Lata Sureshchandra Patel, Baroda vs Department Of Income Tax

ACIT, Smt. Lata Sureshchandra Patel Circle-3, Vs 'Shanti Nivas', Near Narbada Baroda Canal, At. Sevasi, Dist. Baroda PAN : ADHPP 6664 M

अपीलाथ)/ अपीलाथ)/ (Appellant) ू+यथ) यथ)/ थ)/ (Respondent)

Revenue by : Shri Nimesh Yadav, Sr. DR Assessee(s) by : None

सुनवाई क- तार.ख/ / Dateof Hearing : 16/04/2015 घोषणा क- तार.ख / Date of Pronouncement: 08/05/2015

आदे श/O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER:-

This appeal by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-II, Baroda ("CIT(A)" in short) dated 23.06.2011 for the Assessment Year 2008-09.

2. The Revenue has raised the following grounds of appeal:-

1. On the facts and in the circumstances of the case and in law, the ld.

CIT(Appeals) erred in allowing indexed cost of acquisition from the base year i.e. from 01.04.1981 and thereby deleting the addition of Rs.1,32,76,842/- made on account of long term capital gain without appreciating the fact that the asset was held by the assessee only from the financial year 1996-97 and as per the provisions of Explanation (iii) to Section 48 of the Income-tax Act the cost inflation indeed for the first year in which the asset was held by the assessee has to be considered.

2. The appellant craves leave to add, to amend or alter the above grounds as may be deemed necessary.

ITA No. 2193/Ahd/2011 ACIT v. Smt Lata Sureshchandra Patel For AY 2008-09 2

3. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") was framed vide order dated 10.12.2010, whereby the Assessing Officer recomputed the Long Term Capital Gain allowing the benefit of indexation from the financial year 1996-

97. Against this, the assessee filed an appeal before the ld.CIT(A) who, after considering the submissions of the assessee, partly allowed the appeal by deleting the addition made on account of computing Long Term Capital Gain taking indexation from the FY 1996-97. Aggrieved by the aforesaid order of the ld. CIT(A), the Revenue is in appeal before us.

4. At the time of hearing, none appeared on behalf of the assessee nor any request for adjournment has been filed before the Tribunal despite the service of notice upon the assessee. So, we are proceeding the case ex-parte qua the assessee and disposing the matter on the basis of arguments of ld. Sr. DR. and the material available on record.

5. Ld. Sr. DR., Shri Nimesh Yadav supported the order of the Assessing Officer and submitted that the CIT(A) was not justified in allowing index cost of acquisition from the base year i.e. from 01.04.1981.

6. We have heard the rival submissions, perused the orders of the lower authorities and material available on record. We find that the Assessing Officer had applied indexation from the Financial Year 1996-97 against the cost inflation indexation taken by the assessee from 01.04.1981. That the CIT(A) has reproduced the written submission of the assessee in paragraph 2.2 of his order as under:-

"The ld AO in his Order has stated that as per the Act u/s 48, the cost of indexation has to be applied and the year of cost of indexation to be applied is ITA No. 2193/Ahd/2011 ACIT v. Smt Lata Sureshchandra Patel For AY 2008-09 3

mentioned in section 49(1). The section 49, in the explanation, it is stated that the cost of indexation to be applied for calculation of Long Term Capital Gain shall be in the year in which the asset is held by the assessee. Further, the cost of the property is to be taken as per the cost of the previous owner. In your appellant's case the cost of the property is taken as on 01-04-1981 as the property was acquired prior to that date. It is pertinent to note here that the Section 49(1) says that the indexation shall be applied for the year in which the property is held by the assessee.

In your appellant's case, the property was purchased by the husband and since the cost is applied w.e.f. 01-04-1981, the same chronology should be applicable to the cost of indexation and accordingly the cost of indexation index is taken as of 01-04-1981. The ld AO in his Assessment Order had said that since the property was held by your appellant from the financial year 1996-97, i.e. pursuant to death of husband, the indexation should be taken into consideration w.e.f. FY 1996-97 and not from 01-04-1981.

Your appellant wishes to submit that if analogy of ld AO is to be adopted, then indexation benefit for the period 01.04.1981 till death of husband shall not be available to any assessee. This is not the spirit of law as indexation benefit should be available to assessee and it should not lapse merely because of inheritance of the property and subsequent sell by other person.

Your appellant further relies on decision by Hon'ble ITAT, Mumbai Special Bench decision in case of DCIT, 12(2) v/s Manjula J Shah ITA No.7315/Mum/2007 (Page No. 34 of Paper Book) whereby it is held that:

For the reasons given above, we are of the view that for the purpose of computing long term capital gain arising from the transfer of a capital asset which had become property of the assessee under gift, the first year in which the capital asset was held by the assessee has to be determined to. work out the indexed cost of acquisition as envisaged in Explanation (iii) to section 48 after taking into account the period for which the said capital asset was held by the previous owner. In that view of the matter, we hold that the indexed cost of acquisition of such capital asset has to be computed with reference to the year in which the previous owner first held the asset. Accordingly, we answer the question referred to us in favour of the assessee and uphold the impugned order of the learned CIT (A) on this issue.

