TaxTMI 
TaxTMI 
2026 (8) TMI 461
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.... 2. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs. 7,20,79,295 made by the assessing officer under the head Capital Gains by recomputing the Capital Gains at Rs. 14,13,00,375 as against the Capital Gains of Rs. 9,52,34,295 originally admitted by the appellant and later revised to Rs. 6,92,21,080. 3. The learned Commissioner of Income Tax (Appeals) ought to have directed the assessing officer to allow the following revised claims of the appellant: i) Cost of acquisition of land revised to Rs. 8,84,400 from Rs. 18,100 and consequently the indexed cost of acquisition revised to Rs. 99,49,500 from Rs. 2,03,625. ii) Indexed cost of acquisition of building revised to Rs. 2,36,53,125 from Rs. 28,12,500. iii) Claim for stamp duly paid on settlement deed revised to Rs. 28,88,865 from Nil. 4. The learned Commissioner of Income Tax (Appeals) ought to have directed the Assessing officer allow the exemption of Rs. 3,57,91,430 u/s. 54 of the Act or in the alternative ought to have directed the assessing officer to allow exemption of Rs. 1,86,91,920 u/s. 54F of the Act. 5. Any other ground ....
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....as well as other concerned persons and, based on his deliberations, accepted that the additional evidence deserved admission. 7. On a perusal of the record, we find that the AO in his "remand report" had observed that prior to execution of the registered sale deed, the assessee had entered into an "agreement" with the purchaser under which the assessee agreed to dismantle the existing building known as "Prema Hospital" and deliver vacant possession before registration of the sale deed. Also, he observed that the purchaser had confirmed the existence of the subject "agreement" and the demolition of the building before registration. However, the AO expressed reservations on the ground that the original agreement was not produced during the remand proceedings and consequently recommended rejection of the assessee's claim for exemption under section 54 of the Act. 8. As is discernible from the record, the CIT(A), after considering the assessment order, remand report and submissions of the assessee, upheld the action of the AO. According to the CIT(A), although certain documents indicated that a building had existed on the property in the past, the decisive factor was the nature o....
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....ital gains arising from the transaction and not an artificial gain resulting from exclusion of a substantial capital asset admittedly existing till immediately before the sale. It was therefore submitted that the indexed cost attributable to the demolished building deserves appropriate adjustment while computing the capital gains. The Ld. AR to buttress his contention had relied on the definition of the term "Cost of improvement" as provided in Section 55(2)(ii) of the Act. 12. The Ld. AR further submitted that the expenditure incurred by the assessee towards stamp duty payable under the family settlement deed represented expenditure incurred for perfecting title over the subject property and therefore constituted expenditure allowable under section 48 of the Act. It was also submitted that even assuming exemption under section 54 is held to be unavailable, the assessee satisfies the conditions prescribed under section 54F and is entitled to deduction under the said section. Elaborating further on his contention, the Ld. AR submitted that as the assessee is an HUF, the investment made in the new residential flats purchased by him, i.e., Flat Nos. 527 and 504 in Gadhiraju Empire,....
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....04,000/-, and the registered conveyance ultimately transferred only vacant land. 16. We find that the first issue that arises for our consideration is whether any building existed on the impugned property at any point of time prior to the execution of the registered sale deeds and, if so, what is the tax consequence of its demolition for the purposes of computation of capital gains. As observed by us herein above, the AO as well as the CIT(A), based on the description in the sale deed read in the backdrop of the certificate issued by the GVMC Town Surveyor and the Google Earth imagery, have proceeded on the basis that what was ultimately transferred under the registered sale deeds was vacant land. However, the "remand report" submitted by the AO assumes significance for dealing with the aforesaid material aspect. We find that in the remand proceedings conducted pursuant to directions of the CIT(A), the AO, after verification under section 133(6) of the Act and examination of the purchaser, has recorded a categorical finding that there existed a building known as "Prema Hospital" on the subject property and that the "agreement" between the parties specifically contemplated demoli....
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....s or alterations to the capital asset on or after the said date by the previous owner or the assessee, and (ii) in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head "Interest on securities", "Income from house property", "Profits and gains of business or profession", or "Income from other sources", and the expression "improvement" shall be construed accordingly." (emphasis supplied by us) 18. In the present case, the record clearly indicates that the land along with the superstructure constituted a composite capital asset at the time of negotiation between the parties. In our view, the demolition of the building was not an independent or isolated event but was undertaken as an integral part of the arrangement for the transfer of the property in favour of the purchaser. Therefore, we ....
