MURTUZA KOTHARI ,MUMBAI vs. INCOME TAX OFFICER WARD 19(2)(2), MUMBAI

ITA 4080/MUM/2025Status: DisposedITAT Mumbai06 January 2026AY 2015-1617 pages
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What did the Tribunal hold?

The Tribunal held that the ownership property received by virtue of surrender of tenancy rights has a valuable right, and its cost of acquisition needs to be determined. The Tribunal referred to the decision in CIT vs. Abrar Alvi (Bombay High Court) and its own previous decision where it was held that the market value of the property as on the date of possession would be the cost of acquisition. The Tribunal found force in the assessee's contention that the market value of the surrendered tenancy right on the date of surrender would constitute the cost of acquisition. Accordingly, the Tribunal set aside the impugned order of the CIT(A) and restored the issue back to the Assessing Officer. The AO was directed to re-compute the capital gains by taking the Fair Market Value (FMV) of the flats acquired in exchange for the surrender of tenancy rights to the developer vide the development agreement dated 22.07.2008 as the cost of acquisition. Regarding the claim for exemption under Section 54/54F, the Tribunal rejected the assessee's contention as it could not be substantiated by furnishing relevant documents. Therefore, the grounds related to cost of acquisition were partly allowed for statistical purposes, and the ground related to Section 54 exemption was dismissed.

What were the facts?

The assessee, Murtuza Kothari, is in appeal before the ITAT Mumbai against the order of the CIT(A) for Assessment Year 2015-16. The assessment was reopened under Section 147 of the Income Tax Act, 1961, as the assessee had not filed a return of income but had sold an immovable property for Rs. 86,00,000/-. The Assessing Officer (AO) noted that the assessee claimed a deduction of Rs. 83,62,976/- as cost of improvement with indexation, resulting in a Long Term Capital Gain (LTCG) of Rs. 2,37,024/-. The AO denied this deduction, treating the cost of acquisition as Nil, and proposed to tax the entire sale consideration as LTCG. The assessee contended that the property was acquired in lieu of surrendering tenancy rights, and the cost should be based on the market value of the ownership flat received as of the date of surrender. The AO rejected the claim for deduction under Section 48 and also denied exemption under Section 54/54F due to non-submission of relevant documents.

What were the issues?

1. Whether the Tribunal had jurisdiction to decide the appeal, considering the assessee's contention that the appeal before the CIT(A) was filed with a delay due to genuine reasons of being unaware of the outcome of the CIT(A) order. - Assessee: Argued that the delay in filing the appeal before the CIT(A) was not intentional or due to negligence but due to being unaware of the outcome. - Revenue: No specific argument recorded in the judgment. 2. Whether the CIT(A) erred in confirming the AO's order and denying the deduction of the cost of improvement computed by the appellant, considering it as NIL, for the purpose of computing capital gains under Section 48 of the Income Tax Act, 1961. - Assessee: Contended that the property was acquired in lieu of surrendering tenancy rights, and the cost of acquisition should be determined based on the market value of the ownership flat received as of the date of surrender (22.07.2008), and that maintenance and other charges paid after acquiring ownership become part of the cost. - Revenue: Argued that the property was acquired without consideration in exchange for tenancy rights, and since tenancy rights were self-generated, no cost of acquisition or improvement should be allowed. 3. Whether the CIT(A) erred in denying exemption under Section 54 of the Income Tax Act, 1961. - Assessee: Claimed exemption under Section 54. - Revenue: Argued that the assessee failed to submit relevant documents like a valid registered sale agreement/contract to support the claim, and the seller also failed to furnish the same. The AO also noted that the property was on rent, and the amount deposited was not for purchase.

Which sections of the Income-tax Act were involved?

Section 147,Section 144B,Section 48,Section 49,Section 50C,Section 54,Section 54F,Section 148A,Section 148,Section 143(2),Section 142(1),Section 133(6),Section 55(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM

For Appellant: Shri Suresh Otwani, AR
For Respondent: Shri Annavaran Kosuri, Sr. DR
Hearing: 24.12.2025Pronounced: 06.01.2026

Per Arun Khodpia, AM:

This appeal is filed by the assessee challenging the order of Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [for short “Id. CIT(A)”] dated 28.12.2024 for the AY 2015-16, arises from the assessment order passed under section 147 r. w. s. 144B of the Income Tax Act, 1961 (the Act) dated 31.01.2024 by the Assessment Unit, Murtuza Kothari

Income Tax Department. The grounds of appeal raised by the assessee are as under:

“1. The FAA i.e, CIT (A) erred in not accepting the contention of Appellant filed before FAA along with document

The order continues below.

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