ITAT Allows Full Cost of Acquisition While Computing Capital Loss on Property Sale:

The assessee is BHA Associates Private Limited, was engaged in providing consultancy services and investing in real estate projects. For Assessment Year 2015-16, the assessee declared a long-term capital loss of Rs. 76,26,484 arising from the sale of a property situated at DLF South Point, Gurgaon, for a consideration of Rs. 1.20 crore.

While scrutinising the return under Section 143(3) of the Income Tax Act, 1961, the AO noticed a difference between the purchase value reflected in the computation of income and the value appearing in the conveyance deed.

The assessee explained that, apart from the purchase price of Rs. 63,40,570, it had incurred additional expenditure towards stamp duty, IBMS charges, development charges and renovation of the property. The total cost claimed, without indexation, was Rs. 1,10,60,735.

However, the AO accepted only the purchase value of Rs. 63,40,570 and excluded the remaining expenses, citing insufficient clarity regarding certain payments. Consequently, the AO recomputed the long-term capital loss and made an addition of Rs. 67,23,839. The CIT(A), upheld the AO's action. 

The Tribunal examined the documents furnished by the assessee and noted that the assessee had provided evidence supporting the various components of the property's cost. The Tribunal observed that the assessee had incurred genuine expenses towards the property, which were supported by documentary evidence. Therefore, the lower authorities were not justified in excluding these expenses while determining the cost of acquisition.

Accordingly, the Tribunal held that the addition of Rs. 67,23,839 made by recomputing the long-term capital loss was liable to be deleted. The Tribunal allowed the assessee's appeal and directed the deletion of the addition of Rs. 67,23,839 made by disallowing the expenses claimed towards the cost of acquisition and improvement of the property.