Your appellant further relies on Circular No. 636 dated 31.08.1992 issued by CBDT explaining the purpose of indexation allowed while computing long term capital gain as reported in 198 ITR 1(St) at Page No.24, para 35 (Page No, 36 of Paper Book).

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Your appellant further wishes to submit all above decisions were submitted to the ld AO at the stage of assessment proceedings. However, the same were ignored.

The ld AO has erred in relying on decision by Hon'ble ITAT, Mumbai in case of Dy. CIT v/s Kishore Kanunqo (2006) 102 ITD 347 ignoring the fact that decision relied upon by your appellant in case of Mrs. Majula Shah is by Special Bench ITAT and hence, overriding the decision in case of Kishore Kanungo and also a fact (Page No, 21 Paper Book) that the Hon'ble ITAT Special Bench has given decision in case of Mrs. Manjula Shah after considering decision in case of Kishore Kanungo.

7. After considering the aforesaid submissions made by the assessee, the ld. CIT(A) has decided the issue in favour of the assessee by observing as under:-

"2.3. I have considered the submission of the ld. Authorized Representative and the order of the Assessing Officer. Special Bench of Hon'ble Mumbai ITAT in the case of Mrs. Manjula J. Shah, has considered the issue in detail and has delivered the judgment after considering the case of Kishore Kanungo. Relevant portion of the order is reproduced hereunder:-

"It is also noted that if the interpretation as sought by the learned D.R. is assigned to Clause (iii) of Explanation to Section 48, it would lead to such working of indexed cost of acquisition in some cases which is totally illogical and unreasonable. For instance, in the case where capital asset has become a property of the assessee under a gift prior to the cut off date of 01.04.1981 but the same is transferred by him only after 01.04.1981; say in Financial Year 1987-88, the year to be adopted for indexation as per the contention of the contention of the learned D.R. would be Financial Year 1987-88. however, the cost of acquisition of capital asset in such case would be taken as Fair Market Value of 01.04.1981 being the cut off date embedded in the indexation scheme as agree even by the learned D.R. The situation will thus arise where the cost of acquisition of capital asset would be taken as of 01.04.1981 whereas the cost inflation index for the year 1987-88 would be applied to the said cost to work out the indexed cost of acquisition. Such a working will not stand to any reasonability or logic and will certainly defeat the very purpose of indexation scheme, as explained in the aforesaid Circular No. 636 dated 31.08.1990.

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For the reasons given above, we are of the view that for the purpose of computing long term capital gain arising from the transfer of a capital asset which had become property of the assessee under gift, the first year in which the capital asset was held by the assessee has to be determined to work out the indexed cost of acquisition as envisaged in Explanation (iii) to section 48 after taking into account the period for which the said capital asset was held by the previous owner. In that view of the matter, we hold that the indexed cost of acquisition of such capital asset has to be computed with reference to the year in which the previous owner first held the asset Accordingly, we answer the question referred to us in favour of the assessee and uphold the impugned order of the learned CIT(A) on this issue".

From the above, it is clear that in the present case, the appellant has to be given the cost inflation indexation from 01.04.1981 rather than 1996-97 as given by the Assessing Officer i.e. the indexed cost of acquisition of the residential house has to be computed with reference to the year in which the previous owner first held the asset. The addition made by the Assessing Officer is therefore deleted.

8. The ld. CIT(A) has followed the decision of ITAT, Mumbai Special Bench in the case of DCIT vs. Manjula J Shah in ITA No.7315/Mum/2007. The ld. Sr. DR. could not distinguish the decision as relied upon by the ld. CIT(A); therefore, we see no reason to interfere with the finding of the ld. CIT(A) which is confirmed. Therefore, the Ground No.1 of the Revenue is rejected.

9. Ground No.2 is general in nature and requires no separate adjudication.

10. In the result, the appeal of the Revenue is rejected.

Order pronounced in the Court on 8TH May, 2015 at Ahmedabad.

Sd/- Sd/-

( N.S. SAINI) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 08/05/2015 *Biju T. ITA No. 2193/Ahd/2011 ACIT v. Smt Lata Sureshchandra Patel For AY 2008-09 6

षत Copy आदे श क- ूितिल2प अमे2षत/ of the Order forwarded to : 1. अपीलाथ) / The Appellant 2. ू+यथ) / The Respondent. 3. संबंिधत आयकर आयु4 / Concerned CIT 4. आयकर आयु4(अपील) / The CIT(A)

5. 2वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड& फाईल / Guard file.

/ BY ORDER, आदे शानु सार

TRUE COPY

Dy./Asstt.Registrar) उप/सहायक पंजीकार ( उप/ अिधकरण, अहमदाबाद / आयकर अपीलीय अिधकरण, ITAT, Ahmedabad