquisition were the same.

The Assessing Officer was not satisfied with this calculation and in absence of Circle rate of the said property as on 01.04.1981, he estimated the indexed cost of acquisition and made an addition for long-term capital gain.

The Tribunal observed that since the property was acquired prior to 01.04.1981, the assessee obtained report from the Registered Valuer for the purpose of calculating cost of acquisition as on 01.04.1981. In the valuation report, the valuer had estimated the current fair market value of the property and thereafter applying the reverse method of indexation, calculated the cost of property as on 01.04.1981. However, the Assessing Officer while carrying out the assessment proceedings had calculated the cost of acquisition by taking 50% of the cost of property as on 01.04.1981 as arrived by reverse indexing and did not give benefit of indexing thereon.

The Tribunal observed that Assessing Officer had himself taken that the cost of acquisition as on 01.04.1981 at 50% of cost but while calculating the long-term capital gain had not given the benefit of indexation and in case, if he had applied the indexation benefit the indexed cost of acquisition would be much more than the sale consideration.

The Tribunal noted that the Assessing Officer had nowhere disputed the sale consideration. Even CIT(Appeals) had also adopted the same analogy and even he had considered the cost of acquisition without benefit of indexation.

The Tribunal further noted that the Assessing Officer had himself considered the cost of acquisition @ 50% of the fair market value as on 01.04.1981 adjusted for reverse indexing based on the valuation report by Registered Valuer. However, Assessing Officer merely reduced the cost as on 01.04.1981 and calculated the impugned addition.

The Tribunal held that under these given facts and circumstances, where fair market value of the property as on 01.04.1981 as calculated by the Registered Valuer had been accepted by the Assessing Officer and there being no other evidence of the fair market value of property as on 01.04.1981, the cost of acquisition as on 01.04.1981 as adopted by Assessing Officer to be further indexed and since indexed amount was higher than the sale consideration, it would result into a long-term capital loss.

Therefore, the Tribunal set aside the finding of CIT(Appeals) and deleted the impugned addition made.

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