Vishwanath Sharma, Zirakpur V. ACIT, Patiala

ITA 956/CHANDI/2012

• Counselvise Citation: 95621514 RSA 2012
• Duration Of Justice: 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 20-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Search and seizure; Additional evidence; Cost of acquisition; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 956/CHD/2012 ASSESSMENT YEAR: 2006-07 SHRI VISHWANATH SHARMA, V ACIT, CC, VILLAGE LOHAGARH, PATIALA. WARD 6, NAC, ZIRAKPUR. PAN: ALHPS-6333E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT : SHRI N.K.SAINI DATE OF HEARING : 29.11.2012 DATE OF PRONOUNCEMENT : 12.12.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 24.07.2012 PASSED BY THE LD . CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'TH E ACT'). 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. THAT THE WORTHY CIT(A) HAS ERRED IN UP HOLDING THE ADDITION OF RS. 14,18,926/-IN RESPECT OF LONG TERM CAPITAL GAIN BY ADOPTING THE INCORRECT COST OF ACQUISITION AS ON 1.4.1981 AND CONFIRMING T HE ADDITION, AS MADE BY THE ASSESSING OFFICER AS PER PARA-7 OF THE ORDER. 2. THAT THE CIT (A) HAS ERRED IN NOT ADMITTIN G THE ADDITIONAL EVIDENCE IN RESPECT OF CERTIFICATE FROM PATWARI. 3. THAT ADDITION HAS BEEN UPHELD AGAINST THE F ACTS AND CIRCUMSTANCES OF THE CASE AND SUBMISSION MADE BY US HAS NOT BEEN CONSIDE RED PROPERLY. 2 4. NOTWITHSTANDING ABOVE SAID GROUNDS OF APPE AL, IT IS SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERING THA T NO ADDITION CAN BE MADE AS NO INCRIMINATING NATURE OF DOCUMENTS WERE FOUND AND SEIZED DURING THE COURSE OF SEARCH AND SEIZURE OPERATION IN VIEW O F THE SPECIAL BENCH 1 JUDGMENT IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LIMITED & OTHERS AS REPORTED IN 147 TTJ 513. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS FINALLY HEARD OR DISPO SED OFF. 3. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, BEFORE THE BENCH, LD. 'AR' VEHEMENTLY CONTENDED THAT THE FINDI NGS OF BOTH THE AO AND THE CIT(A), ARE CONTRARY TO THE EXPRESS PROVISIONS OF SECTION 2(42A) OF THE ACT AND EXPLANATION 1(I)(B ) THERETO, AND SECTION 49 OF THE ACT. HE NARRATED FACTUAL HISTORY OF THE CASE, AND STATED THAT THE APPELLANT SOLD A PLOT OF LAND, ACQUIRED BY THE ASSESSEE, AS GIFT FROM HIS MOTHER. CONSEQUENTL Y, IT WAS ARGUED THAT THE PROVISIONS OF SECTION 49 OF THE ACT ARE APPLICABLE, TO THE FACT-SITUATION OF THE PRESENT CA SE. THE ASSESSEE APPELLANT APPLIED FAIR MARKET VALUE OF T HE IMPUGNED ASSET, AS ON 01.04.1981, AT RS.100/-, PER SQ.YD., O N THE BASIS OF CERTIFICATE OBTAINED FROM THE PATWARI, AND A COM PARABLE CASE OF SALE EVIDENCE BY REGISTERED DEED DATED 29.9.1982 (ENGLISH VERSION FILED) FOR THE PURPOSE OF COMPUTING THE IND EXED COST OF ACQUISITION, BEING THE FAIR MARKET VALUE OF THE SAI D PLOT, AS ON 01.04.1981. CONSEQUENTLY, LONG TERM CAPITAL GAIN WA S COMPUTED BY THE APPELLANT ACCORDINGLY. LD. 'AR' CO NTENDED THAT THE APPELLANT OPTED FOR THE FAIR MARKET VALUE OF THE PLOT AT RS.100/- PER SQ.YD., AS ON 01.04.1981, AS CONTEM PLATED U/S 55(2) OF THE ACT. IT WAS, FURTHER, ARGUED BY THE L D. 