AI Insights
The case involves Gokul Prasad Patel, who appealed against the order of the Commissioner of Income-Tax (Appeals), which confirmed the Assessing Officer's decision on the computation of capital gains and the denial of indexed cost deductions. The dispute centered on the taxability and computation of capital gains arising from a property transaction linked to a 'Compromise Deed' and previous gift and sale deeds. The Tribunal examined whether the Assessing Officer was justified in denying the deductions claimed by the assessee for the indexed cost of acquisition and improvement while computing the LTCG on an additional compensation received.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 705606 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-06-2025
Appeal Filed By
Assessee
Order Result
Allowed
Assessment Year
2012-2013
Judgement Text
"आयकर अपीलीय न्यायाधिकरण में, हैदराबाद ‘ए’ बेंच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad श्री मंजूनाथ जी, माननीय लेखा सदस्य एवं श्री रवीश सूद, माननीय न्याययक सदस्य SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER आयकरअपीलसं./I.T.A.No.353/Hyd/2025 (निर्धारण वर्ा/ Assessment Year:2012-13) Gokul Prasad Patel, H.No.5-8-569, Chaderghat School Lane, Abid Road, Hyderabad – 500001 PAN : ABKPP2201R. Vs. The Income Tax Officer, Ward – 13(3), Hyderabad. (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri S. Rama Rao, Advocate. राजस्व का प्रतततितित्व/ Department Represented by : Shri Ashutosh Pradhan, Sr. DR सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 23.06.2025 घोर्णध की तधरीख/ Date of Pronouncement : 30.06.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), 2 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. National Faceless Appeal Center (NFAC), Delhi, dated 11.02.2025, which in turn arises from the order passed by the Assessing Officer (for short “A.O.”) under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (for short “the Act”) dated 23.12.2019 for A.Y. 2012-13. The assessee firm has assailed the impugned order on the following grounds of appeal before us: “1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous both on facts and in law. 2) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in determining the capital gain at Rs. 37 lakhs after allowing only legal expenses of Rs. 3 lakhs. 3) The learned Commissioner of Income Tax (Appeals) ought to have held that the indexed cost of acquisition as claimed of Rs. 17,75,428/- be allowed. 4. Any other ground/grounds that may be urged at the time of hearing.” 2. Succinctly stated, the assessee had filed his return of income for A.Y. 2012–13 on 12.12.2013, declaring an income of Rs.11,48,240/-. Subsequently, the A.O. observed that as the assessee who during the subject year had received a compensation of Rs. 40 lacs from Smt. B. Bharathi by virtue of a “Compromise Deed” dated 24.08.2011, had while computing his income under the head “capital gain” claimed deduction of the cost of acquisition (indexed) and the cost of improvement (indexed) both in A.Y. 2004– 3 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. 05 and A.Y. 2012–13, which was not allowable, thus, holding a bona fide belief that the income of the assessee chargeable to tax for the subject year had escaped assessment, reopened his case u/s 147 of the Act. Notice u/s 148 of the Act, dated 27.03.2019, was served upon the assessee. In compliance, the assessee requested that his original return of income for the subject year i.e AY 2012-13 that was filed on 12.11.2013 be treated as the return in response to the notice u/s 148 of the Act. 3. Shorn of unnecessary details, the assessee, in the year 2001, had gifted his house property situated at No.I-8-450/1/A28, Indian Air Lines Employees Colony, Secunderabad to his wife, Smt. T.S. Mohana, vide a registered Gift Settlement Deed No. 1236/2001, dated 17.09.2001. Subsequently, the said property was sold by Smt. T.S. Mohana (supra) to Smt. B. Bharathi for a consideration of Rs. 8 lacs, vide registered sale deed No. 1708 of 2003, dated 31.10.2013. As the market value of the said property as per the SRO was Rs.19,78,500/-, therefore, the A.O. triggered the provisions of Section 50C of the Act and worked out the “capital gains” on the sale of the subject property at Rs. 10,86,759/-, which 4 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. was clubbed in the hands of the assessee u/s 64(1)(iv) of the Act while framing the assessment in his case for A.Y. 2004–05. 