Income Tax Appellate Tribunal - Mumbai
Viral Chndresh Virvadia (Legal Heir Of ... vs The Income Tax Office Ward - 19(1)(1), ... on 25 March, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
"F" BENCH MUMBAI
BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT &
SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER
ITA No. 9131/Mum/2025
(Assessment Year: 2020-21)
Mr. Viral Chandresh Income Tax Office,
Virvadia (Legal heir of war - 19(1)(1)
Late Mr. Chandresh Vs. /Assessment Unit,
M. Virvadia) Income Tax
Flat No. 201, Penkar Department
Apartments, J. K. 5 th floor, Piramal
Mehta Road, Santacruz Chambers, Lalbaug,
(West), Mumbai - Mumbai-400 012
400 054
PAN/GIR No. AAEPV4350Q
(Applicant) (Respondent)
Assessee by Shri Niraj Sheth & Shri Ninad Patade,
Ld. ARs
Revenue by Shri Nayanjyoti Nath, Ld. DR
Date of Hearing 09.03.2026
Date of Pronouncement 25.03.2026
आदे श / ORDER
PER MAKARAND VASANT MAHADEOKAR, AM:
This appeal by the assessee is directed against the order dated 31.10.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi 2 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) [hereinafter referred to as "CIT(A)"] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act"], arising from the assessment order passed by the Assessing Officer under section 143(3) read with section 144B of the Act dated 26.09.2022 for the Assessment Year 2020-21.
Facts of the Case
2. The facts, as emerging from the assessment records, are that the assessee is an individual who filed his return of income for the Assessment Year 2020-21 on 07.01.2021 declaring total income of Rs. 42,96,950/-. The return was processed under section 143(1) on 05.04.2021. Subsequently, the case was selected for limited scrutiny through CASS, inter alia, to examine the issue of large deduction/exemption claimed. Notice under section 143(2) dated 29.06.2021 and notices under section 142(1) issued from time to time were duly served upon the assessee. The assessee participated in the assessment proceedings, furnished details and explanations, and also responded to the show cause notice dated 09.09.2022, including through video conference.
3. During the course of assessment proceedings, it was noticed that during the Financial Year 2019-20, the assessee had transferred tenancy rights in respect of a property situated in Shyam Kunj building vide Transfer of Tenancy Agreement dated 15.04.2019 for a consideration of Rs. 7,00,00,000/-. In the return of income, the assessee computed long-term capital gains by adopting the fair market value as on 01.04.2001 as cost of 3 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) acquisition and claimed exemption under section 54 amounting to Rs. 4,91,50,715/-.
4. The assessee explained before the Assessing Officer that the tenancy rights were inherited from his father and were of a very old origin, and therefore the cost of acquisition in the hands of the previous owner was not ascertainable. It was contended that in such circumstances, the computation provisions fail and no capital gains could be charged. Alternatively, it was submitted that the cost of acquisition should be taken as nil or that the fair market value as on 01.04.2001 be adopted with indexation. The assessee also contended that what was transferred was effectively a residential unit and therefore deduction under section 54, or alternatively under section 54F, ought to be allowed. The assessee further requested that the matter be referred to the Departmental Valuation Officer under section 55A for determination of fair market value.
5. The Assessing Officer, however, did not accept the contentions of the assessee. It was held that the Transfer of Tenancy Agreement clearly evidenced transfer of tenancy rights and not ownership of a residential house. The Assessing Officer further held that since the tenancy rights were acquired by inheritance, the provisions of section 49(1)(ii) were applicable and the cost of acquisition was required to be taken as the cost to the previous owner. In absence of any evidence regarding such cost or the fair market value at the relevant time, no deduction 4 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) towards cost of acquisition or improvement was allowed. It was further held that the benefit of substitution of fair market value as on 01.04.2001 was not available in the facts of the case. Accordingly, the Assessing Officer computed long-term capital gains at Rs. 7,00,00,000/- by taking nil cost of acquisition.
6. The Assessing Officer also rejected the claim of exemption under section 54 on the ground that the asset transferred was tenancy rights and not a residential house property. The alternative claim under section 54F was also not accepted, inter alia, on the ground that the assessee failed to establish fulfillment of the prescribed conditions and that certain components of the investment claimed did not qualify as cost of the new asset. It was further observed that the new property was purchased jointly, and reliance was placed on judicial precedent to restrict the exemption.
7. Consequently, the entire consideration of Rs. 7,00,00,000/- was treated as long-term capital gains and added to the income of the assessee. The total income was determined at Rs. 4,98,20,343/-. Penalty proceedings under section 270A were also initiated. The assessment was completed under section 143(3) read with section 144B of the Act vide order dated 26.09.2022
8. The assessee preferred an appeal before the CIT(A) against the assessment order passed under section 143(3) read with section 144B of the Act, wherein the Assessing Officer had determined long-term capital gains at Rs. 7,00,00,000/- on 5 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) transfer of tenancy rights and denied the claim of exemption under section 54/54F.