'AR' THAT THE AO, WRONGLY HELD THAT AS THE ASSESSEE ACQUIRED THE SAID PLOT ON 25.03.2003, FROM HIS MOTHER, THROUGH GIFT, THE PERI OD OF HOLDING OF THE IMPUGNED ASSET BY THE APPELLANT IS T O BE 3 RECKONED FROM SUCH DATE, IGNORING THE PERIOD FOR WH ICH THE IMPUGNED ASSET WAS HELD BY THE DONOR, HIS MOTHER, T HE PREVIOUS OWNER OF THE ASSET, AS CONTEMPLATED U/S 2( 42A) AND EXPLANATION I(I)(B) THERETO. SUCH FINDINGS OF THE AO WERE UPHELD BY THE CIT(APPEALS). LD. 'AR', FURTHER, PLA CED RELIANCE ON THE FOLLOWING DECISIONS AND PRAYED THAT SUCH ARB ITRARY, AND PERVERSE FINDINGS OF THE LOWER AUTHORITIES, BEING C ONTRARY TO THE RELEVANT PROVISIONS OF THE ACT, BE REVERSED. 1. CIT V MANJULA J.SHAH 68 DTR 269 (BOM) 2. ARUN SHUNGLOO TRUST V CIT 68 DTR 279 (DEL) 3. ACIT V SURESHVERMA 135 ITD (DEL-TRIB) 102 4. DCIT V SMT.MEERA KHERA 2-SOT (MUM-TRIB)902 5. SMT.MINA DEOGUN V ITO 117 TTJ (KOL-TRIB) 121 6. MRS. PUSHPA SOFAT V ITO 89 TTJ (CHD-TRIB)(SMC) 499 4. LD. 'DR', ON THE OTHER HAND, PLACED RELIANCE, ON THE ORDER OF THE LOWER AUTHORITIES. 5. WE HAVE CAREFULLY PERUSED AND CONSIDERED THE RIV AL SUBMISSIONS, FACTS OF THE CASE, RELEVANT RECORDS, P APER BOOK AND THE DECISIONS RELIED UPON BY LD. 'AR'. IN THE PRESENT CASE, THE APPELLANT ACQUIRED THE IMPUGNED PLOT BY WAY OF GIFT, AND HENCE, THE ASSET IS COVERED UNDER THE PROVISIONS OF SECTION 49(1) OF THE ACT, FOR THE PURPOSE OF COST, WITH REF ERENCE TO CERTAIN MODES OF ACQUISITION. THE EXPLANATION TO S ECTION 49(1) OF THE ACT DEFINES THE PREVIOUS OWNER OF THE PROPER TY. THE APPELLANT ADOPTED THE FAIR MARKET VALUE OF THE S AID ASSET, WITHIN THE MEANING OF SECTION 55(2)(B)(II) OF THE A CT. IN THE SPECIFIC CONTEXT OF THE FACTUAL MATRIX OF THE CASE, IT IS PERTINENT AND RELEVANT TO REPRODUCE EXPLANATION (1) TO SECTIO N 2(42A) OF 4 THE ACT, FOR THE PURPOSE OF DETERMINATION OF THE PE RIOD OF HOLDING OF THE SAID ASSET, BY THE APPELLANT, WHICH READS AS UNDER : [EXPLANATION (1)(I) IN DETERMINING THE PERIOD IN WH ICH ANY CAPITAL ASSET IS HELD BY THE ASSESSEE B) IN THE COST OF A CAPITAL ASSET WHICH BECOMES TH E PROPERTY OF THE ASSESSEE IN THE CIRCUMSTANCES MENTIONED IN [SUB SECTION (1) OF SECTION 49, THERE SHALL BE INCLUDED THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER, REFERRED TO IN THAT SECTION;]. 6. THE FINDINGS OF THE CIT(APPEALS), AS RECORDED IN PARA 7 ARE REPRODUCED HEREUNDER, FOR THE PURPOSE OF PROPER APPRECIATION OF THE SAME: 7. I HAVE CONSIDERED THE BASIS OF ADDITION MADE BY THE AO AND THE ARGUMENTS OF THE AR ON THE ISSUE. IT IS SEEN THAT THE ASSESSING OFFICER HAS REWORKED THE COST OF ACQUISITION ON THE BASIS OF VALUATION OF TH E PLOT AS REFLECTED IN THE GIFT DEED DATED 25/3/2003 ON THE BASIS OF WHICH THE ASSESSEE HAS BECOME OWNER OF THE PLOT. THE ASSESSEE HAS NOT GIVEN ANY E VIDENCE AS TO ON WHAT BASIS THE COST OF THE PLOT HAS BEEN TAKEN AT RS.100 /- PER SQ YARD AS ON 1/4/1981. THE BASIS ADOPTED BY THE ASSESSING OFFICE R BEING BASED UPON DOCUMENTARY EVIDENCE IS LOGICAL. FURTHER IT IS SEEN THAT THE ASSESSEE IN HIS CALCULATION OF COST OF ACQUISITION HAS WORKED OUT T HE COST AS ON 1/4/1981 AT RS. 3,01,800/-WHEREAS THE SAME SHOULD BE RS. 75,450/-. FURTHER THE INDEXATION HAS BEEN TAKEN FROM 1/4/1981 TILL THE DATE OF SALE WHER EAS THE ASSESSEE BECAME OWNER OF THE PROPERTY ONLY IN YEAR 2002-03. THEREFO RE, THE, COST OF ACQUISITION SHOULD BE TAKEN AT RS./81,020/- INSTEAD OF RS. 14,99,946/- TAKEN BY THE ASSESSEE. THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS REGARD IS THEREFORE CONFIRMED. 