4. Aggrieved, the assessee assailed the assessment framed by the A.O. for A.Y. 2004–05 before the CIT(A). It was the assessee’s claim that as the alleged transfer of the subject property by Gift Settlement Deed dated 17.09.2001 was thereafter canceled vide a registered deed of cancellation dated 26.03.2002, therefore, there was no justification for the A.O. to have made an addition of “capital gains” of Rs. 10,86,759/- in his hands u/s 64(1)(iv) of the Act. However, the CIT(A), did not find favor with the claim of the assessee. It was observed by him that it was an undisputed fact that the subject property was sold to Smt. B. Bharathi (supra) and her lien over the said property was not questioned by the assessee. Rather, the CIT(A) observed that the assessee in continuation of the sale transaction to Smt. B. Bharathi (supra) had during the subject year received an additional amount of Rs. 40 lacs as per the “Compromise Deed”, dated 24.08.2011. Apart from that, the CIT(A), taking cognizance of the fact that the assessee had offered “capital gains” for the same transaction to tax in the subject year A.Y. 2012- 5 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. 13, directed the A.O. to recalculate the tax liability on the additional amount of Rs. 40 lacs (supra) that was subsequently received by the assessee. Accordingly, the CIT(A) upheld the tax liability on the “Long Term Capital Gain” (\"LTCG\") on the transfer of the subject property while disposing off his appeal for A.Y. 2004-05. 5. On further appeal by the assessee against the CIT(A) order for AY 2004-05, the Tribunal vide its order passed in ITA No. 2230/Hyd/2018, dated 24.09.2021, observed that the alleged transfer of the subject property, vide sale deed dated 31-10-2003, had not only been declared null and void by the learned Civil Court, but also the capital gains arising on the same had been assessed in A.Y. 2012-13. The Tribunal, based on its aforesaid deliberations, held a firm conviction that the matter required a fresh factual verification and set aside the matter to the file of the A.O. for fresh adjudication. 6. Thereafter, the A.O., taking cognizance of the fact that the assessee, against the compensation of Rs. 40 lacs that was received by him by virtue of the “Compromise Deed” dated 24-08-2011 in O.S. No. 28 of 2004 from Smt. B. Bharathi, had while computing 6 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. the Long Term Capital Gains (\"LTCG\") on the said amount once again raised the claim for deduction of the “cost of acquisition” (indexed) and cost of improvement (indexed) in the subject year, i.e., A.Y. 2012-13, initiated proceedings u/s 147 of the Act. 7. As the A.O. vide his order passed u/s 143(3) r.w.s. 147 of the Act, dated 23-12-2019, while computing the “Long Term Capital Gains” (\"LTCG\") on the sale of the subject property for A.Y. 2004- 05, had allowed the assessee's claim for the deductions, viz. (i) Cost of acquisition (after indexation); and (ii) Cost of improvement (after indexation), therefore, he held a firm conviction that there was no justification for the assessee to have once again claim deduction of the said amounts while computing the LTCG on the compensation of Rs.40 lacs that was received by him during the year under consideration, i.e., A.Y. 2012-13. Accordingly, the A.O., based on his aforesaid conviction declined the assessee's claim for deduction of the “cost of acquisition” (indexed) and “cost of improvement” (indexed) aggregating to Rs. 25,88,496/- and reworked out the “Long Term Capital Gains” (\"LTCG\") in the hands of the assessee at Rs. 37 lacs. 7 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. 