9. The CIT(A), while adjudicating the appeal, recorded that the assessee had inherited tenancy rights in a residential premises situated at Shyam Kunj building from his predecessor. During the relevant previous year, the assessee entered into a Transfer of Tenancy Agreement dated 15.04.2019, whereby such tenancy rights were relinquished/transferred in favour of an incoming tenant for a total consideration of Rs. 7,00,00,000/-. The CIT(A) noted that the transaction involved multiple parties, namely the landlord, outgoing tenant, outgoing sub-tenant (assessee), and incoming tenant, and the agreement specifically characterized the subject matter of transfer as tenancy rights.
10. The CIT(A) further recorded that in the return of income, the assessee had treated the said transaction as transfer of a capital asset and computed long-term capital gains by adopting fair market value as on 01.04.2001 as cost of acquisition. The assessee had also claimed exemption under section 54 amounting to Rs. 4,91,50,715/- on account of investment in a residential property.
11. Before the CIT(A), the assessee reiterated that the tenancy rights were very old and the cost of acquisition in the hands of the previous owner was not ascertainable. It was contended that in such circumstances, either the provisions of capital gains would fail or alternatively, the cost of acquisition should be taken 6 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) as nil. The assessee also argued that the asset transferred was effectively a residential unit and therefore eligible for deduction under section 54, or in the alternative under section 54F.
12. The CIT(A), however, concurred with the findings of the Assessing Officer that what was transferred by the assessee was only tenancy rights and not ownership of a residential house. The CIT(A) referred to the clauses of the Transfer of Tenancy Agreement and observed that the assessee did not have ownership rights in the property and therefore the claim under section 54 was not tenable.
13. On the issue of cost of acquisition, the CIT(A) held that since the tenancy rights were acquired through inheritance, the provisions of section 49(1) were applicable and the cost to the previous owner was required to be adopted. The CIT(A) further observed that the benefit of substitution of fair market value as on 01.04.2001 was not available in such a case, and in absence of any evidence regarding cost in the hands of the previous owner, the Assessing Officer was justified in taking the cost of acquisition at nil.
14. The CIT(A) also dealt with the alternative claim under section 54F and noted that the assessee had made investment in a residential property jointly with another person and had included various components such as ancillary charges and other expenses which, according to the CIT(A), did not qualify as cost of acquisition of a new residential asset for the purpose of section 7 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) 54F. The CIT(A) further observed that the assessee had not satisfied the prescribed conditions in entirety for claiming exemption under section 54F.
15. The CIT(A), thus, upheld the action of the Assessing Officer in treating the entire consideration of Rs. 7,00,00,000/- as long- term capital gains without allowing any deduction towards cost of acquisition or exemption under section 54/54F. The addition made by the Assessing Officer was accordingly confirmed.
16. Being aggrieved, the assessee is in further appeal before us raising following grounds of appeal:
1 : 0 Re.: Taxability of the capital gains arising on the transfer of tenancy rights in respect of the flat located in Shyam Kunj building:
1 : 1 The NFAC/CIT(A) erred in confirming the Order passed by the Assessing Officer vis-à-vis computation of capital gains arising on the transfer of tenancy rights in respect of the flat located in Shyam Kunj building.
1 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, transfer of tenancy rights in respect of the flat located in Shyam Kunj building is not chargeable to tax and the NFAC / CIT(A) ought to have held as such.
Without prejudice to the foregoing:
2 : 0 Re.: Not-considering the cost of acquisition being the Fair Market Value ('FMV') as at 01 April 2001:
2 : 1 The NFAC/ CIT(A) erred in confirming the action of the Assessing Officer of rejecting the cost of acquisition being the FMV as on 01 April 2001 while computing the capital gains arising on transfer 8 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) of tenancy rights in respect of the flat located in Shyam Kunj building.
2 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the cost of acquisition ought to be computed in terms of the provisions of section 55(2)(b)(ii) as it was applicable for the year under consideration and the NFAC/ CIT(A) ought to have held as such.
2 : 3 The Appellant further submits that the cost of acquisition ought to be computed in terms of the provisions of section 55(2)(b)(ii) as it was applicable for the year under consideration by applying the FMV as at 01 April 2001 and consequently also allow indexation on the same and the NFAC/ CIT(A) ought to have held as such.
2 : 4 The Appellant submits that the Assessing Officer be directed to consider the indexed cost of acquisition as computed by it the Appellant in its return income and re-compute the total income and tax thereon accordingly.
Without prejudice to the foregoing:
2 : 5 The Appellant submits that the NFAC/ CIT(A) erred in confirming the action of the Assessing Officer of rejecting the request of the Appellant to refer the matter to the Department Valuation Officer to determine the FMV of the tenancy rights in terms of section 55A of the Act.