7. A BARE PERUSAL OF THE FINDINGS OF THE CIT(APPEA LS), AS REPRODUCED ABOVE, CLEARLY REVEALS THAT SAME ARE CON TRARY TO THE RELEVANT PROVISIONS OF SECTION 2(42A) OF THE AC T AND EXPLANATION I(I)(B) THERETO, AS REPRODUCED ABOVE. L D. CIT(APPEALS), HAS OBSERVED IN HIS FINDINGS THAT THE ASSESSEE HAS ADOPTED COST OF THE SAID PLOT AT RS.100/- PER S QUARE YARD AS ON 1.4.1981, WITHOUT ANY EVIDENCE, WHEREAS THE A SSESSEE BECAME OWNER OF THE PROPERTY ONLY, IN THE YEAR 2002 -03, BUT INDEXATION HAS BEEN APPLIED FROM 1.4.1981, TILL THE DATE OF 5 SALE. IN VIEW OF THIS, CIT(APPEALS) GAVE FINDINGS THAT THE COST OF ACQUISITION SHOULD BE TAKEN AT RS.81,020/- INSTE AD OF RS.14,19,946/-. HOWEVER, SUCH FINDINGS OF THE CIT( APPEALS), RUN CONTRARY TO THE PROVISIONS OF SECTION 2(42A) OF THE ACT AND EXPLANATION 1(I)(B) THERETO, AS ALSO THE JUDICIAL P RECEDENTS, ON THE ISSUE IN QUESTION, AS DISCUSSED HEREINAFTER. NO N-INCLUSION OF THE PERIOD OF HOLDING OF THE IMPUGNED PLOT, BY T HE PREVIOUS OWNER, I.E. DONOR OF THE SAID PLOT, IS PATENTLY A C ASE WHERE THE EXPRESS PROVISIONS OF THE ACT WERE CONTRAVENED BY B OTH AO AND THE CIT(APPEALS), IN THEIR RESPECTIVE FINDINGS. TH E CONTENTIONS OF THE LD. 'AR' ARE SUPPORTED BY THE DECISIONS RELI ED UPON BY HIM. BOTH THE HON'BLE HIGH COURTS AND TRIBUNALS HAV E CATEGORICALLY HELD THAT WHILE COMPUTING THE CAPITAL GAINS OF ANY ASSET ACQUIRED BY THE MODE(S) SPECIFIED U/S 49 OF THE ACT, THE INDEXED COST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE, TO THE YEAR, IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESSEE BE CAME THE OWNER OF THE ASSET. THE RELEVANT AND OPERATIVE PAR T OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT, IN THE C ASE OF CIT V MANJULA J.SHAH (2012) 204 TAXMAN 691 (BOM) IS REP RODUCED HEREUNDER : CAPITAL GAINS COST OF ACQUISITION RELEVANT YEAR FOR INDEXATION VIS-A-VIS PROPERTY ACQUIRED UNDER GIFT PROPERTY PURCHASED BY ASSESSEE'S DAUGHTER ON 29TH JAN., 1993, GIFTED TO ASSESSEE ON 30TH JUNE, 2003 AS THE PREVIOUS OWNER HELD THE CAPITAL ASSET FROM 29TH JAN., 1993, AS PER EXPLN. 1 (I)(B) TO S. 2(42A) THE ASSESSEE IS DEEMED TO HAVE HELD THE CAPITAL ASSET AS LONG-TE RM 'CAPITAL ASSET FROM 29TH JAN., 1993 THEREFORE, IN DETERMINING THE INDEXED COST OF ACQUISITION UNDER S. 48, THE ASSESSEE MUST BE TREATED TO HAVE HELD THE ASSET FRO M 29 TH JAN. F 1993 AND ACCORDINGLY THE COST INFLATION INDEX FOR 1992-93 WO ULD BE APPLICABLE IN DETERMINING THE INDEXED COST OF ACQUISITION CONTEN TION OF REVENUE THAT AS THE ASSESSEE HELD THE ASSET W.EF. 1 ST FEB., 2003, THE FIRST YEAR OF HOLDING THE ASSET WO ULD BE FINANCIAL YEAR 2002-03 AND ACCORDINGLY, THE COST INFLATION INDEX FOR 2002-03 WOULD BE APPLICABLE IS DEVOID OF MERIT, BECAUSE IN THAT CASE, THE ASSESSEE WOULD NOT BE LIABLE FOR LONG-TERM CAPITAL GAINS TAX BY APPLYI NG THE DEEMED FICTION CONTAINED IN EXPLN. L(I)(B) TO S. 2(42A) AND S. 49(1)(II)- IN CONSTRUING THE WORDS 'ASSET WAS HELD BY THE ASSESSEE' IN CL. (III) OF S. 48, ONE HA S TO SEE THE OBJECT WITH WHICH THE SAID 6 WORDS ARE USED IN THE STATUTEIN THE ABSENCE OF ANY INDICATION IN CL. (III) OF THE EXPLANATION TO S. 48 THAT THE WORDS 'ASSET WAS HELD BY THE ASSESSEE' HAVE TO BE CONSTRUED DIFFERENTLY, THE SAID WORDS SHOULD BE CON STRUED IN ACCORDANCE WITH THE OBJECT OF THE STATUTE, THAT IS, IN THE MANNER SET OUT IN E XPLN. L(I)(B) TO S. 2(42A) IF THE MEANING GIVEN IN S. 2(42A) IS NOT ADOPTED IN CONSTR UING THE WORDS USED IN S. 48, THEN THE GAINS ARISING ON TRANSFER OF A CAPITAL ASS ET ACQUIRED UNDER A GIFT WILL BE OUTSIDE THE PURVIEW OF THE CAPITAL GAINS TAX AND TH E PROVISIONS OF S.55(1)(B)(2)(II) WILL BECOME UNWORKABLE. 