Suken Suresh Mehta Vs ITO (ITAT Mumbai)
JDA Exchange Has a Cost — ITAT Allows Indexed Cost on Land & Constructed Area Rights
The Mumbai Bench of the Income Tax Appellate Tribunal partly allowed the assessee’s appeal for AY 2022-23, holding that capital gains arising from a Joint Development Agreement (JDA) cannot be computed by denying the indexed cost of acquisition, both in respect of undivided land and the constructed area received in exchange.
The assessee had acquired land in 1981 and entered into a JDA in 2013, under which 45% of undivided land was given to the developer in exchange for 55% of the constructed area. During the relevant year, the assessee sold one flat along with proportionate land and claimed indexed cost of acquisition for:
- the undivided share of land, and
- the rights in the constructed area received under the JDA.
The Assessing Officer disallowed both claims, alleging lack of evidence and holding that since the developer incurred construction cost, the assessee had no cost of acquisition for the built-up area. The CIT(A) upheld the disallowance.
The Tribunal rejected this approach, holding that:
- Under section 48, computation of capital gains necessarily requires allowance of cost of acquisition, failing which the computation mechanism would collapse.
- The constructed area was not received free of cost, but in exchange for valuable land rights; hence, the value of land given up constitutes the cost of acquiring the constructed area.
- The Department’s reasoning that no cost exists merely because the assessee did not incur cash outflow was legally untenable.
As regards land value as on 01.04.2001, the ITAT admitted the assessee’s plea that relevant evidence from the Sub-Registrar had now been obtained. Since such evidence was not examined earlier, the matter was restored to the Assessing Officer for limited factual verification of:
