PULPARAMBIL RAJENDRAN BY LEGAL HEIR P.R ANURADHA,,CALICUT vs. ACIT CIRCLE -1(1) &TPS, KOZHIKODE

ITA 936/COCH/2022Status: DisposedITAT Cochin11 March 2024AY 2014-15Bench: Shri Sanjay Arora (Accountant Member), Dr. Seethalakshmi (Judicial Member)16 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the method of reverse indexing to determine the FMV as on 01.04.1981 is incorrect and defeats the object of indexation. The Tribunal reasoned that indexation is meant to adjust the cost of acquisition for inflation, thereby removing the notional increase in value due to the depreciation of money. Reverse indexing, conversely, assumes the entire increase in value is due to inflation, which is flawed. It also stated that reverse indexing is not based on actuals and can lead to an incorrect computation of capital gains, potentially suppressing the actual gain. The Tribunal found no ratio decidendi in the case laws cited by the assessee to support the reverse indexing method. The Tribunal observed that the Assessing Officer (AO) had proceeded objectively, using authentic data from the Sub-Registrar's office, the credibility of which was not assailed. Therefore, the FMV computed by the AO, approved by the CIT(A), was confirmed. The Tribunal also noted that exemption provisions are to be strictly construed and that the AO had acted reasonably in allowing an extended qualifying period for investment, thus finding no scope for interference on that aspect. The findings of the CIT(A) regarding the method of computation were vacated to the extent they did not explain the reasons for confirming the method.

What were the facts?

The assessee, Pulparambil Rajendran (Legal Heirs), filed an appeal against the order dated 24.08.2022 passed by the Commissioner of Income Tax (Appeals) [CIT(A)], which upheld the assessment order dated 29.12.2016 under section 143(3) of the Income Tax Act, 1961, for Assessment Year 2014-15. The dispute concerns the computation of Long Term Capital Gain (LTCG) on the sale of land. The assessee computed the Fair Market Value (FMV) as on 01.04.1981 by reverse indexing the FMV as on the transfer date. The Revenue contended that the FMV as on 01.04.1981 should be an independent variable, determined based on the asset's value on that date, not by reverse indexing.

What were the issues?

1. Whether the Tribunal had to decide the correct method for computing the Fair Market Value (FMV) of a capital asset as on 01.04.1981 for the purpose of calculating Long Term Capital Gain (LTCG) under Section 48 of the Income Tax Act, 1961, when the asset was acquired prior to that date. Assessee's Contention: The assessee argued for reverse indexing the FMV as on the transfer date to arrive at the FMV as on 01.04.1981. The assessee relied on case laws, though not specifically named in the judgment, to support this method. The assessee also claimed that the Sub-Registrar's data is unreliable due to underreporting of prices. Revenue's Contention: The Revenue insisted that the FMV as on 01.04.1981 should be determined independently, based on the asset's value on that specific date. The Revenue argued that the Sub-Registrar's data is a reliable primary source for market prices and that the assessee failed to provide any evidence to disprove its authenticity or to support the claim of universal under-valuation. The Revenue also stated that the methods adopted by valuers were incorrect and the values arrived at grossly varied with Sub-Registrar's data.

Which sections of the Income-tax Act were involved?

Section 48,Section 143(3),Section 2(22B),Section 45,Section 2(24)(vi)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN

Before: Shri Sanjay Arora & Dr. Seethalakshmi

For Respondent: Smt. J.M. Jamuna Devi, Sr. DR
Hearing: 13.12.2023Pronounced: 11.03.2024

Per: Sanjay Arora, AM

This is an Appeal by the Assessee agitating the Order dated 24.08.2022 by the Commissioner of Income Tax (Appeals), Income Tax Department [CIT(A)], confirming, on appeal, the assessment under section 143(3) of Income Tax Act, 1961

(hereinafter "the Act") dated 29.12.2016 for Assessment Year (AY) 2014-15. 2. 1. The only issue arising in the instant appeal is the computation of Long Term Capital Gain (LTCG) arising to the assessee on sale of land during the relevant previous year. The bone of contention between the parties is the manner of working the fair market value (FMV) thereof as on 01.04.1981, which value the law provides, at the optio

The order continues below.

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