7(I) SIMILAR, PRINCIPLE OF LAW HAS BEEN LAID DOWN B Y THE HON'BLE DELHI HIGH COURT, IN THE CASE OF ARUN SHUNG LOO TRUST 68 DTR 279 (DEL). THE RELEVANT PART OF THE D ECISION IS REPRODUCED HEREUNDER : CAPITAL GAINS COST OF ACQUISITION RELEVANT YEAR FOR INDEXATION OF COST VIS-A-VIS PROPERTY ACQUIRED UNDER GIFT, TRUST, ETC. THERE IS NO REASON TO HOLD THAT CL. (III) OF THE EXPLANATION BELOW S. 48 INTENTS TO REDUCE OR RESTRI CT THE 'INDEXED COST OF ACQUISITION' TO THE PERIOD DURING WHICH THE ASSESSEE HAS HELD TH E PROPERTY AND NOT THE PERIOD DURING WHICH THE PROPERTY WAS HELD BY THE PREVIOUS OWNER 'HELD BY THE ASSESSEE' USED IN EXPLN. (III) TO S. 48 HAS TO BE U NDERSTOOD IN THE CONTEXT AND HARMONIOUSLY WITH OTHER SECTIONSCOST OF ACQUISITIO N STIPULATED IN S. 49 MEANS THE COST FOR WHICH THE PREVIOUS OWNER HAD ACQUIRED THE PROPERTYTERM 'HELD BY THE ASSESSEE' SHOULD BE INTERPRETED TO INCLUDE THE PERI OD DURING WHICH THE PROPERTY WAS HELD BY THE PREVIOUS OWNER ASSESSEE TRUST HAVING A CQUIRED THE PROPERTY IN TRUST ON 5TH JAN., 1996, WHICH PROPERTY WAS ACQUIRED BY THE PREVIOUS OWNER SOMETIME BEFORE 1ST APRIL, 1981, ON SALE OF PROPERTY BY THE ASSESSE E IN ASST. YR. 2001-02, IT WAS ENTITLED TO THE BENEFIT OF INDEXED COST OF ACQUISITION FROM 1ST APRIL, 1981, AND NOT FOR THE PERIOD ON OR AFTER 5TH JAN., 1996 HELD AS PER S. 49, THE COST OF ACQUISITION IN THE HANDS OF AN ASSESSEE IS TREATED AS THE COST OF ACQUISITION BY THE PREVIOUS OWNER. SIMILAR BENEFIT/ ADVANTAGE IS GIVEN IN RESPECT OF COST OF IMPROVEMENT. SECS. 48 AND 49 HAVE TO BE REA D HARMONIOUSLY TO GIVE FULL EFFECT TO THE LEGISLATIVE INTENT. ON READING OF CL. (IV) O F EXPLANATION TO S. 48, IT IS APPARENT THAT THE TERM 'COST OF IMPROVEMENT' WOULD INCLUDE THE COST OF IMPROVEMENT(S) MADE BY THE PREVIOUS OWNER. THE BENE FIT OF INDEXED COST OF IMPROVEMENT WOULD BE AVAILABLE EVEN IF THE CAPITA! ASSET IS ACQUIRED BY THE ASSESSEE UNDER ANY GIFT, WILL OR SUCCESSION, TRUST ETC. AND IMPROVEMENT WAS MADE BY THE PREVIOUS OWNER. IF THE CONTENTION OF THE REVENUE IS ACCEPTED, THEN BENEFIT OF INDEXED COST OF ACQUISITION WILL NOT BE AVAILABLE TO AN ASS ESSEE IN A CASE COVERED BY S. 49 FROM THE DATE ON WHICH THE ASSET WAS HELD BY THE PR EVIOUS OWNER BUT ONLY FROM THE DATE THE CAPITAL ASSET WAS TRANSFERRED TO THE ASSES SEE. THIS WILL LEAD TO A DISCONNECT AND CONTRADICTION BETWEEN 'INDEXED COST OF ACQUISITION' AND 'INDEXED COST OF IMPROVEMENT' IN THE CASE OF CAPITAL ASSETS WHERE S. 49 APPLIES. THIS CANNOT BE THE INTENTION BEHIND THE ENACTMENT OF S. 49 AND EXPLANA TION TO S. 48. THERE IS, NO REASON OR GROUND WHY THE LEGISLATIVE WOULD WANT TO DENY OR DE PRIVE AN ASSESSEE BENEFIT/ADVANTAGE OF THE PREVIOUS HOLDING FOR COMPUTING 'INDEXED COST OF ACQUISITION' WHILE ALLOWING THE SAID BENEFIT FOR COMPUTING 'INDEXED COST OF IMPROVEMENT' . (PARAS 10,13 & 14) THE CONSTRUCTION PLACED BY THE REVENUE WILL LEAD