3 : 0 Re.: Restriction the deduction claimed u/s. 54F of the Act:
3 : 1 The NFAC/ CIT(A) erred in confirming the action of the Assessing Officer in restricting the deduction claimed u/s. 54F of the Act.
3 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it is entitled to a deduction u/s. 54F with respect to the cost involved for installation of lift and the various charges paid to construct with respect to the new flat purchased and the NFAC/ CIT(A) ought to have held as such.
9 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) 3 : 3 The Appellant submits that the Assessing Officer be directed to include the aforesaid two items of expenditure incurred for acquisition of the new flat and consequently grant deduction u/s.
54F of the Act and to re-compute the total income and tax thereon accordingly.
4 : 0 Re.: General:
4 : 1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal.
17. During the course of hearing, the learned Authorised Representative (AR) of the assessee submitted that the issue under consideration pertains to taxability of capital gains arising on transfer of tenancy rights which were originally acquired by the assessee under a will from his father and subsequently transferred during the year under consideration. The learned AR invited our attention to the observations recorded by the Assessing Officer in the assessment order and submitted that the Assessing Officer has proceeded on an erroneous understanding of facts as well as law.
18. It was submitted that the Assessing Officer has observed that the assessee became owner of tenancy rights w.e.f.
05.11.1987 pursuant to the will of his father, however, the cost of acquisition in the hands of the previous owner was not furnished. It was further observed by the Assessing Officer that the capital gains arose from transfer of tenancy rights and not from transfer of a residential house and that the assessee failed to furnish the fair market value as on the date of acquisition by the previous owner.
10 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia)
19. The learned AR submitted that the Assessing Officer has denied the benefit of cost of acquisition solely on the ground that the assessee could not furnish the cost in the hands of the previous owner or the fair market value as on the relevant date, and accordingly computed capital gains by adopting nil cost. It was contended that the Assessing Officer has placed reliance on section 49(1)(ii) of the Act to hold that the cost to the previous owner is to be adopted and has further interpreted section 55(2)(a) to deny applicability of alternative provisions relating to determination of cost.
20. The learned AR further submitted that the Assessing Officer has also rejected the request of the assessee for reference to the Department Valuation Officer under section 55A on the ground of limitation, which according to the learned Authorised Representative is not justified in law. It was contended that the Assessing Officer has incorrectly concluded that the provisions of section 55(2)(a) exclude cases of acquisition under a will and has thereby erred in denying the benefit of determination of cost.
21. The learned AR also drew our attention to the observations of the Assessing Officer regarding deduction under section 54F of the Act, wherein it has been alleged that the assessee did not furnish adequate documentary evidence to substantiate fulfilment of conditions. It was submitted that the Assessing Officer has further restricted the deduction on the ground that the new property was purchased jointly with another person and 11 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) accordingly allowed only 50% of the cost of the new residential house, amounting to Rs. 2,44,76,607/-.
22. Summarizing the above, the learned AR submitted that the findings of the Assessing Officer are based on incorrect appreciation of facts and misapplication of statutory provisions, particularly sections 49, 55 and 54F of the Act.
23. Advancing Ground No. 1, the learned AR of the assessee submitted that the Assessing Officer has erred both on facts and in law in holding that the sale consideration arising from transfer of tenancy rights is chargeable to tax under the head "Capital Gains". The learned AR submitted that the tenancy rights in the impugned property were acquired by the assessee under a will and not by way of purchase. It was contended that the provisions of section 55(2)(a) as applicable to the year under consideration do not provide any mechanism for determining the cost of acquisition in respect of tenancy rights acquired through modes specified under section 49(1), including acquisition by way of inheritance or will. It was thus submitted that in the absence of any determinable cost of acquisition, the computation mechanism provided under section 48 fails. The learned AR further submitted that the Assessing Officer has wrongly invoked the amended provisions of section 55(2)(a)(ii) brought in by the Finance Act, 2021 w.e.f. 01.04.2021, whereas the assessment year under consideration being A.Y. 2020-21, the pre-amended provisions as applicable as on 01.04.2020 are required to be 12 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) applied. Referring to the comparative statutory provisions, it was contended that prior to the amendment, section 55(2)(a) did not contemplate or prescribe any cost of acquisition for tenancy rights acquired under a will, and therefore the action of the Assessing Officer in adopting the cost in the hands of the previous owner is contrary to law. It was further submitted that where the cost of acquisition cannot be ascertained or is not capable of being determined, the charging provision under section 45 itself fails, as the computation provisions under section 48 cannot be applied. In support of this proposition, the learned AR placed reliance on the judgment of the Hon‟ble Supreme Court in the case of CIT vs. B.C. Srinivasa Setty (128 ITR 294), wherein it was held as under:
"Section 45 is a charging section... All transactions encompassed by section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by section 45 to be the subject of the charge... the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section." (para 8)
24. Further, referring to para 11 of the said judgment, the learned AR submitted that the Hon‟ble Supreme Court has clarified that the scheme of capital gains taxation contemplates only such assets in respect of which a cost of acquisition can be envisaged. It was submitted that where an asset is of such a nature that no cost of acquisition can be conceived, the machinery provisions fail and consequently no capital gains can 13 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) be brought to tax. The relevant extract relied upon reads as under:
"What is contemplated is an asset in the acquisition of which it is possible to envisage a cost... None of the provisions pertaining to the head „Capital gains‟ suggests that they include an asset in the acquisition of which no cost at all can be conceived... In such a case, when the asset is sold and the consideration is brought to tax, what is charged is the capital value of the asset and not any profit or gain."
