Taxing under capital gain can be burdened only when cost of acquisition is established

Ishvakoo Grand Plaza Vs DCIT (ITAT Delhi)

ITAT Delhi held that to burden assessee with capital gain arising out of transfer of immovable property or an interest in it, the cost of acquisition is necessarily to be established. Here, cost of acquisition of so called right of preemption is considered as NIL. Hence, computation provisions fail, therefore capital gains could not have been calculated.

Facts- During the year under consideration, the assessee has received Rs.20,40,00,000/- in a settlement in the court, which the assessee has claimed as non – taxable and has credited directly to the capital accounts of the partners of the firm in their respective profit sharing ratio.

AO vide notice u/s 142(1) of the Act dated 26.02.2016, enquired from assess that the right of Preemption/right of first priority of purchase of the premises falls under the definition of “Capital Asset” u/s 2(14) of the Act and the relinquishment of the said right falls under the definition of “Transfer” as per the Act. Therefore, why the amount of Rs. 20,40,00,000/-received from M/s. Kandhari Infrastructures Pvt. Ltd. should not be treated as Long Term Capital Gain arising from such transfer.

AO concluded the same as receipts taxable as capital asset. CIT(A) sustained the addition. Being aggrieved, assessee has preferred the present appeal.

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