CII to Start from First Year of Holding by Previous Owner, Not Aborted Agreement:

CII to Start from First Year of Holding by Previous Owner, Not Aborted Agreement The case arose from a joint sale of ancestral land for Rs. 2.19 crore on 26.04.2010, where the stamp-duty valuation stood higher at Rs. 2.79 crore. The assessee, receiving Rs. 22.25 lakh as his share, claimed the capital gain belonged to the HUF and declared NIL LTCG based on a 1981 fair market value supported by a valuation report. The Assessing Officer rejected the valuation, adopted Rs. 10 per sq. mtr. as FMV instead of the assessee’s Rs. 25, computed LTCG at Rs. 28.12 lakh, granted exemption under Section 54F, and taxed the balance of Rs. 16.97 lakh. The first appellate authority affirmed this view and dismissed the plea that the AO should have made a DVO reference. Aggrieved, the assessee appealed to the Tribunal. Main Issue: Whether the AO’s LTCG computation based on a reduced FMV, ignoring payment to confirming parties, adopting indexation from 1989-90, and denying full Section 54F benefit, was legally sustainable in light of the assessee’s inherited title and supporting valuation evidence. Tribunal Held: The Tribunal found merit in the assessee’s contention that the consideration attributable to actual co-owners should be reduced by Rs. 1 crore previously paid to confirming parties, bringing the effective stamp-duty-based consideration to Rs. 1.79 crore. On FMV, the Tribunal adopted a “middle-path” rate of Rs. 17.50 per sq. mtr., a balanced midpoint between the AO’s Rs. 10 and the assessee’s Rs. 25, directing that this neutral valuation be applied consistently for indexation and computation. The Tribunal held that the correct Cost Inflation Index must be 100 because the land was inherited, rejecting the AO’s use of the 1989-90 index (172) rooted in an aborted agreement. The Tribunal directed the AO to recompute the LTCG entirely afresh, adopt consideration of Rs. 1.79 crore, apply FMV @ Rs. 17.50 per sq. mtr. as on 01.04.1981, use CII of 100, compute proportionate share at 10.15%, and allow Section 54F relief for the assessee’s investment. The appeal was accordingly allowed. To Read Full Judgment, Download PDF Given Below