ITAT Remands Capital Gains Case to AO for Fresh Verification of Improvement Costs

The Income Tax Appellate Tribunal (ITAT), Bangalore, remanded a capital gain matter to the assessing officer for fresh examination.

The assessee, Musheer Ahamed, sold a property in March 2018 for Rs 85 lakh. The taxpayer had bought the property in August 2016 for Rs 24.45 lakh. After considering the stamp duty and registration charges, the cost of acquisition was Rs 2,606,960.

In response to a notice issued under section 148 of the Income Tax Act, the assessee declared a short-term capital gain of Rs 9,88,040 and claimed a cost of improvement of Rs 48.20 lakh and selling expenses of Rs 85,000.

However, the assessing officer disallowed the entire cost of improvement and selling expenses, claiming that the assessee had failed to substantiate the claim by not submitting proper documents. The CIT(A) also upheld the AO’s decision, claiming that the assessee did not submit the completion certificate, commencement certificate and the cost of material consumed in construction. Therefore, the assessee approached the ITAT.

The ITAT compared the purchase and the sale deeds submitted by the assessee and concluded that the construction had taken place. The Tribunal said that disallowing the deduction of the cost of construction is unfair to the assessee.

However, since the assessee did not produce the relevant details before the lower authorities, the tribunal remanded the case to the assessing officer to verify the relevant documents like the commencement certificate, completion certificate of the corporation, bills of material, bank withdrawals, etc.

The AO was directed to verify these documents and then calculate the cost of improvement. The officer may also refer the case to a departmental valuer to determine the correct construction cost.