Demolition Costs to be Included in LTCG, if Occurred: ITAT Remands Issue to AO to Determine Pre-Existence of Structure [Read Order]
ITAT remanded a matter concerning the cost of demolition on a sold property. The issue centred around the demolition cost inclusion in the LTCG.
The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, remanded the issue to the Assessing Officer (AO) to determine there was a structure that had been demolished on the immovable property. The tribunal ruled that demolition costs should be included in the Long Term Capital Gains (LTCG) if done before the acquisition.
The main issue is the disallowance of claim of INR 11,24,472/- towards the indexed cost of demolition of the structure on the land against the capital gain arising from the transfer of land. It is to be noted that the assessee derives income from real estate. The scrutiny assessment was completed under Section 143(3) on 20.12.2019. The assessment order dated 20.12.2019 was revised by the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act, 1961 via order dated 24.03.2022.
According to the order by Pr.CIT, the claim of cost of acquisition/demolition of the structure to the tune of INR 11,24,272/- was disallowed.
It was argued that the cement shed on the property was in a dilapidated condition which was demolished by the assessee before the execution of the sale deed as per the request of the buyer. Thereafter, the demolition was confirmed by the buyer and so the cost of demolition is an allowable deduction under Section 48.
The assessee has raised the ground that the assessee had purchased the property with a structure at the time of acquisition, that demolition was part of the sale transaction and relied on Goetze (India) Ltd. v. CIT [2006].
The ITAT is of the opinion that if the assessee has incurred some expenditure for demolition then the same should be considered in the cost of improvement of property. The tribunal sent back the matter to the file of the AO for conducting a proper inquiry and ascertaining whether a structure existed at the property in question.
The appeal was allowed for statistical purposes by the bench of Manjunatha G (Accountant Member) and Vijay Pal Rao (Vice President)
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