Demolition expenditure admissibility may reduce capital gains if genuinely incurred; remitted for AO verification and evidence.

Whether indexed cost claimed for demolition of a structure can reduce capital gains on sale of land was examined; the Tribunal observed that demolition expenditure, if genuinely incurred as a pre condition to sale, is relevant to computation under Section 48 and may be treated as cost of improvement or otherwise linked to the transfer, but the record lacked documentary proof and no conclusive factual finding was made. The Tribunal remitted the matter to the Assessing Officer for fresh enquiry and verification, permitting the assessee opportunity to produce evidence; appeal disposed for statistical purposes in favour of the assessee.

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Issues: Whether the claim of Rs. 11,24,472/- towards indexed cost of acquisition of a demolished structure can be allowed against capital gains on sale of land.

Analysis: The authorities below recorded conflicting findings: the Assessing Officer disallowed the claim and the CIT(A) affirmed the disallowance on the ground that the claim was not made in the return and no documentary proof of demolition expenditure was furnished. The Tribunal observed that the factual question whether a structure existed and was demolished at the buyer's insistence (and whether expenditure was actually incurred by the assessee) was not conclusively determined on the record. The Tribunal noted that if demolition expenditure was genuinely incurred as a pre-condition to sale, such expenditure would be relevant to computation under Section 48 and could be treated as cost of improvement or otherwise linked to the transfer. Given absence of documentary substantiation and the lack of a definitive factual finding, the Tribunal found it appropriate in the interest of justice to remit the matter for fresh enquiry by the Assessing Officer, with opportunity to the assessee to produce evidence.

Conclusion: The matter is remitted to the Assessing Officer for verification of facts and documentary proof regarding existence and demolition of the structure and the actual expenditure incurred; in consequence the appeal is allowed for statistical purposes in favour of the appellant.

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