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....urchaser as they intended to purchase only open land. Alternatively, assessee had demolished bungalow and its different parts were sold though as scrap in respect of which he offered capital loss which could be adjusted against capital gains arising on the sale of land." The Tribunal, considering the facts involved in the aforementioned case, had, based on its deliberations, observed as under: "14. We have heard the rival submissions of the parties and perused the materials on record. In our considered view, the only issue, in brief, is that whether the scrap value of bungalow received by the assessee could be treated as sale of bungalow, as such. and therefore capital gain arising on sale of land would be adjusted against any gain or loss arising on sale of scrap of bungalow. It is undisputed fact that capital gains can be separately computed on land as well as on bungalow. The Hon'ble Bombay High Court in the case of CIT v. City Bank (2003) 263 ITR 570 (Bom) and Hon'ble Madras High Court in the case of CIT v Ramchandra Row D.L. (1999) 236 ITR 51 (Mad) have held that land and building are separate capital assets and short-term and long term capital gains can be compute....
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..... It could also be done voluntarily giving up a legal ownership in the property. Once the person demolishes building, it converts his right into building as a right in a scrap. What he gets in return of his building is scrap, though this is only voluntarily done, for getting greater benefit on sale of vacant land. Therefore once the scrap is sold to someone then consideration for sale of building is equivalent to consideration received on sale of scrap. There is a direct nexus of building and consideration of scrap, as in fact, at the end, it becomes consideration for building and transferee would be the purchaser of the scrap. Therefore, it is transaction of transfer of building, as there is an asset, a transfer, and transferee. Even otherwise, we are of the view that when builder made agreement with the assessee to purchase the land free of building, building stood as encumbrance. Accordingly, building was disposed of as a scrap. For the assessee, land and building are the assets on one side and consideration received from builder and consideration received from the scrap is on the other side of the transaction. Even though assessee gets very little consideration for disposal of ....
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....rty, profit and gain of the business or profession or income from other sources. The property was charged to municipal tax and this fact is clearly mentioned in the sale deed that the assessee has dismantled the construction. Therefore, in our opinion, whatever expenses have been incurred by the assessee or by the previous owner in constructing the property or in dismantling the property that will be part of the cost of improvement over the land. The assessee has not claimed the expenses incurred in dismantling the construction. As on 01.04.1981, the building was in existence over the plot. Therefore, in our opinion fair market value of the capital assets for the purpose of computation of the capital gain should be taken to be the fair market value of the land as well as the construction thereon." (emphasis supplied by us) 20. We thus, in the backdrop of our aforesaid deliberations are of the view that the assessee is entitled for claiming the indexed cost of construction of the building on the subject land sold by him as a "cost of improvement" of the subject land sold by him, but the matter requires limited verification by the AO for determining the indexed cost/Fair Market....
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....nce thereto both the authorities below have rightly held that the assessee is not entitled to exemption under section 54 of the Act. 24. At the same time, the alternative claim of the assessee under section 54F requires consideration. In our view, the said provision applies to the transfer of any long-term capital asset not being a residential house, subject to the satisfaction of certain statutory conditions. One of the primary conditions under section 54F is that the assessee should not, on the date of transfer of the original asset, own more than one residential house other than the new asset. We find that the AO has taken the view that the assessee owned more than one residential house. The assessee, on the other hand, had, in the course of the remand proceedings, filed an "affidavit" denying ownership of any additional residential property. Although the AO in his "remand report" dated 05/06/2024 had considered the assessee's affidavit dated 23/04/202 that was filed with him in the course of the remand proceedings, wherein he had deposed that he was not holding any residential property/commercial property at Dabagardens, Visakhapatnam area, but had refused to take cognizance....
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....t whereto the deduction under Section 54F has been restricted to "one residential house in India". Apropos the Order of the ITAT, Delhi in Saroj Rani Vs The ITO (supra), the same being distinguishable on facts, will also not assist the case of the assessee. In the said case, the assessee had purchased seven residential units in the same complex, each unit being adjacent to the others, with no outsiders flat intervening. It was in the backdrop of the aforesaid peculiar facts that the Tribunal had concluded that the seven residential units on the same floor could be brought within the meaning of a "one residential house" as contemplated in Section 54/54F of the Act. In our view, the facts involved in the case before us are squarely covered by the order of the ITAT, Mumbai in Dipti Nalin Parikh v. ITO17(1)(4), ITA No. 3274/Mum/2019, wherein it was observed that the amendment introduced by the Finance (No. 2) Act, 2014, effective from 01.04.2015, has substantively altered the scope of exemption under sections 54 and 54F of the Act. The Tribunal held that the substitution of the expression "a residential house" with "one residential house in India" manifests a clear legislative intent t....