8. Aggrieved, the assessee assailed the assessment order before the CIT(A), but without success. The CIT(A), finding no infirmity in the view taken by the A.O., who had declined the assessee's claim for double deduction of the “Indexed cost of acquisition” and “Indexed cost of improvement”, upheld the same by observing as under: “3.2. As far as the taxability under Capital Gain for A.Y. 2004-05 the same was upheld by the ITAT. When this capital gain was worked out there was a valid gift deed, which was later cancelled. Rs 4000000 is given as additional amount. No indexed cost of acquisition and indexed cost of improvement can be claimed. Taxpayer had approached the ITAT with regard to the appellate order filed on 27/11/2018 inter alia stating that the alleged transfer was null and void. It is not clear what the outcome of the appeal is. It is hereby clarified that the Capital Gains arrived at during Ay 2004-05 stands since the cancellation of the gift deed, took place at a later date. It is a colorable device aimed at hoodwinking the revenue. No cost of acquisition and cost of improvement can be claimed at this stage, only legal expenses connected with transfer can be claimed. After allowing Rs 300000, Capital Gains is arrived at Rs 3700000.” 9. The assessee, being aggrieved with the order of the CIT(A), has carried the matter in appeal before us. 10. We have heard the learned Authorized Representatives of both parties and perused the material available on record. 11. The controversy involved in the present appeal boils down to two issues viz. (i). quantification of the “capital gains” on the 8 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. transfer of the subject property; and (ii) the year of taxability of the said “capital gain”. 12. Admittedly, it is a matter of fact borne from the record that the assessee, vide registered Gift Settlement Deed, dated 17-09- 2001, had gifted the subject property, i.e., house property bearing Municipal No. I-8-450/1/A28, Indian Air Lines Employees Colony, Secunderabad to his wife, Smt. T.S. Mohana, Page 21–30 of APB. Subsequently, the assessee had sought for cancellation of the Gift Settlement Deed, dated 17-09-2001 (Document No. 1236 of 2001), Page 38–49 of APB. Thereafter, a memorandum of compromise was executed between, viz. (i). the assessee; (ii). Smt. T.S. Mohana (assessee's wife); (iii). Smt. B. Bharathi (purchaser of the property); and (iv). M/s. Balaji Constructions, wherein against an additional payment of Rs. 40 lacs made by Smt. B. Bharathi (supra) to the assessee vide a demand draft No.930383, dated 24.08.2011 drawn on Andhra Bank, Branch: Ameerpet, Hyderabad, the latter was admitted as the sole absolute owner and possessor of the subject property with absolute rights to alienate the same, Page 33-37 of APB. Thereafter, the Additional Chief Judge, City Civil Court, 9 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. Secunderabad vide his order dated 24.08.2011 taking cognizance of the “Memorandum of Compromise\" dismissed the suit, Page 37 of APB. 13. Controversy involved in the present case lies in a narrow compass, i.e. as to whether or not the A.O. is justified in declining the assessee's claim for deduction of the “Indexed cost of acquisition” and “Indexed cost of improvement” for computing the LTCG on the additional compensation of Rs. 40 lacs that was received by the assessee from Smt. B. Bharathi i.e., the purchaser of the property during the subject year. 14. Admittedly, it is a matter of fact borne from the record that the A.O., while computing the LTCG on the sale of the subject property by Smt. T.S. Mohana (supra) vide sale deed, dated 31-10- 2003, had earlier allowed the claim for deduction of the “Indexed cost of acquisition” and the “Indexed cost of improvement”, aggregating to Rs. 8,91,741/- and worked out the LTCG at Rs. 10,86,759/- which was clubbed in the hands of the assessee u/s 64(1)(iv) of the Act while framing his assessment for AY 2004-05. However, it is a fact discernible from the record that the said 10 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. registered Gift Settlement Deed, dated 17.09.2001 was thereafter canceled vide a registered Gift Settlement Deed dated 26-03-2002, Pages 50–51 of APB. As the very basis of computing the “capital gains” in the case of the assessee for A.Y. 2004-05, i.e., the ownership of the subject property that was vested with Smt. T.S. Mohana (supra) based on the registered Gift Deed dated 17-09- 2001, had in itself ceased to exist, therefore, we are of the firm conviction that in the absence of any valid transfer of the subject property, there could be no justification for the A.O. to have brought any part of the “capital gains” to tax in the said year i.e AY 2004- 05. We say so, for the reason that the chargeability and computation of capital gains u/s 48 of the Act have to go hand