Ascertaining Indexed Cost of Acquisition where payment has been made in instalments.
Acquisition of properties have over the years changed to a format wherein the buyer enters into an agreement to acquire the property at the initial stages of development wherein a part of amount is paid upfront and the rest of the amount is paid subsequently in instalments.
This is the usual situation when a flat is booked by the buyer at the initial stages of launch of the project. Subsequently when this property is sold by the said person there are issues with respect to date of acquisition as well as the indexation of cost of acquisition for the purpose of calculating capital gains in the hands of the assessee as the payment has been made in instalments during the construction of the property.
Hon’ble Mumbai bench of ITAT in its judgement dated 22.08.2022 in the case of Nitin Prakash Vs. DCIT vide appeal number ITA No. 817/Mumbai/2015 & ITA No. 1540/Mumbai/2018 has reiterated the settled principle of law which can be summarised as under:
The date on which the right is acquired implying thereby the date of entry into the initial agreement for acquisition of property would be treated as the date of acquisition for computing the period for which the property has been held.
As regards indexation, the Hon’ble court has reiterated that the indexation of the entire cost would be from the date of the agreement and that the same would not be related with the payments which have been made subsequently. In other words the Hon’ble ITAT has reconfirmed that the indexation will be allowed for the entire cost of the property from the date of the original agreement and the same would not be from the date of payment which is subsequent to entering into the agreement with the developer.
Consequently, the benefit of indexation will be from the date of entering into initial Builder Buyer Agreement notwithstanding the fact that cost of immovable property acquired, was paid over a period of time i.e. subsequent to the date of allotment or booking.
The assessee is entitled to the benefit of indexation on the total cost of acquisition from the year of allotment of flat notwithstantding of the fact that the assessee has paid instalments over a period of time subsequent to the date of allotment.
Decisions relied upon:
i. Lata G. Rohra vs. DCIT, 21 SOT 541 (Mum)
ii. Divine Holdings Pvt. Ltd. ITA No. 6423/Mum/2008
iii. M/s Pooja Exports, ITA No. 2222/Mum/2010
iv. Mr. Ramprakash Bubna, ITA No. 6578/Mum/2010