TO INCONSISTENCY AND INCONGRUITIES, 'WHEN ONE REFERS TO S. 49 AND CL. (IV) OF EXPLN. (1 ) TO S. 48. THIS WILL RESULT IN ABSURDITIES 7 BECAUSE THE HOLDING OF PREDECESSOR HAS TO BE ACCOUN TED FOR THE PURPOSE OF COMPUTING THE COST OF ACQUISITION, COST OF IMPROVEMENT AND IN DEXED COST OF IMPROVEMENT BUT AS PER THE REVENUE NOT FOR THE PURPOSE OF INDEXED COST OF ACQUISITION. EVEN FOR THE PURPOSE OF DECIDING WHETHER THE TRANSACTION IS A SHORT-TERM CA PITAL GAIN OR LONG-TERM CAPITAL GAIN, THE HOLDING BY THE PREDECESSOR IS TO BE TAKEN INTO CONSIDERATION. BENEFIT OF INDEXED COST OF INFLATION IS GIVEN TO ENSURE THAT THE TAXPA YER PAYS CAPITAL GAIN TAX ON THE 'REAL' OR ACTUAL 'GAIN' AND NOT ON THE INCREASE IN THE CAPITAL VALUE OF THE PROPERTY DUE TO INFLATION. THIS IS THE OBJECT OR PURPOSE IN ALLOWIN G BENEFIT OF INDEXED COST OF IMPROVEMENT, EVEN IF THE IMPROVEMENT WAS BY THE PRE VIOUS OWNER IN CASES COVERED BY S. 49. ACCORDINGLY THERE IS NO JUSTIFICATION OR REA SON TO NOT ALLOW THE BENEFIT OF INDEXATION TO THE COST O ACQUISITION IN CASES COVER ED BY S. 49. THIS IS NOT THE LEGISLATIVE INTENT BEHIND CL. (III) OF EXPLANATION TO S. 48. TH ERE IS NO REASON AND JUSTIFICATION TO HOLD THAT CL. (III) OF THE EXPLANATION BELOW S. 48 INTENTS TO REDUCE OR RESTRICT THE 'INDEXED COST OF ACQUISITION' TO THE PERIOD DURING WHICH THE ASSESSEE HAS HELD THE PROPERTY AND NOT THE PERIOD DURING WHICH THE PROPER TY WAS HELD BY THE PREVIOUS OWNER. THE INTERPRETATION RELIED BY THE ASSESSEE IS REASONABLE AND IN CONSONANCE WITH THE OBJECT AND PURPOSE BEHIND SS. 48 AND 49. THE EXPRES SION 'HELD BY THE ASSESSEE' USED IN EXPLN. (III) TO S. 48 HAS TO BE UNDERSTOOD IN THE C ONTEXT AND HARMONIOUSLY WITH OTHER SECTIONS. THE COST OF ACQUISITION STIPULATED IN S. 49 MEANS THE COST FOR WHICH THE PREVIOUS OWNER HAD ACQUIRED THE PROPERTY. THE TERM 'HELD BY THE ASSESSEE' SHOULD BE INTERPRETED TO INCLUDE THE PERIOD DURING WHICH THE PROPERTY WAS HELD BY THE PREVIOUS OWNER.CIT VS. MANJULA J, SHAH (2012) 68 DTR (BOM,) 269- CONCURRED WITH. 7(II) THE HON'BLE CALCUTTA TRIBUNAL IN THE CASE OF SMT.MEENA DEOGUN V ITO 117 TTJ (KOL-TRIB) 121 ALSO HELD THE S AME PROPOSITION. THE RELEVANT PART OF THE DECISION IS REPRODUCED HEREUNDER : HELD : IF FOR THE PURPOSE OF DETERMINING THE PERIOD OF HOL DING OF THE CAPITAL ASSET BY AN ASSESSEE, THE PERIOD FOR WHICH THE PREVIOUS OWNER H AS HELD THE CAPITAL ASSET IS TO BE INCLUDED, THEN DIFFERENT CONSIDERATION CANNOT BE AP PLIED FOR THE PURPOSE OF S. 48. IF SS. 2 (42A), 47(III), 49(L)(II)/(III) AND S, 55(2)(B)(II) ARE READ CO-JOINTLY THEN IT APPEARS THAT IN LAW NO 'TRANSFER' OF A 'CAPITAL ASSET' IS CONSID ERED TO TAKE PLACE ON INHERITANCE AND SUCCESSION. THE LIABILITY FOR CAPITAL GAIN ARISES O NLY WHEN THE CAPITAL ASSET IS ACTUALLY TRANSFERRED BY THE SUCCESSOR, IT IS ONLY WHEN THE U LTIMATE SUCCESSOR TRANSFERS THE CAPITAL ASSET FOR A CONSIDERATION THE CAPITAL GAINS ARE ASS ESSED TO TAX. IN ASSESSING CAPITAL GAIN IN THE HANDS OF SUCCESSOR, DATE OF ACQUISITION AND PERIOD OF HOLDING IS DETERMINED TAKING INTO CONSIDERATION THE DATE ON WHICH AND THE COST O F WHICH THE FIRST OWNER ACQUIRES THE CAPITAL ASSET. IT IS FOR THIS REASON S. 2(42A) USES THE EXPRESSION 'IN DETERMINING THE PERIOD FOR WHICH CAPITAL ASSET IS HELD BY THE ASSES SEE'. SEC. 