Law:

Section:

Section 48 of the Income-tax Act, 1961 - Capital gains - Computation of - Assessment year 2005-06 - Where neither cost of construction of property nor apportionment of cost was done properly, matter was to be remanded back to Assessing Officer to decide same afresh [Matter remanded] The assessee had purchased the ground floor of an old building and thereafter entered into 'property development agreement' with the owners of the first and second floors. After completion of the construction, the first and second floors were to be handed over to the original owners and the assessee was to retain the basement, ground and third floors. Subsequently, the assessee sold the newly constructed ground floor at Rs. 90 lakhs on 30-3-2005. The basement and third floor, which had become the property of the assessee were shown as 'closing work-in-progress' and it was valued by the assessee at Rs. 50,62,500. The Assessing Officer did not accept the valuation of 'work-in-progress' as calculated by the assessee. He valued the basement and the third floor as Rs. 36 lakhs and Rs. 45 lakhs, respectively. The lower appellate authorities held that the cost incurred by the assessee in the construction of the said building should have been divided by 5 and not by 3 since five floors were constructed and, accordingly, deleted the addition made by the Assessing Officer on account of undervaluation of closing stock of work-in-progress. Held that no doubt, five floors were constructed. However, two floors were handed over to the original owners. Therefore, insofar as the assessee was concerned, the cost which was borne by the assessee for the three floors had to be taken into consideration and not five floors. As regards the issue of apportionment of the cost, neither the Assessing Officer nor the Commissioner (Appeals)/Tribunal had arrived at the valuation of the basement and the third floor by adopting the valid method. Therefore, the case was to be remitted back to the Assessing Officer with the direction to consider the cost to be divided by 3 and, thereafter, the Assessing Officer should proceed to determine as to what ratio was to be applied between basement, ground and the third…

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