2026 (2) TMI 1297 - AT - Income Tax

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 ... Revision u/s 263 - LTCG - disallowance of claim towards the indexed cost of demolition of the structure on the land against the capital gain arising from transfer of the land during the year. HELD THAT:- CIT(A) has confirmed the disallowance made by the AO on the technical ground and not given the finding of fact whether there was a structure on the land which was demolished by the assessee as per the request of the buyer or for the purpose of getting the better value of the land. In case, the assessee has actually incurred some expenditure for demolition of the structure which is for the better value of the land in question, then the said expenditure would be considered as cost of improvement of the property. If the buyer desired to buy the plain land without any structure, then it is also to be considered as the expenditure incurred for the transfer of the property u/sec.48 of the Act. Since the assessee has not given any account for the actual expenditure incurred by the assessee before us, therefore, this issue cannot be decided conclusively. Matter is remanded to the record of the AO for conducting a proper enquiry and ascertaining the facts of structure being existed on the land and demolished by the assessee for the purpose of transfer of the land and then allow the expenditure actually incurred by the assessee substantiated by the documentary evidences against the capital gain. Appeal of the Assessee is allowed for statistical purposes. 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.