LTCG without indexing Cost of Acquisition is to be considered for computing Tax Liability u/s 115JB of Income Tax Act: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) observed that Long Term Capital Gain ( LTCG ) without indexing cost of acquisition is to be considered for computing tax liability under Section 115JB of income Tax Act 1961. The Assessing Officer/Transfer Pricing Officer dismissed the assessee’s submissions, asserting that the provisions of section 115JB of income Tax Act 1961, empower them to add or reduce only those items explicitly mentioned in the section. The Assessing Officer was restricted from making any additions or reductions in items not covered under section 115JB of income Tax Act 1961. Consequently, the claim of the assessee was rejected, leading to the additional back of ₹21,98,18,240/-. The counsels for the assessee J.D. Mistry, Madhur Agrawal and Fenil Bhat argued that Section 115JB (5) of income Tax Act 1961, stipulates that all other provisions of the Act are applicable unless specified otherwise in this section.

The counsels for the Assessee contended that, in light of Section 115JB(5) of income Tax Act 1961,  the provisions of Section 48, of income Tax Act 1961,allowing indexation for computing long-term capital gains, should be applicable since no exclusion is mentioned in the main section. This perspective aligns with the Karnataka High Court’s decision in the case of Best Trading and Agencies Ltd. v. DCIT.  In this case, the Karnataka High Court, considering the Apex Court’s decision in Apollo Tires Ltd v CIT, upheld the Assessee’s claim of indexation while computing book profit. The two member bench of the tribunal comprising Kavitha Raja Gopal ( Judicial member ) and S. Rifaur Rahman ( Account member ) emphasized the allowance of indexation benefits, particularly as the assessee company was established as a Special Purpose Vehicle for the transfer of Land and Building.

The bench justified this stance by pointing to the provisions in sections 48, 45, and 112 of income Tax Act 1961, highlighted that the benefit of indexed cost of acquisition must be granted to avoid a distortion in income assessment.  The bench approved indexation in determining the book profit under section 115JB of income Tax Act 1961, underscores the necessity of extending this benefit to the concerned assessee.

The inclination to favorably consider the contention raised by the assessee was apparent, as the circumstances and assertions made by the taxpayer aligned precisely with those in the present case. Consequently, the raised ground by the assessee was granted approval and acknowledged accordingly.

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