48 INCORPORATES COMPUTATION MECHANISM FOR QUALIFYING THE 'CAPITAL GAIN' AND THE REFORE THE EXPRESSIONS USED IN THE COMPUTATION FORMULA SHOULD BE GIVEN SCHEMATIC INTER PRETATION. THE SCHEME OF TAXATION OF 'CAPITAL GAIN' CAN HOWEVER, BE UNDERSTOOD BY APP LYING PROVISIONS OF SS. 2(42A), 2(47), 47(II), 48, 49(I)(II) AND 55(2)(B)(II). AS PER THE PROVISIONS OF THESE SECTIONS WHERE AN ASSESSEE SELLS AN INHERITED CAPITAL ASSET THE CAPIT AL GAIN IS COMPUTED WITH REFERENCE TO \ THE PERIOD OF HOLDING AND COST OF ACQUISITION INC URRED BY THE PREVIOUS OWNER. IT IS SO BECAUSE IN FACT THE SUCCESSOR ASSESSEE DOES NOT ACT UALLY INCUR ANY COST. IF FOR APPLYING | OTHER PROVISIONS RELATING TO COMPUTATION OF CAPITAL GAINS, PERIOD OF HOLDING AND COST I INCURRED BY THE PREVIOUS OWNER IS CONSIDERED, THEN IT WILL BE IMPROPER TO APPLY ONLY THE I COST INFLATION INDEX, APPLICABLE TO THE YEAR OF I NHERITANCE. FOR THE PURPOSE OF DETERMINING THE PERIOD OF HOLDING INTERMEDIATE TRANSFERS ON ACC OUNT OF SUCCESSION ARE TO BE IGNORED. THIS PROPOSITION IS QUITE CLEAR FROM THE CIRCULAR N O. 636, DT. 31ST AUG., 1992 WHICH STATES THAT IF AN ASSET WAS ACQUIRED BEFORE 1ST APR IL, 1981 THEN THE MARKET VALUE OF THE CAPITAL ASSET AS ON 1ST APRIL, 1981 IS TO BE TAKEN FOR INDEXATION. IN THE PRESENT CASE THE AO HIMSELF ALLOWED THE BENEFIT OF 'FAIR MARKET VALU E' OF THE PROPERTY AS ON 1ST APRIL, 8 1981 TO BE COST UNDER S. 55(2)(B)(II). UNDER S. 2(4 2A) THE PERIOD OF HOLDING OF THE CAPITAL ASSET IN THE HANDS OF THE ASSESSEE WAS THE PERIOD C OMMENCING FROM 16TH APRIL, 1958 TILL THE DATE OF TRANSFER. IT IS THEREFORE QUITE CLEAR T HAT AS ON 1ST APRIL, 1981 THE ASSET WAS STATUTORILY CONSIDERED TO BE HELD BY THE ASSESSEE U NDER S. 55(2)(B)(II) R/W S. 2(42A). THEREFORE, THE COST INFLATION INDEX APPLICABLE FOR FINANCIAL YEAR 1981-82 AND NOT TO FINANCIAL YEAR 1998-99 SHOULD HAVE BEEN APPLIED BY THE AO, THEREFORE, THE AO IS DIRECTED TO RE-COMPUTE THE CAPITAL GAINS BY APPLYIN G COST INFLATION INDEX OF 100 PER CENT APPLICABLE FOR FINANCIAL YEAR 1981-82.MRS. PUSHPA SOFAT VS. ITO (2004) 89 TTJ (CHD) 499 : (2002) 81 ITD 1 (CHD) AND DY. CIT VS. SMT. ME ERA KHERA (2004) 136 TAXMAN 174 (MUMBAI)(MAG) RELIED ON. 7(III) SIMILAR VIEW HAS BEEN UPHELD ON THE ISSUE IN QUESTION BY THE CHANDIGARH TRIBUNAL IN MRS.PUSHPA SOFAT V ITO 8 9 TTJ (CHD-TRIB)(SMC) 499. THE RELEVANT PART OF THE DECIS ION IS REPRODUCED HEREUNDER : CAPITAL GAINSCOMPUTATIONINDEXED COST OF ACQUISIT ION OF HOUSE INHERITED FROM FATHERSALE OF HOUSE INHERITED FROM FATHERCOST OF ACQUISITION OF HOUSE TO THE ASSESSEE HAS TO BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER HAD ACQUIRED IT AS THE HOUSE WAS ACQUIRED AROUND THE YEAR 1972, THE INDEXED COST OF ACQUISITION HAS TO BE WORKED OUT IN THE HANDS OF PREVIOUS OWNER BY TAK ING THE COST AS ON 1ST APRIL, 1981, AS 100 AND APPLYING THE COST INFLATION INDEX OF THE ACCOUNTING YEAR WHEN THE PROPERTY WAS SOLDAS THE COST OF PROPERTY BY APPLYI NG THE COST INFLATION INDEX IN TERMS OF S. 48(L)(A) WAS MORE THAN THE SALE CONSIDE RATION, NO TAXABLE CAPITAL GAIN ACCRUED TO THE ASSESSEE. 