25. Placing reliance on the above authoritative pronouncement, the learned AR submitted that in the present case, the tenancy rights were acquired by the assessee under a will and, as per the provisions applicable for the year under consideration, no cost of acquisition can be ascertained or envisaged. It was thus contended that the computation provisions under section 48 fail and, consequently, the charging provision under section 45 cannot be invoked.
26. The learned AR further placed reliance on the decision of the Hon‟ble Bombay High Court in the case of Evans Fraser & Co. Ltd. (137 ITR 493), and specifically drew attention to para 16 thereof, wherein it has been observed as under:
"Mr. Joshi is, therefore, right when he has submitted that in the present case both the moment of acquisition of goodwill as also the cost of acquisition of goodwill have been pinpointed.
16. Does this, however, make any difference? As we have seen earlier, goodwill is a fluctuating thing. It increases and it decreases, but such increase or decrease is not like the periodic waxing and waning of the moon nor is it like the tide which regularly ebbs and flows twice in twenty-four hours. Goodwill built up over the years can be destroyed in a matter of days, if not much less. Goodwill is never constant. Proteus-
14 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) like it changes constantly, and as goodwill changes from time to time so does its value. It is possible to ascertain the value of goodwill at a particular point of time, and the modes of calculating such value can easily be found in any standard book on accountancy."
27. Placing reliance on the above observations, the learned AR submitted that even in cases where an asset like goodwill or similar intangible rights may be capable of valuation at a particular point of time, the inherent nature of such rights is such that no definite or ascertainable cost of acquisition, in terms of the statutory scheme, can be attributed unless specifically provided by law. It was contended that tenancy rights, being akin to intangible rights, stand on a similar footing and therefore cannot be brought within the ambit of capital gains taxation in the absence of a statutory mechanism.
28. The learned AR further placed reliance on the decision of the Pune Bench of the Tribunal in the case of Institute for Micronutrient Technology (43 taxmann.com 426), wherein the Bench, after considering the ratio of the Hon‟ble Supreme Court in B.C. Srinivasa Setty, held that where an intangible asset is self-generated and is not capable of improvement at an ascertainable cost in terms of money, the computation provisions fail and consequently no capital gains can be brought to tax. It was particularly emphasised that:
"For a transfer of capital asset to be liable for charge as „capital gains‟ under section 45, it must fall under the governance of its computation provisions also, and a transaction to which the computation provisions cannot be applied, it must be regarded as never intended by section 45 to be charged to tax under Chapter IV."
15 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia)
29. Further, it was submitted that the Bench has also observed that even where the cost of acquisition is deemed to be „Nil‟ under section 55(2)(a), if the asset is not capable of improvement at an ascertainable cost and such cost of improvement is not determinable, the computation provisions under section 48 fail. The relevant findings relied upon read as under:
"In the instant case, the asset under transfer is self-generated trademarks and the same is not capable of improvement at an ascertainable cost in terms of money and therefore in the absence of any possibility to determine the „cost of any improvement‟ referred to in section 48(ii), the computation of capital gains fail and accordingly it is outside the scope and ambit of the charge envisaged under section 45(1)."
30. On the strength of the aforesaid judicial pronouncements, the learned AR submitted that the principle emerging is that the charging provision under section 45 and the computation provisions under section 48 form an integrated code, and unless both can be applied in a workable manner, no tax can be levied under the head "Capital Gains".
31. Applying the above legal position to the facts of the present case, it was submitted that the tenancy rights having been acquired under a will, and there being no statutory provision applicable for the year under consideration prescribing the cost of acquisition in such a case, the computation provisions fail. It was thus contended that the impugned addition made by the Assessing Officer under the head "Capital Gains" is unsustainable in law and liable to be deleted.
16 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia)
32. The learned AR, adverting specifically to para 3.5 of the assessment order, submitted that the reasoning adopted by the Assessing Officer is legally untenable and proceeds on a fundamental misappreciation of the statutory scheme governing taxation of capital gains.It was submitted that the Assessing Officer has proceeded on the premise that in the absence of details regarding the cost of acquisition in the hands of the previous owner, the entire consideration is liable to be taxed as long term capital gains. According to the learned AR, such an approach is contrary to the settled legal position that the charge under section 45 is inextricably linked with the computation mechanism provided under section 48, and in the absence of a workable computation, the charging provision itself fails.
33. The learned AR further submitted that the reliance placed by the Assessing Officer on section 49(1) is misplaced inasmuch as the said provision only provides for a deemed cost in the hands of the assessee where the asset is acquired under specified modes such as inheritance or will. However, such deeming provision can operate only when the cost in the hands of the previous owner is capable of being ascertained. It was contended that in the present case, the tenancy rights are of such a nature that no determinable cost of acquisition in the hands of the previous owner can be conceived and therefore, the machinery provision fails at the threshold.
17 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia)
34. Referring to the observations of the Assessing Officer that the assessee failed to furnish the cost of acquisition or fair market value, the learned AR submitted that the inability to furnish such details is not merely factual but flows from the inherent nature of the asset itself. It was contended that tenancy rights, particularly those acquired under a will, do not carry any ascertainable cost of acquisition in terms of money, and therefore the requirement imposed by the Assessing Officer is contrary to law.
35. The learned AR further assailed the action of the Assessing Officer in rejecting the request for reference to the Departmental Valuation Officer under section 55A on the ground of limitation. It was submitted that once the assessee had specifically raised the issue of determination of fair market value, the Assessing Officer ought to have exercised the statutory power available to him, and the denial of such opportunity on account of administrative constraints cannot be a valid ground to fasten tax liability upon the assessee.
36. With regard to the finding of the Assessing Officer that the assessee has taken a contradictory stand as to whether what was transferred was tenancy rights or the flat, the learned AR submitted that the transfer agreement itself clearly evidences that what has been transferred is tenancy rights along with incidental rights and interests therein. It was contended that merely because the underlying property is a residential unit, the 18 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) character of the asset transferred does not change, and the Assessing Officer has misdirected himself in drawing adverse inference on this aspect.
37. The learned AR further submitted that the Assessing Officer has erred in concluding that section 55(2)(a) provides for cost of acquisition in the present case. It was contended that as per the statutory provisions applicable for the year under consideration, cases falling under section 49(1) stood excluded from the ambit of section 55(2)(a)(ii), and therefore the cost could not have been determined either as „Nil‟ or as the cost in the hands of the previous owner by invoking the amended provisions.
38. It was also submitted that the Assessing Officer has misapplied the judicial precedents relied upon by the assessee. In this regard, the learned AR submitted that the ratio laid down by the Hon‟ble Supreme Court in the case of B.C. Srinivasa Setty squarely applies to the facts of the present case, inasmuch as the asset under consideration is one in respect of which no cost of acquisition can be envisaged.
39. The learned AR submitted that the conclusion drawn by the Assessing Officer that the assessee has attempted to mislead the Revenue is wholly unwarranted and not borne out from the record. It was contended that the assessee has consistently maintained that the tenancy rights were acquired under a will and that the computation provisions are not workable in the absence of determinable cost.
19 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia)
40. In view of the above submissions, the learned AR submitted that the entire reasoning contained in para 3.5 of the assessment order is legally unsustainable, being contrary to the statutory provisions as well as the binding judicial precedents, and therefore the addition made by the Assessing Officer deserves to be deleted.
41. The learned AR further invited our attention to para 9 of the order of the learned CIT(A) and assailed the findings recorded therein. It was submitted that the learned CIT(A) has proceeded to uphold the action of the Assessing Officer primarily on the ground that the assessee failed to furnish the cost of acquisition of tenancy rights in the hands of the previous owner or the fair market value as on the date of initial acquisition, and further that the assessee cannot compel the Assessing Officer to refer the matter to the Departmental Valuation Officer. According to the learned AR, such reasoning is fundamentally flawed.
42. The learned AR submitted that the learned CIT(A) has failed to appreciate that the issue is not merely of non-furnishing of details, but relates to the inherent impossibility of determining the cost of acquisition in the present case. It was contended that the tenancy rights were acquired under a will on 05.11.1987 and, having regard to the nature of such rights, no ascertainable cost of acquisition in monetary terms can be envisaged either in the hands of the previous owner or in the hands of the assessee. Therefore, the insistence by the lower authorities on furnishing 20 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) such cost is legally untenable. It was further submitted that the observation of the learned CIT(A) that the assessee must prove the cost of acquisition proceeds on an erroneous understanding of the statutory scheme. It was contended that where the law itself does not provide a workable mechanism for determination of cost in a given factual situation, the assessee cannot be burdened with an obligation to furnish something which is incapable of determination.
43. The learned AR also submitted that the learned CIT(A) has erred in holding that the assessee cannot compel the Assessing Officer to refer the matter to the DVO. It was contended that while the reference under section 55A may be discretionary, such discretion is required to be exercised judiciously, particularly when the assessee has raised a specific claim regarding determination of fair market value. The rejection of such request solely on the ground of time constraint, as also noted by the Assessing Officer, vitiates the assessment proceedings.
44. The learned AR further submitted that the learned CIT(A) has failed to deal with the core legal contention of the assessee that in the absence of determinable cost of acquisition, the computation provisions under section 48 fail and consequently no capital gains can be brought to tax under section 45. It was contended that instead of adjudicating this jurisdictional issue, the learned CIT(A) has merely affirmed the findings of the 21 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) Assessing Officer on factual grounds, which is not sustainable in law.
45. Advancing Ground No. 3, the learned AR invited our attention to the findings recorded by the learned CIT(A) in paras 10.1 to 10.4 of the appellate order and submitted that the issue pertains to the extent of deduction allowable under section 54F of the Act. The learned AR submitted that the learned CIT(A), after examining the material placed on record, has recorded a categorical finding that the assessee has complied with all the conditions stipulated under section 54F of the Act. It was pointed out that the assessee had furnished the agreement for purchase of the new residential flat dated 29.07.2020 along with bank statements evidencing payment of Rs. 4,91,50,715/- from his bank account towards acquisition of the new property. The learned AR further submitted that the learned CIT(A) has taken note of the fact that the Assessing Officer had restricted the exemption under section 54F to 50% on the ground that the property was purchased jointly with the assessee‟s son. However, upon appreciation of the factual position, the learned CIT(A) has accepted that the entire investment in the new residential property was made by the assessee and that the inclusion of the son as a co-owner was merely a nominal arrangement without any contribution. Accordingly, the learned CIT(A), following the decision of the coordinate bench, has directed the Assessing Officer to grant deduction under section 54F to the extent of 100% of the investment made by the assessee.
22 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia)
46. The learned AR further submitted that the learned CIT(A), in para 10.3 of the appellate order, has erred in upholding the action of the Assessing Officer in excluding the expenditure incurred towards installation of lift and layout charges from the cost of the new residential property, by treating the same as expenditure in the nature of improvement not eligible for exemption under section 54F of the Act. It was submitted that the said finding of the learned CIT(A) is contrary to the factual position of the case. The learned AR pointed out that the assessee is wheelchair-bound and, therefore, the installation of lift and the layout-related modifications were not in the nature of optional improvements, but were essential and necessary expenditures incurred to render the residential property habitable and usable for the assessee. It was contended that such expenditure is intrinsically linked with the acquisition and effective enjoyment of the new residential house and, therefore, forms part of the cost of acquisition of the new asset.
47. The learned Departmental Representative, on the other hand, relied upon the orders of the lower authorities.
48. On the issue relating to valuation, the learned Departmental Representative submitted that the matter requires proper verification and determination of fair market value. It was contended that the Assessing Officer did not have the benefit of an expert valuation and, therefore, in the interest of justice, the issue may be restored to the file of the Assessing Officer with a 23 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) direction to obtain a valuation report from the Departmental Valuation Officer and decide the issue afresh in accordance with law.
49. The learned AR further placed on record the computation of capital gains as per the return of income, the assessment order and the order of the learned CIT(A), and explained the variation in the quantum of deduction and computation adopted at different stages. It was submitted that the Assessing Officer has computed the capital gains by denying the indexed cost of acquisition and allowing deduction under section 54 to the extent of Rs. 2,44,76,608/-, whereas the learned CIT(A), after detailed examination, has granted substantial relief by allowing deduction under section 54 at Rs. 4,89,53,215/- out of the total investment of Rs. 4,91,50,715/-.The learned AR submitted that the balance disallowance sustained by the learned CIT(A) pertains only to the expenditure incurred towards installation of lift and layout charges, which has been treated as cost of improvement and excluded from the cost of the new asset. It was reiterated that such expenditure, in the peculiar facts of the case, ought to be considered as part of the cost of acquisition.
50. Without prejudice to the primary legal contention that no capital gains are chargeable in the absence of determinable cost of acquisition, the learned AR submitted that, in the alternative, the fair market value of the asset as on 01.04.2001, as determined in the valuation report placed on record and claimed 24 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) in return of income, ought to be adopted as the cost of acquisition. It was submitted that the valuation report, forming part of the paper book, determines the fair market value as on 01.04.2001 at Rs. 1,60,72,025/- and, applying the relevant cost inflation index, the indexed cost of acquisition works out to Rs. 4,64,48,153/-.
51. It was thus contended that the said indexed cost of acquisition deserves to be allowed while computing the capital gains, and the computation furnished by the assessee may be accepted in order to arrive at the correct taxable income in accordance with law.
52. We have heard the rival submissions and perused the material available on record, including the assessment order, the order of the learned CIT(A), the transfer of tenancy agreement dated 15.04.2019, the valuation report placed in the paper book, and the judicial precedents cited before us.
53. The principal legal plea raised on behalf of the assessee is that the capital gains arising on transfer of tenancy rights are not chargeable to tax at all, since the tenancy rights were acquired under a will and, according to the assessee, the cost of acquisition thereof is not determinable under the statutory provisions applicable to A.Y. 2020-21. The argument proceeds on the footing that, in absence of a workable computation mechanism, the charging provision under section 45 fails. In support thereof, reliance has been placed, inter alia, on the 25 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) judgments in CIT vs. B.C. Srinivasa Setty 128 ITR 294 (SC), Evans Fraser & Co. Ltd. 137 ITR 493 (Bom.), and the decision of the Pune Bench in Institute for Micronutrient Technology(43 taxmann.com 426).
54. Having given our thoughtful consideration to the above submission, we are unable to accept the broad legal proposition canvassed on behalf of the assessee that the transfer in question falls wholly outside the ambit of charge under section 45 of the Act. In our considered view, the precedents cited for the assessee proceed on a materially different factual and legal footing and cannot be mechanically extended to the present case.
55. At the outset, it is necessary to notice that what stands transferred in the present case is not goodwill of a newly commenced business, nor a self-generated trade mark, nor a sovereign, ancestral or merger right of the nature considered in some of the cited authorities. What has been transferred is tenancy rights in respect of a specific immovable property, namely the flat situated in Shyam Kunj building. The transfer agreement itself clearly records the outgoing tenant, outgoing sub-tenant, incoming tenant and landlord, and separately specifies the lump sum consideration payable to the outgoing sub-tenant, namely the assessee, at Rs. 7,00,00,000/-. The document also evidences that the rights transferred were rights in relation to an identified immovable property. Therefore, this is a case of transfer of a recognized and marketable capital asset 26 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) connected with an identifiable immovable property and not a case of an amorphous or unascertainable intangible right having no valuation base.
56. The decision of the Hon‟ble Supreme Court in B.C. Srinivasa Setty lays down the well-settled principle that the charging section and computation provisions form an integrated code and where the computation provisions cannot at all be applied, the transaction would fall outside the charging provision. There can be no quarrel with that proposition. However, the ratio of the said decision cannot be read divorced from the nature of the asset considered therein. In that case, the Court was concerned with goodwill generated in a newly commenced business, where the cost of acquisition and the date of coming into existence were not susceptible of determination in the manner contemplated by the statute. It was in that context that the Court held that what was brought to tax would really be the capital value of the asset and not profit or gain.
57. The present case stands on a wholly different footing. Tenancy rights are themselves specifically recognized by the statute as capital assets for purposes of computation provisions. More importantly, unlike self-generated goodwill of a new business, tenancy rights in an identified flat are capable of valuation because their worth is intrinsically relatable to the underlying immovable property, the location, area, possession, incidents of tenancy, and the market conditions prevailing at the 27 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) relevant time. In fact, in the case before us, not only was the asset actually transferred for a quantified consideration of Rs. 7,00,00,000/-, but the assessee himself has relied on a valuation report to support the fair market value as on 01.04.2001. The very stand of the assessee that FMV as on 01.04.2001 should be adopted militates against the wider legal plea that the asset is not at all capable of valuation or computation.
58. The reliance placed by the assessee on paras 8 and 11 of B.C. Srinivasa Setty does not advance the case any further. Those paragraphs emphasize that the Act contemplates an asset in the acquisition of which it is possible to envisage a cost and that the computation machinery cannot be dispensed with. In the present case, the problem is not that the asset is inherently incapable of valuation. On the contrary, the record itself demonstrates that valuation is possible. The real controversy here is only as to the correct statutory route for arriving at such cost or fair market value in the peculiar facts where the tenancy rights were acquired under a will. That is a dispute about quantification and application of the computation provisions, not a case of total failure of the computation machinery.
59. The same distinction applies to the Pune Bench decision in Institute for Micronutrient Technology. There the Co-ordinate Bench was concerned with self-generated trade marks and held that while section 55 deemed cost of acquisition to be nil, the "cost of improvement" of such self-generated trade mark was not 28 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) statutorily ascertainable, thereby leading to failure of the computation provisions. In our considered view, that line of reasoning cannot be bodily imported into the present controversy. Tenancy rights in a specified immovable property do not stand on the same pedestal as self-generated trade marks or goodwill. Here, the valuation exercise is anchored to a tangible and identifiable underlying immovable asset. The assessee has himself argued that for determining the FMV of tenancy rights, the value of the underlying residential unit has to be ascertained first. Once that is the factual position, the very basis of the argument that the asset is incapable of valuation disappears.
60. In this context, the judgment of the Hon‟ble Bombay High Court in Evans Fraser & Co. Ltd. assumes significance. The High Court, while dealing with goodwill, observed that even where the moment of acquisition and cost of acquisition are pinned down, goodwill remains a fluctuating asset and its value can nevertheless be ascertained at a particular point of time by accepted methods. If that be so even in the case of goodwill, with greater reason tenancy rights in an identified immovable property are capable of valuation. Therefore, even on the assessee‟s own cited authority, valuation is conceptually possible.
61. We are also unable to accept the argument that because the rights were acquired under a will, the charge itself fails. Acquisition under a will may give rise to difficulty in applying one or the other limb of the statutory provisions, but that by itself 29 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) does not render the asset non-taxable per se. Where the asset is otherwise an identifiable capital asset, is expressly recognised by statute, is transferable for consideration, and is capable of valuation, the matter has to be resolved within the computation framework and not by excluding the transaction altogether from the charging provision.
62. At this stage, we may also note that the assessee has consistently taken an alternative plea that, without prejudice to the legal contention, the fair market value as on 01.04.2001 as reflected in the valuation report should be adopted and indexed cost of acquisition should be granted. The valuation report placed on record determines the FMV as on 01.04.2001 and the assessee has furnished a computation based thereon. During the hearing, the learned Departmental Representative submitted that the issue may be restored to the file of the Assessing Officer for obtaining valuation from the DVO. In rebuttal, the learned AR submitted that the valuation report already filed before the Assessing Officer should be accepted so as to avoid another round of proceedings.
63. In our view, the ends of justice would be met by rejecting the assessee‟s legal ground that no capital gains are chargeable at all, but at the same time restoring the matter to the file of the Assessing Officer for the limited and specific purpose of examining the valuation report already placed on record and 30 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) determining the fair market value as on 01.04.2001 in accordance with law. We say so for the following reasons.
64. First, the legal issue as to total non-chargeability, in our considered opinion, does not survive for acceptance, because the subject-matter transferred is tenancy rights in a specified immovable property, valuation thereof is demonstrably possible, and therefore this is not a case where the computation provisions fail altogether.
65. Second, the quantification issue, namely the correct cost/FMV to be adopted and the consequential indexed cost, is essentially a matter requiring factual examination and, if necessary, technical verification. Since the assessee has already produced a valuation report and has specifically prayed that the same be considered, fairness demands that the report should be examined on merits rather than ignored.
66. Third, the Assessing Officer himself declined to refer the matter to the DVO earlier on account of time limitation and not on a reasoned examination of the merits of the valuation report. The learned DR also fairly submitted that the issue of valuation may be remitted for proper determination. Therefore, a limited remand would subserve the cause of justice.
67. Accordingly, we hold that the legal ground of the assessee seeking complete exclusion of the impugned transfer from the ambit of capital gains is devoid of merit and the same stands 31 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) dismissed. However, the alternative plea raised by the assessee, without prejudice to the said legal ground, deserves acceptance in part.
68. We, therefore, restore the matter to the file of the Assessing Officer for the limited purpose of determining the fair market value of the tenancy rights as on 01.04.2001, after examining the valuation report already placed on record by the assessee and after granting due opportunity of hearing. The Assessing Officer shall be at liberty to obtain expert assistance, including reference to the DVO, if so considered necessary, but the scope of remand shall remain confined only to the determination of FMV as on 01.04.2001 and the consequential indexed cost of acquisition. The Assessing Officer shall thereafter recompute the capital gains in accordance with law. It is clarified that the legal issue as to taxability of the transfer under the head "Capital Gains" stands concluded against the assessee, and only the quantification aspect is restored for limited verification.
69. Thus, the legal ground raised by the assessee challenging the chargeability of capital gains is dismissed. However, the alternative plea of the assessee regarding determination of fair market value as on 01.04.2001 is allowed for statistical purposes. The matter is restored to the file of the Assessing Officer for the limited purpose of examining the valuation report and determining the fair market value as on 01.04.2001 and the 32 IT A No . 9 1 3 1 / M u m / 2 0 2 5 Mr. Viral Chandresh Virvadia (Legal heir of Late Mr. Chandresh M. Virvadia) consequential indexed cost of acquisition, in accordance with law. All other grounds are disposed of accordingly.
70. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 25.03.2026.
Sd/- Sd/-
(SAKTIJIT DEY) (MAKARAND VASANT MAHADEOKAR)
VICE PRESIDENT ACCOUNTANT MEMBER
Mumbai, Dated 25/03/2026
Dhananjay, Sr.PS
आदे श की प्रतितिति अग्रेतिि/Copy of the Order forwarded to :
1. अपीलाथी / The Appellant
2. प्रत्यथी / The Respondent.
3. सं बंधधत आयकर आयु क्त / The CIT(A)
4. आयकर आयु क्त(अपील) / Concerned CIT
5. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai
6. गार्ड फाईल / Guard file.
आदे शानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy//
1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai