ITAT Bangalore Remands Rs. 1.31 Crore Capital Gains Dispute in Rajiv Nivas Vs DCIT, Condones 410-Day Delay Due to Wrong Appellate Forum
In a significant judicial pronouncement, the Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a crucial ruling concerning the procedural validity of capital gains assessments and the condonation of delays arising from bona fide jurisdictional errors. The judgment in the case of Rajiv Nivas Vs DCIT, delivered on 28 August 2026, addresses two primary controversies: the maintainability of an appeal filed after a substantial delay of 410 days due to the assessee approaching the incorrect appellate forum, and the substantive legal requirements for determining the Fair Market Value (FMV) of an immovable property as of 1 April 2001.
The Tribunal ultimately restored the valuation dispute back to the Assessing Officer (AO), emphasizing that a draft assessment order passed without awaiting the report of the District Valuation Officer (DVO) fundamentally violates the principles of natural justice and renders the resultant addition unsustainable.
Comprehensive Factual Matrix of the Dispute
The appellant in the present matter is a non-resident individual who filed his return of income for the Assessment Year (AY) 2020-21 on 2 September 2020. In the said return, the assessee declared a total income of Rs. 71,40,930, which included the computation of long-term capital gains arising from the alienation of an inherited, converted non-agricultural property.
The property in question, which included a building, was situated at Casaba Village in the Mangalore District. The asset was sold to a corporate entity, Northern Sky Properties Pvt. Ltd., for a total sale consideration of Rs. 14 crore. The assessee held a 25% share in the said property, translating his proportionate share of the sale consideration to Rs. 3,50,00,000.
The realization of this consideration was structured through multiple channels:
- The assessee received Rs. 1,68,07,175 in cash.
- An amount of Rs. 98,20,525 was adjusted toward the acquisition of a flat from the purchaser.
- To optimize his tax liabilities, the assessee strategically invested Rs. 50,00,000 in specified capital gains bonds, thereby claiming a legitimate exemption under
Section 54ECof the Income-tax Act, 1961.
The Cost of Acquisition Controversy
The core of the substantive dispute revolved around the computation of the cost of acquisition. Because the property had been originally acquired prior to 1 April 2001, the assessee exercised his statutory right to substitute the actual cost of acquisition with the Fair Market Value of the property as of 1 April 2001.
To substantiate this valuation, the assessee relied upon a comprehensive report prepared by a registered valuer dated 14 November 2019. According to this expert assessment, the FMV of the entire land was pegged at Rs. 2,10,00,000, while the building's value was determined to be Rs. 31,09,275. Consequently, for his 25% proportionate share, the assessee claimed a total base cost of acquisition amounting to Rs. 60,27,319. This figure comprised the land cost of Rs. 52,50,000 and the construction cost of Rs. 7,77,319.
Upon applying the relevant cost inflation index, the assessee claimed an indexed cost of acquisition of Rs. 1,74,80,952.
However, the revenue authorities adopted a drastically different approach. While the AO accepted the construction cost of Rs. 7,77,319 without dispute, the land cost was severely restricted to a mere Rs. 7,21,875. This downward revision resulted in the AO allowing an indexed cost of acquisition of only Rs. 43,32,671. The cascading effect of this restriction was a massive differential addition of Rs. 1,30,86,281 to the assessee's long-term capital gains.