Deduction on Cost of Building not Allowable under 'Capital Gain' when Value of Building is not Mentioned in Fixed Assets’ Schedule: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, has recently, in an appeal filed before it, held that deduction on cost of building is not allowable under the head ‘capital gain’, when the value of building is not mentioned in the schedule of fixed assets.

The aforesaid observation was made by the Bangalore ITAT, when an appeal was preferred before it by the revenue, as directed against order of CIT(A) dated 14.9.2018, for the assessment year 2014-15.

The disputed issue in the case being with regard to the allowability of Rs.26,52,22,757/-, which represented indexed cost of improvement of building, the brief facts of the case were that the assessee owned a property at Veerasandra village, Attibele Hobli, Anekal Taluk, Bangalore District, Bangalore which was sold to M/s Titan Company Ltd. for a consideration of Rs.51,43,40,778/-.

 Subsequently, it was found by the AO that there was a construction on the plot of land, which the sale deed does not mention about, and therefore he arrived at the conclusion that the price has been paid by the purchaser for the piece of land and not for the construction thereon. Thus, in this regard, the AO recorded observation also.

On the other hand, it was submitted by the assessee that there was a hostel on the land in question, from which it received house property income, which was duly disclosed to the income-tax Department, with taxes being paid on the same. However, this submission of the assessee was of no good before the AO.

And thus, the assessee preferred an appeal before the CIT(A), who observed that the assessee had entered into a sale agreement with M/s. Titan Company Ltd. and that in the sale deed there was no mention of any construction on the land.

Thus, the CIT (A) opinioned that the AO was of the opinion that the assessee had received sale consideration for the piece of land only and not for the construction thereon. He added that however, from the sale deed it does not appear that the assessee has not transferred the building to the purchaser.

He added that if the land is sold to someone, it cannot be said that any construction on it has not been sold, unless there is specific provision in the deed. He further noted that the AO had relied on the judgement in the case of CIT v/s Union Co Motors Pvt Ltd, however that the said judgement related to the provision of section 50 of the Income Tax Act, which is in relation to 'Special provision for computation of capital gains, in case of depreciable assets.

Thus, the CIT(A) while adjudicating the appeal of the Assessee, referred to the judgement in the case of Prabhandam Prakash, wherein it had been held that even if the superstructure is to be demolished by the promoter, the seller is entitled to deduction of the cost of construction of the house.

Thus, observing that the case of the assessee is similar to the one mentioned above and that the same is squarely applicable to the facts of the case of the assessee, the CIT(A) directed the AO to delete the disallowance of Rs.24,68,26,761/- from the total sale consideration of Rs.51,43,40,778/-. And, it is against the same, that the revenue is in appeal before the Tribunal.

Hearing the opposing contentions of both sides as presented by Shri K. Sankar Ganesh, the D.R., on behalf of the Revenue, as well as by Shri S.V. Ravishankar, the A.R., on behalf of the assessee and thereby perusing the materials available on record, the Bangalore ITAT observed:

“Under Section 17 of the Registration Act, 1908, all transactions that involve the sale of an immovable property for a value exceeding Rs.100 should be registered. Admittedly, in the case there was no instrument of any registration of the said building. Thus, there was no transfer of the building vide sale deed dated 23.1.2014 in favour of M/s Titan Company Ltd. According to ld. A.R., the building is situated on the land is also deemed as transferred to M/s. Titan Company Ltd. and he placed reliance on the judgement of Padmanabha Prakash. In that judgement, there was a mentioning of super structure and super structure was handed over to the developers, but it was no asset in his hands, rather a liability in the hands of developer as he had to incur some expenditure to remove the same and there was no dispute regarding the existence of super structure thereon the land. In the case of Dr. Maya Shanoy also, there was no dispute regarding the existence of super structure and it should be demolished by the assessee before handing over the possession of the land to the developer. Hence, the Tribunal was of the opinion that building being attached to the earth will pass on to the transferee along with land and the cost of such building to be deducted from the value of the sale consideration while determining the capital gain.”

“But in the present case on hand, there was no iota of evidence shown by the assessee with regard to the transfer of the building in the sale deed entered by the assessee with M/s. Titan Company Ltd. and also the balance sheet of the assessee as on 31.3.2013 have no reference of building and it shows only the land-electronic city Rs.14,13,42,439/. There was no mentioning of any value of the building in the schedule of the fixed assets and now assessee again says that sale of land also includes the sale of building so as to claim deduction towards cost of building from the sale value of the land, actually it was not so”, the ITAT Panel of N.V. Vasudevan, the Vice President and Chandra Poojari, the Accountant Member, added.

Thus, the ITAT finally held:

“In the result, the appeal of the revenue is partly allowed.”

To Read the full text of the Order CLICK HERE

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