RAJIV MEHRA PROP. HD MEHRA CHEMICALS vs. COMMISSIONER OF INCOME TAX, AMRITSAR

Facts

The assessee, Rajiv Mehra, is challenging an order dated 30.03.2013 passed by the Income Tax Appellate Tribunal (ITAT). The dispute pertains to the assessment year 2000-2001. The assessee inherited a property through a registered adoption deed dated 07.06.1965 and a Will. The property was sold on 11.12.2007 for ₹2 Crores. The assessee filed a return of income on 31.03.2009, claiming long-term capital gain of ₹1,05,29,550/- based on an indexed cost of acquisition. The Assessing Officer (AO) treated the date of a family settlement (02.09.2003) as the acquisition date for indexation purposes, leading to additions. The CIT(A) partly allowed the appeal, and the Revenue appealed to the ITAT. The ITAT, in its order dated 19.03.2013, allowed the Revenue's appeal, holding that additional evidence could not be admitted under Rule 46A of the Income Tax Rules, 1962.

Held

The High Court allowed the appeal of the assessee, setting aside the order of the ITAT and the CIT(A). Regarding the first issue, the Court held that while Rule 46A of the Income Tax Rules, 1962, restricts the production of additional evidence, the ITAT should have considered the documents filed by the assessee, especially given the nature of the case involving a Will and family settlement. The Court referenced various High Court judgments, including Delhi High Court in Himani Walia vs Hemant Walia, emphasizing that family settlements are not always compulsorily registrable and can be considered even if initially oral. For the second issue, the Court held that the cost of acquisition should be considered with reference to 01.04.1981, treating the acquisition of the property by the assessee's father, Permanand Mehra, on 06.06.1963, as the basis for indexation. The Court found that a family settlement is not required to be registered and that the cost inflation index should be calculated with reference to 01.04.1981. The Court agreed with the assessee that the existence of the Will and the family settlement meant the assessee became the holder of the property on the basis of a family arrangement, and the cost of acquisition should be with reference to 01.04.1981. The calculation was to be done accordingly. The Court answered question No. (ii) in favour of the assessee.

Key Issues

1. Whether, under the facts and circumstances of the case, additional evidence admitted by the first fact-finding authority (CIT(A)) has 'material bearing' to the case proceedings and is sustainable action? This question turns on the interpretation of Rule 46A of the Income Tax Rules, 1962. 2. Whether, according to the facts and circumstances of the case, under Section 2(47)(v), 47(iii), 48, 49 of the Income Tax Act, 1961, the cost of acquisition would 'relate back' to the date of transfer through a Will to the beneficiary (son)? This question concerns the applicability of specific sections of the Act regarding the cost of acquisition and the nature of transfer. Assessee's Contentions: The assessee argued that the additional evidence admitted by the CIT(A) was crucial and should have been considered by the ITAT. They contended that the family settlement, though dated 02.09.2003, was a culmination of an oral partition and a Will, and the cost of acquisition should be related back to the original acquisition date or the date of the Will. They relied on various High Court decisions regarding family settlements not requiring compulsory registration and the 'relate back' principle. Revenue's Contentions: The Revenue argued that the ITAT correctly disallowed the additional evidence as it was not produced before the AO and did not fall under the exceptions provided in Rule 46A. They contended that the family settlement dated 02.09.2003 was the relevant date for determining the cost of acquisition and indexation, as it represented the transfer of rights to the assessee.