ACIT,CIRCLE-43(1), NEW DELHI vs. SANTOSH SURI, DELHI

These two appeals are filed by the Revenue and Assessee against the order of the ld. Commissioner of Income Tax (Appeals)-14 [hereinafter referred to CIT (Appeals)] New Delhi, dated 05.12.2019 for assessment year 2016-17.

In so far as ground No. 1 is concerned, the ld. DR submits that the assessee has furnished additional evidence before the ld. CIT (Appeals) and the same were admitted without giving an opportunity to he Assessing Officer to go through the additional evidence furnished by the assessee in respect of cost of improvement made by the assessee. The additional evidence contains copies of cost of improvement year-wise.

On the other hand, the ld. Counsel submits that assessee has not filed additional evidence before the ld. CIT (Appeals) and the ld. CIT (Appeals) suo moto enquired directly by issue of notice under section 133(6) of the Income Tax Act, 1961 (the Act) and the architect/interior designer responded to the notice issued by the ld. CIT (Appeals) stating that they have issued certificate to the assessee in respect of the expenses claimed on cost of improvement of property. In any case the ld. Counsel submits that the matter may be sent back to the Assessing Officer for limited purpose of verification of cost of improvement.

On hearing both the parties and perusing the orders of the lower authorities especially para 5 of the assessment order wherein the finding of the Assessing Officer was that assessee was asked to produce documentary evidence with regard to cost of improvement claimed but the assessee failed to give any documentary evidence with regard to the said claim. Therefore, we are of the considered opinion that this matter should go back to the Assessing Officer for proper verification of the evidence in respect of cost of improvement claimed by the assessee. Thus, we restore ground Nos. 1 and 2 of grounds of appeal of the Revenue to the file of the Assessing Officer with a direction for de novo adjudication of cost of improvement claimed by the assessee.

Coming to appeal of the assessee, even though various grounds have been raised by the assessee, the ld. Counsel argued only ground No. 5 of grounds of appeal relating to indexation of cost of improvement and cost of acquisition and submits that the indexed cost of acquisition shall be with reference to the year in which previous owner acquired the assets and not the year in which the assessee acquired an asset. The ld. Counsel submits that in the case of the assessee the property was Cross & 721/Del/2020 acquired by assessee’s mother in the year 1969 and after her demise in 2013 her share of property was inherited by the assessee. The ld. Counsel placed reliance on the decision of Hon’ble Bombay High Court in the case of CIT Vs. Manjula J. Shah [(2013) 355 ITR 474] and the decision of Hon’ble Delhi High Court in the case of Arun Shungloo Trust Vs. CIT in [2012 (2) (TMI) 259 in support of his argument.

The ld. DR placed reliance on the orders of the authorities below.

We observe that the ld. CIT (Appeals) held that in the case of inherited property cost of acquisition as well as the cost of improvement by the previous owner of a capital asset the indexation shall be allowed during the year of acquisition or improvement by the previous owner or the year of inheritance by the person, who sold the property. The Hon’ble Bombay High Court in the case of CIT Vs. Manjula J. Shah (supra) affirmed the view of the Tribunal in holding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift or inheritance the index cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. Similar view has been taken by the Hon’ble Delhi High Court in the case of Arun Shungloo Trust Vs. CIT (supra). Respectfully following the above decisions, we direct the Assessing Officer to allow the cost of indexation to the assessee keeping in view the principles laid down by the above judgements. Ground No. 5 of grounds of appeal of the assessee is allowed.

In the result, the appeal of the Revenue is allowed for statistical purposes and the appeal of the assessee is partly allowed as indicated above.