in hand. In other words, the computation of the “capital gains” cannot be divorced from the transaction of transfer of the capital asset. Our aforesaid conviction is fortified by the judgment of the Hon’ble Supreme Court in the case of Navin Jindal Vs. ACIT in Civil Appeal No. 634 of 2006, dated 11.01.2010. The Hon’ble Apex Court in its order, had observed, that for the purpose of Section 48 of the Act, one must keep in mind the important principle that 11 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. chargeability and computation have to go hand in hand. In other words, computation is an integral part of the chargeability under the Act. 15. Considering the aforesaid settled position of law, i.e., the computation of capital gain is inextricably interwoven with the transfer of the capital asset, which in the present case had effectively taken place during the subject year, i.e., A.Y. 2012-13, therefore we are of the firm conviction that the capital gain arising there from without any choice is statutorily liable to be assessed in the hands of the assessee for the subject year i.e AY 2012-13. 16. Having said so, we may herein observe, that in the course of quantification of the “capital gain” on the transfer of the subject property during the year under consideration i.e AY 2012-13, the assessee will not only be entitled to the deduction of the “Indexed cost of acquisition” and the “Indexed cost of improvement” (subject to factual verification by the A.O), but will also be entitled for the appropriate adjustment of the corresponding taxes that was realized by the revenue on the said impugned transfer transaction from him by clubbing the impugned “capital gain” in his hands 12 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. under Sectio 64(1)(iv) of the Act in A.Y. 2004-05. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of ITO, Lucknow Vs. Bachulal Kapoor (1996) 60 ITR 74 (SC). The Hon'ble Apex Court in its order, had observed in the context of the facts involved in the case before them, that if the assessment proceedings initiated under Section 34 of the Income Tax Act, 1922 in the hands of the individual members of the HUF culminated in the assessment of HUF, then the appropriate adjustment is to be made by the ITO in respect of the tax realized by the Revenue in respect of the part of the income of the family that was assessed in the hands of the individuals of the said family. It was observed that by doing so, it would not result to the reopening of the final order of assessment, but in reality, to arrive at the correct figure of tax payable by the HUF. We thus, in terms of our aforesaid observations direct the AO that appropriate adjustment of the taxes corresponding to the impugned “capital gain” on the transfer transaction that was realized by the revenue from the present assessee before us be allowed while computing his tax liability during the year under consideration. 13 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. 17. Before parting, we may herein observe that as part of the sale consideration of Rs. 8 lacs had been received qua the aforesaid sale transaction, vide sale deed, dated 30-10-2003, therefore, the A.O. is directed to consider the same as part of the total sale consideration while re-computing the LTCG on the sale of the subject property during the year under consideration, i.e., A.Y. 2012-13, and allow the appropriate adjustment of the corresponding taxes in terms of our aforesaid observations. The Grounds of Appeal Nos. 2 and 3 are allowed in terms of our aforesaid observations. 18. The Grounds of Appeal Nos. 1 and 4 being general in nature are dismissed. 19. Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations. Order pronounced in the Open Court on 30th June, 2025. Sd/- Sd/- (मंजूनाथ जी) (MANJUNATHA G.) लेखा सदस्य/ACCOUNTANT MEMBER Sd/- (श्री रवीश सूद) (RAVISH SOOD) न्यायिक सदस्य/JUDICIAL MEMBER 14 ITA No.353/Hyd/2025 Gokul Prasad Patel, Hyderabad. Sd/- Hyderabad, dated 30.06.2025. TYNM/sps आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/The Assessee : Gokul Prasad Patel, H.No.5-8-569, Chaderghat School Lane, Abid Road, Hyderabad – 500001 2. रधजस्व/ The Revenue : The Income Tax Officer, Ward – 13(3), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Hyderabad "
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