8. THE CIT(APPEALS) DISREGARDED THE DIRECT DECISION S QUOTED AND RELIED UPON BY THE APPELLANT, DURING APPELLATE PROCEEDINGS BEFORE HIM. HAVING REGARD TO THE CLEAR RATIO LAID D OWN BY THE HON'BLE HIGH COURTS AND TRIBUNALS, IN THE DECISIONS DISCUSSED ABOVE, THE FINDINGS OF THE CIT(APPEALS) CANNOT BE S USTAINED, IN THE MATTER, BEING CONTRARY TO THE EXPRESS PROVISION S OF SECTION 2(42A) OF THE ACT AND EXPLANATION (1)(I)(B) THERETO AND SECTION 49(1)(II) OF THE ACT AND EXPLANATION THEREUNDER. 9. FURTHER, THE APPELLANT, BEFORE THE CIT(APPEALS), RAISED ADDITIONAL GROUND OF APPEAL, IN RESPECT OF COMPUTAT ION OF CAPITAL GAINS, BY WAY OF ADOPTION OF FAIR MARKET VA LUE OF THE SAID ASSET, AT RS.100/- PER SQ.YD., AS ON 1.4.1981, AS IS EVIDENT FROM REPRODUCTION OF THE SAME AT PAGE 5 OF HIS ORDER. IT WAS CONTENDED BEFORE THE CIT(A), THAT THE APPELLANT HAS 9 STATUTORY OPTION FOR ADOPTION OF FAIR MARKET VALUE, AS ON 1.4.1981, AS PER THE PREVALENT AND RELEVANT STATUTO RY PROVISIONS OF THE ACT AND THE FAIR MARKET VALUE OF AN ASSET MEANS, THE PRICE THAT THE CAPITAL ASSET WOULD ORDIN ARILY FETCH, ON SALE, IN THE OPEN MARKET, ON THE RELEVANT DATE. SUCH CONTENTIONS AND SUBMISSIONS OF THE APPELLANT DIDNT FIND FAVOUR WITH THE CIT(APPEALS). THE CIT(APPEALS), UP HELD THE ADOPTION OF THE COST OF ACQUISITION OF THE SAID PLO T BY THE AO, AS SHOWN IN THE GIFT DEED, DATED 25.3.2003, AS AGAI NST THE OPTION FOR ADOPTION OF FAIR MARKET VALUE, EXERCISED BY THE APPELLANT U/S 55(2)(B)(II) OF THE ACT. IT WAS, FUR THER OBSERVED BY THE CIT(APPEALS) THAT THE COST OF ACQUISITION IS TO BE CONSIDERED AS ON 25.3.2003, AS THE ASSESSEE APPELL ANT BECAME THE OWNER OF THE SAID PLOT, ON 25.03.2003, BY WAY O F GIFT. IN VIEW OF THIS, IT IS EVIDENT THAT THE CIT(APPEALS), MERELY FOLLOWED THE LINE OF APPROACH, IN THE MATTER, AS ADOPTED BY THE AO. THUS, BOTH THE AO AND THE CIT(APPEALS), HAS ACTED A GAINST THE EXPRESS PROVISIONS OF SECTION 2(22B) AND 55(2)(B)(I I) OF THE ACT. 10. IN THIS CONTEXT, IT IS PERTINENT TO REFER TO TH E FAIR MARKET VALUE, AS DEFINED U/S 2(22B) OF THE ACT, AND, HENCE , THE SAME IS REPRODUCED HEREUNDER : 2[(22B) FAIR MARKET VALUE IN RELATION TO A CAPIT AL ASSET, MEANS- (I) THE PRICE THAT THE CAPITAL ASST WOULD ORDINARIL Y FETCH ON SALE IN THE OPEN MARKET ON THE RELEVANT DATE; AN D (II) WHERE THE PRICE REFERRED TO IN SUB-CLAUSE (I) IS NOT ASCERTAINABLE, SUCH PRICE AS MAY BE DETERMINED IN ACCORDANCE WITH THE RULES MADE UNDER THIS ACT :] 10 11. THE ASSESSEE, HAS ADOPTED THE FAIR MARKET VALU E OF THE IMPUGNED ASSET, WITHIN THE CONTEMPLATION OF SECTION 55(2)(B)(II) OF THE ACT. FOR THE SAKE OF READY REFERENCE, AND P ROPER APPRECIATION OF THE SAID SECTION, THE SAME IS REPRO DUCED HEREUNDER : 55(2) FOR THE PURPOSES OF SECTION 48 AND 49, COST OF ACQUISITION- (B)- IN RELATION TO ANY OTHER CAPITAL ASSET, - 55(2)(B)(II) WHERE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED IN [SUB-SECT ION (1) OF SECTION 49, AND THE CAPITAL ASSET BECAME THE PROPERTY OF TH E PREVIOUS OWNER BEFORE THE [1 ST DAY OF APRIL, 1981] MEANS THE COST OF THE CAPITAL ASSET TO THE PREVIOUS OWNER OR THE FAIR MARKET VALU E OF THE ASSET ON THE 1 ST DAY OF APRIL [1981] AT THE OPTION OF THE ASSESSEE; 11(I). THE INDEX COST OF ACQUISITION HAS BEEN DEF INED U/S 48 AND EXPLANATION (III) THERETO, WHICH IS REPRODUC ED HEREUNDER : (III) INDEXED COST OF ACQUISITION MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS COST INFLATION I NDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATIO N INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE OR FOR TH E YEAR BEGINNING ON THE 1ST DAY OF APRIL, 1981, WHICHEVER IS LATER; 12. IN THIS CONTEXT, IT IS PERTINENT TO REFER TO TH E DECISION OF THE HON'BLE ITAT, CHANDIGARH BENCH, IN THE CASE OF DY.CIT V SMT.BALJINDER KAUR & OTHERS (2008) 115 TTJ (CHD) 98 2, WHEREIN IT HAS BEEN HELD THAT IT IS A WELL SETTLED PROPOSITION THAT THE CONCEPT OF FAIR MARKET VALUE ENVISAGES E XISTENCE OF HYPOTHETICAL SELLER AND HYPOTHETICAL BUYER, IN A HY POTHETICAL MARKET. THEREFORE, DETERMINATION OF FAIR MARKET VA LUE OF CAPITAL ASSET, AS ON 1.4.1981, WOULD INVOLVE A JUDG EMENT OF ESTIMATION, BASED ON RELEVANT FACTORS. IN THE PRES ENT CASE, APPELLANT HAS FILED A CERTIFICATE FROM THE PATWARI, BEFORE THE CIT(APPEALS), INDICATING THE FAIR MARKET VALUE OF THE IMPUGNED 11 ASSET AT RS.100/- PER SQ.YD., AS ON 1.4.1981 AND TH E CIT(APPEALS) HAS FAILED TO BRING ANY MATERIAL ON RE CORD, TO REBUT SUCH DOCUMENTARY EVIDENCE. SIMILARLY, A COPY OF REGISTRATION OF SALE DEED, DATED 19.9.1982, (ENGLIS H VERSION) HAS BEEN FILED BY THE APPELLANT, PERTAINING TO THE SALE OF LAND, IN THAT AREA, AT RS.133/- PER SQ.YARD., AS A COMPAR ABLE CASE. NEEDLESS TO STATE HERE THAT ONCE, THE ASSESSEE APPE LLANT HAS EXERCISED HIS OPTION FOR ADOPTION OF FAIR MARKET VA LUE OF THE IMPUGNED ASSET, WITHIN THE MEANING OF SECTION 55(2) (B)(II) OF THE ACT, AS INDICATED ABOVE, THE REVENUE AUTHORITIE S ARE REQUIRED TO ACT IN CONSONANCE WITH THE PROVISIONS O F SAID SECTION AND CANNOT ARBITRARILY THRUST UPON THE APPE LLANT THE COST OF ACQUISITION, OF THE SAID PLOT, FOR THE PURP OSE OF COMPUTATION OF CAPITAL GAINS. IT IS, FURTHER, INCU MBENT UPON THE REVENUE AUTHORITIES, TO ACT JUDICIALLY IN CONSO NANCE WITH AND NOT CONTRARY TO THE EXPRESS PROVISIONS OF SECTI ON 2(42A) AND EXPLANATION 1(I)(B) THERETO, SECTION 2(22B) AND SECTION 55(2)(B)(II) OF THE ACT. THE ACTION OF CIT(APPEALS ) RENDERS THE PROVISIONS OF SECTION 55(2)(B)(II) OF THE ACT REDUN DANT. FURTHER, NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE CIT(A PPEALS), TO DISLODGE THE OPTION OF ADOPTION OF FAIR MARKET VAL UE OF THE SAID PLOT, AS ON 1.4.1981. IN THE PRESENT CASE, THE AO AND THE CIT(APPEALS), ADOPTED COST OF ACQUISITION OF THE SA ID ASSET, TAKING THE BASE YEAR, AS 2002-03, THE YEAR IN WHICH , THE APPELLANT ACQUIRED THE SAID PLOT UNDER GIFT, AND AP PLIED THE COST OF INDEXATION, FOR THE PURPOSE OF COMPUTING TH E CAPITAL GAINS, AS AGAINST THE OPTION EXERCISED BY THE APPEL LANT U/S 55(2)(B)(II) OF THE ACT, FOR ADOPTION OF FAIR MARKE T 12 VALUE OF THE ASSET IN QUESTION, AS ON 1.4.1981. IN VIEW OF THE ABOVE LEGAL AND FACTUAL DISCUSSIONS, THE FINDINGS O F THE CIT(APPEALS), CANNOT BE UPHELD. CONSEQUENTLY, GROUN D NO.1, RAISED BY THE APPELLANT IS ALLOWED. 13. APPELLANT DID NOT PRESS GROUND NO. 2, 3 & 4, HE NCE, THE SAME ARE DISMISSED AS NOT PRESSED. GROUND NO. 5 IS GENERAL IN NATURE AND NEED NO ADJUDICATION. ACCORDINGLY, THE S AME IS ALSO DISMISSED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN TERMS, AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DEC.,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12 TH DEC.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT ,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH