• Property purchased in Pagdi, later went for redevelopment, got ownership, and selling after 25 years

We need help in calculation of Long Term Capital Gain (LTCG) amount for a property.

Property was bought in Mumbai under Pagdi system in 1990s, so we were tenants as per that. Later in around 1998/1999, the society went for redevelopment and we got OC for the new building in 2001/2002. So we got property ownership, Share Certificate in our name and also in all society records. The Index 2 document with the builder regarding this was registered in 2012, and there they mentioned the Mobadla amount as Rs. 1 only. 

Now in 2026, when we are planning to sell this property, our CA says the entire sale amount would be considered Capital Gain as the purchase cost is considered Nil/Zero/Rs. 1 as per that Index 2. Also this property was never shown as asset in any tax filings, so now we cannot show that we had this property since 1990s. 

My observation:
1. Tenancy Rights are a Capital Asset and Cost of Acquisition should be the Fair Market Value (FMV) of the Tenancy Rights (or the shop) as of the date of exchange. We have already got the FMV calculated as on [deleted] through a Government Certified valuer. We can use the Indexation value of the same as on date for calculating Capital Gain.
2. We need to submit the Schedule AL only if the income in any FY is above 50L, which has never been the case, so non-declaring of asset in ITR cannot be the reason for considering the acquisition cost as ZERO. 
3. The Rs. 1 shown on Index 2 is just a nominal number, as the Index 2 explicitly mentions "Bhade pattayacha babatit..." (Regarding Lease/Tenancy...). This confirms that the figure was likely a capitalized value of the rent/tenancy for stamp duty purposes at that time, or a concessional value for redevelopment tenants. It does not represent the commercial Fair Market Value of the shop ownership.

So to conclude:
1. The property ownership was acquired in 2002 in exchange for surrendering Tenancy Rights (Pagdi). Under Section 55(2), when an asset is acquired by surrendering another capital asset (Tenancy Rights), the Cost of Acquisition is the Fair Market Value (FMV) of the asset given up.
2. Possession was handed over in 2001/2002 upon redevelopment completion. The holding period begins from the Date of Allotment/Possession, not the subsequent date of Registration (2012).
3. The Government Registerd valuer has picked the specific Government Ready Reckoner Rate published by the State Government in 2002.
4. The Index 2 says Bazaarbhav as - "Bhadepattyachya babatit..." (In the context of Lease/Rent).. So That is the value of 'Tenancy', not 'Ownership'. We should not confuse Stamp Duty Valuation with Commercial FMV.
5. Under Section 2(47) of the the Income Tax Act, a "Transfer" includes an "Exchange." In a redevelopment scheme, we are exchanging "Tenancy Rights" for "Ownership Rights.
6. Refer these - CIT vs. Dr. D.A. Irani [1998] 234 ITR 850 (Bom), Prakash Samant vs. ACIT (ITA No. 4665/Mum/, Nita Kamlesh Tanna vs. ITO (ITA No. 129/Mum/2021)