Expenses incurred for Cancellation and Re-registration of Property is part of Cost of Acquisition: ITAT [Read Order]

Cost of Acquisition

While allowing the appeal of Doddapaneni Atchaiah, Hyderabad bench of Income Tax Appellate Tribunal (ITAT) ruled that the expenses incurred for cancellation and re-registration of the property should be considered as a part of the cost of acquisition for the purpose of computing capital gain under the Income Tax Act, 1961.

The assessee in the instant case is an individual and a pensioner did not file his return of income for the assessment year. During the financial year the Assessing Officer (AO) got information that the assessee is one of the landowners who has entered into a development agreement with M/s Diamond Infra for the development of his land and the capital gain has arisen to the Assessee as per the agreement and the same was escaped from his returns and accordingly the AO issued notice under section 147 of the Income Tax Act 1961 and the Assessee was asked to furnish the required evidence regarding the transfer.

After analyzing the documents, the AO found that the Assessee has purchased a plot of 10406.54 sft developed area vide a registered sales deed. The Assessee claimed that the gains arising out of the development area is Long Term Capital Gain and since he is receiving residential flats as consideration, the LTCG is exempt under section 54F of the Income Tax Act 1961.

However, the AO refused to accept the claim of the Assessee and he found from the sale deed that the earlier sale deeds were cancelled and that no possession was given to the assessee by virtue of those sale deeds registered in 2003 and that the possession was handed over to the assessee only in 2006. Therefore, he held that the asset has been held for a Short Term only and the resultant claim is STCG. He further concluded that the Assessee is not entitled to get deductions under the said section and also considered the cost of acquisition of the land as per the purchase deed to be at Rs.14,89,200 and after including the registration charges of Rs.3,60,460, he adopted the cost of acquisition at Rs.18,49,660. He computed the taxable income according to that also.

On appeal, CIT(A) upheld the order of the AO. Thereafter the Assessee approached the Tribunal on further appeal.

After considering the facts and circumstances of the present case, the Tribunal bench including Judicial Member P. Madhavi Devi and Accountant Member S. Rifaur Rahman observed that “as regards the computation of capital gains arising on account of the joint development agreement it has found that the Assessee has included the stamp duty paid by him in both the years 2003 and 2006, in the cost of acquisition, whereas the AO and the CIT (A) have adopted only the stamp duty and other expenses paid by the assessee in the year 2006 as part of cost of acquisition”.

The division bench further observed that “the cancellation and re-registration of the property is not due to any fault of the assessee but due to the facts and circumstances prevailing at the relevant point of time, both the expenses are part of the cost of acquisition and should be allowed while computing the LTCG”.

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