The cost of acquisition for capital gains on property acquired through a gift must be based on the FMV as of 1-4-2001 or the cost to the previous owner, whichever yields a lower tax liability.

आदेश/ Order

PER VIKRAM SINGH YADAV, A.M. :

This is an appeal filed by the Assessee against the order of the Ld. PCIT, Panchkula dt. 28/03/2024 pertaining to Assessment Year 2018-19.

2. In the present appeal, the assessee has raised the following grounds of appeal:

1. That the PCIT, Panchkula has wrongly framed order under section 263 of Income Tax and set the assessment order passed under section 143(3) after making detailed enquiries with respect to capital gain on sale of residential house.

2. The PCIT has wrongly enhanced the scope of scrutiny assessment while faming order under section 263 of Income Tax Act.

3. Briefly the facts of the case are that the assessee filed his return of income declaring total income of Rs. 69,52,590/-. Subsequently, return of income was selected for complete scrutiny and notice under section 143(2) and 142(1) were issued alongwith questionnaire, and after taking into consideration the submission filed by the assessee and carrying out the necessary verification/ examination, the assessment proceedings were completed under section 143(3) r.w.s 143(3A) &143(3B) of the Act, wherein the assessed income was determined at Rs. 88,44,429/- after making the disallowance under section 40A(3) of the Act amounting to Rs. 12,09,560/-.

4. Subsequently, the assessment records were called for and examined by the Ld. PCIT, Panchkula and a show cause under section 263 dt. 12/12/2023 was issued by the Ld. PCIT and the contents thereof read as under:

“Perusal of assessment record reveals that you had sold a residential property, 139, Masjid Moth, Uday Park, New Delhi, measuring 180 sq.m. for Rs. 5,01,00,000/- during previous year 2017-18 and had declared Long Term Capital Gain of Rs. 49,19,440/- on the same in the ITR. Computation of LTCG as per ITR is as under:

Full value of consideration received 5,01,00,000/-

Less: Cost of acquisition with indexation 4,51,80,560/-

Long Term Capital Gains 49,19,440/-

The indexed cost of acquisition was taken by taking the base year as 2001. You furnished a Valuation Report of the property in support of the Fair Market Value (FMV) of the property as on 01.04.2001. From the perusal of the Valuation Report, it is seen that the FMV of the property as on 01.04.2001 was takenat Rs.1,66,10,500/- (FMV of the land and construction were Rs. 1,33,30,000/- and Rs. 32,80,500/- respectively).

This property was received by you through gift deed dated 08.10.2009 executed by your father Sh. Sudershan Kumar Kathuria who had purchased this property through conveyance deed dated 18.06.1996.

As per record, while executing gift deed dated 08.10.2009, FMV of the said property was determined at Rs.1,08,00,000/- for calculating stamp duty of the gift deed.

Further, perusal of the Valuation Report reveals that the Valuer has determined the FMV on the basis of a sale deed of a first floor dwelling unit with 25% land of area 183 sq.m. which was executed on 21.01.1998 for a sale consideration of Rs.35,00,000/-. In this sale instance, saleconsideration of Rs. 35,00,000/- included cost of land share of 25% as well as construction cost of the dwelling unit on first floor. But yourValuer in his valuation report took the whole amount as cost of 25% share of the land area and determined the FMV of the land in your case at Rs.57,377/-, thereby total indexed FMV