VENKATASWAROOP REDDY SIDDAVARAPU,CHENNAI vs. DCIT, CORP. CIRCLE-3(1)CHENNAI, CHENNAI

ITA 1726/CHNY/2026Status: DisposedITAT Chennai23 September 2026AY 2022-2320 pages
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What were the facts?

The assessee, Venkataswaroop Reddy Siddavarapu, an individual, filed a return of income for Assessment Year 2022-23 declaring a total income of Rs. 8,89,37,300. The case was selected for scrutiny. During the year, the assessee sold 2833 shares of SPI Music Pvt. Ltd., of which 1722 shares were received as a gift from Mr. Kiran Reddy on March 24, 2021. The assessee offered the gift value of Rs. 4,13,87,047 under section 56(2)(x). The assessee claimed indexed cost of acquisition of Rs. 7,85,51,042, treating the shares as a long-term capital asset. The Assessing Officer (AO) disagreed, considering the shares as a short-term capital asset acquired on March 24, 2021, and disallowed indexation, leading to an addition of Rs. 3,71,73,995. The Commissioner of Income Tax (Appeals) (CIT(A)) upheld the addition but agreed that the asset was long-term. The assessee appealed to the Income Tax Appellate Tribunal (ITAT).

What did the Tribunal hold?

The Tribunal held that the shares qualify as a long-term capital asset by including the period of holding of the previous owner, as per Explanation 1(b) to section 2(42A) read with section 49(1) of the Act. However, regarding indexation, the Tribunal distinguished the present case from Manjula J. Shah. It reasoned that while the period of holding is governed by section 49(1), section 49(4) creates a separate statutory cost of acquisition based on the value taxed under section 56(2)(x), which came into existence on March 24, 2021. Therefore, indexation cannot be computed from the year the previous owner first held the asset. Instead, indexation should be computed with reference to the cost inflation index for the financial year 2020-21, corresponding to the value brought to tax under section 56(2)(x) on March 24, 2021. The AO was directed to recompute capital gains accordingly. The Stay Application was dismissed as infructuous.

What were the issues?

1. Whether the shares gifted to the assessee qualify as a long-term capital asset, considering Explanation 1(b) to section 2(42A) and section 49(1) of the Income Tax Act, 1961, which mandate including the period of holding of the previous owner? The assessee argued that the period of holding should include that of the donor, Mr. Kiran Reddy, making the asset long-term. The revenue contended that the AO correctly treated it as short-term. 2. Whether the assessee is entitled to the benefit of indexation on the cost of acquisition, and if so, from which point of time? The assessee argued, relying on CIT vs. Manjula J. Shah, that indexation should be computed from the year the previous owner first held the asset. The revenue contended that section 49(4) creates a fresh statutory cost on the date of gift, and indexation from the previous owner's period would be an unintended benefit. The CIT(A) denied indexation benefit.

Which sections of the Income-tax Act were involved?

Section 2(42A),Section 49(1),Section 49(4),Section 56(2)(x),Section 143(3),Section 250,Section 234B,Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI

Before: SHRI GEORGE GEORGE K & MS. PADMAVATHY.S&

For Respondent: Ms. D.Nithya, Addl. CIT (virtual)

Heard together (2 matters)

SA No.123/CHNY/2026
ITA No.1726/Chny/2026

Read from the judgment's own cause title. This page is filed under one of them.

PER PADMAVATHY.S, A.M: This appeal and the Stay Application (SA) by the assessee are against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 13.02.2026 for Assessment Year (AY) 2022-23. The assessee

The order continues below.

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