SHRI KIRAN DINKAR PATIL,AMBERNATH vs. INCOME TAX OFFICER, KALYAN

When the appeal was called for hearing, none appeared on behalf of the assessee. However, despite the granting the several opportunities neither did anyone appeared on behalf of the assessee nor was any adjournment application filed. Accordingly, after considering the material available on record, we proceed to dispose of the appeal exparte qua for assessee. After hearing the submission of the Ld. DR.

The brief facts of the case are that the assessee filed the return of income declaring a total income of Rs.7,08,600/-. Subsequently, the assessment was reopened under Section 148 of the Act on the ground that the assessee, along with other co-owners, had sold an immovable property situated at Survey No. 145, Hissa No. 1A, Village Chikhloli, for a total consideration of Rs. 1,19,00,000/- vide sale deed dated 27.03.2014. Out of the total sale consideration, the assessee's share amounted to Rs. 23,00,000/-. The property had devolved upon the assessee by way of inheritance. Accordingly, while computing the capital gains, the assessee adopted the fair market value of the property as on 01.04.1981 as the cost of acquisition and, after indexation, computed a long-term capital loss of Rs. 47,500/-, which was duly reflected in the return of income. However, the Ld. AO rejected the assessee's computation by holding that, since the property was inherited, the cost of acquisition was to be taken as nil. Consequently, the entire amount of Rs. 23,00,000/- received by the assessee was brought to tax as long-term capital gains. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), however, dismissed the appeal. Being further aggrieved, the assessee is in appeal before us.

We have heard the submissions of the Ld. DR and perused the material available on record. It is an undisputed fact that the assessee, being a co-owner of an inherited property, transferred the same vide sale deed dated 27.03.2014 and received sale consideration amounting to Rs. 23,00,000/- as his share. While filing the return of income, the assessee disclosed the transaction and computed a long-term capital loss of Rs. 47,500/- after claiming the indexed cost of acquisition based on the fair market value of the property as on 01.04.1981. For this purpose, the assessee relied upon a valuation report dated 24.12.2018 prepared by Mr. Sharad Joglekar, a registered valuer, wherein the fair market value of the property as on 01.04.1981 was determined at Rs. 13,11,600/-. However, the Ld. AO rejected the claim on the sole ground that the property had been acquired by inheritance and, therefore, treated the cost of acquisition as nil. The relevant observations of the Ld. AO recorded in paragraph 3.6 of the assessment order are reproduced below:

We find that the assessee had inherited the property in question and, during the relevant assessment year, transferred the same as a co-owner. During the appellate proceedings, several opportunities of hearing were granted to the assessee; however, the appeal was ultimately dismissed for non- prosecution. Nevertheless, the record reveals that the assessee had complied with the notices issued and had filed the relevant documentary evidence during the appellate proceedings. We further find that the assessee is entitled to adopt the cost of acquisition based on the fair market value of the property as on 01.04.1981. The assessee had furnished a separate valuation report in support of such claim. However, without examining or rejecting the said valuation report, the Ld. AO computed the capital gains by treating the cost of acquisition as nil and brought the entire sale consideration to tax. The assessee has rightly contended that, in terms of Section 55(2)(b)(ii) read with Section 49 of the Act, where the property has been acquired by inheritance and was held by the previous owner prior to 01.04.1981, the assessee is legally entitled to substitute the fair market value of the property as on 01.04.1981 as the cost of acquisition. Accordingly, the cost of acquisition cannot be taken at nil. In view of the above, we restore the matter to the file of the Ld. AO with a direction to determine the fair market value of the property as on 01.04.1981 by making a reference to the Departmental Valuation Officer (DVO) under Section 55A of the Act. The Ld. AO was not justified in disregarding the cost of acquisition while computing the capital gains without first examining the valuation furnished by the assessee. The Ld. AO shall decide the issue afresh in accordance with law after considering the valuation report and all other relevant evidence. Needless to add, the assessee shall be afforded a reasonable opportunity of being heard, and all documents and evidence that may be filed shall be duly considered in accordance with law.

In the result, the appeal of the assessee bearing ITA No.3266/Mum/2026 is allowed for statistical purpose.