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Facts
The assessee challenged the disallowance of Rs. 23,86,138/- (indexed cost) claimed as a proportionate share in the cost of construction incurred by the previous owner before 01.04.2001, for computing long-term capital gains. The property, initially acquired in 1970 and devolved to the assessee, underwent redevelopment through a collaboration agreement which involved demolishing the old structure and constructing a new one. The Assessing Officer disallowed the cost of the old structure, arguing it was no longer in existence and allowing it would be a double deduction as the cost of new construction was already claimed.
Held
The Tribunal upheld the lower authorities' decision, agreeing that the assessee had effectively transferred only the land, as the old structure had been demolished prior to the joint development agreement. Allowing the cost of the demolished old structure, in addition to the already claimed cost of new construction, would lead to a double deduction. Therefore, the assessee was not entitled to the benefit of Section 49(1) for the old structure.
Key Issues
Whether the assessee is entitled to claim the indexed cost of an old residential building, which was demolished prior to a joint development agreement for new construction, as part of the cost of acquisition for calculating long-term capital gains under Section 49(1) of the Income Tax Act, 1961, when the cost of new construction has already been allowed.
Sections Cited
143(3), 144C, 49(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: Sh. Satbeer Singh Godara & Sh. S. Rifaur Rahman
Asstt. Year: 2019-20 Subhash Chand Dhingra, Vs ACIT, B-8/11, Vasant Vihar, International Taxation, New Delhi-110057 Circle –1(2)(2), New Delhi-110002 (APPELLANT) (RESPONDENT) PAN No. ALTPD6704B Assessee by : Sh. Rachesh Sinha, Adv. Revenue by : Ms. Rini Handa, Sr. DR Date of Hearing: 10.03.2025 Date of Pronouncement: 21.03.2025 ORDER
Per Satbeer Singh Godara, Judicial Member:
This assessee’s appeal for Assessment Year 2016-17, arises against the CIT(A)-42, Delhi’s DIN & order No. ITBA/APL/S/250/2022-23/1050447625(1) dated 06.03.2023, in proceedings u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short “the Act”).
Heard both the parties at length. Case file perused.
Coming to the sole substantive issue between the parties regarding correctness of both the learned lower authorities’ action disallowing the assessee’s proportionate share in the cost of construction to the tune of Rs.23,86,138/-; for the purpose Subhash Chand Dhingra of computing his long term capital gains. We note that the lower appellate discussion affirming the Assessing Officer’s action to this effect reads as under:
“12. Ground no. 7 relates to disallowance of Rs.23,86,138/- (indexed cost) being proportionate share in the cost of construction incurred by previous owner before 01.04.2001 as allowable u/s 49(1) of the Act to the appellant. 12.1 The AO made disallowance of Rs 8,52,192/- (before indexation) which was claimed to have been incurred by previous owners in 1974 on the ground that when the property was sold in 2018-19 at that time the old construction ceased to exist and was not a subject matter of sale. In the year 2010-11 when the assessee entered into collaboration agreement with developer the sale transaction was not in discussion. The assessee got the construction done for himself and thus allowing both costs as deduction in the hands of assessee that is for old as well as new construction would amount to double deduction and thus it would be against the provisions of the Income Tax Act. 12.2 The ARs submitted that Mrs. Leena Dhingra mother of appellant got allotted a plot of land in Vasant Vihar in 1970. Mrs. Lila Dhingra constructed a residential building thereon. Upon her demise 16.01.2007, the property devolved upon her two sons and two daughters. Pursuant to a Collaboration Agreement, the said land was handed over to a Builder who took possession of land and building thereon and re-constructed and re-developed a fresh residential building on the said plot of land. The appellant sold his part of property during the year for Rs. 9,40,00,000/- as per sale deed dated 06.02.2019 and against the sale consideration, the appellant claimed cost of acquisition comprising cost of property as reproduced below:
Subhash Chand Dhingra SN Cost of Property to Year cost Indexed Cost the mother of the appellant A land value as on 2,04,34,342 01/04/2001 B Estimated cost of old 01.04.2001 8,52,192 construction incurred by Late Smt. Leela Dhingra TOTAL(A) 2,12,86,534 5,96,02,295.20 Cost of improvement incurred by the appellant C Free Hold Charges 2010-11 8,68,692 D Cost of Construction 70,16,773 of New Building TOTAL(B) 78,85,500.00 1,32,21,197.60 A+B 7,28,23,492.80
It is contended that the valuer has determined FMV of the property as on 01.04.2001 which comprises cost of land and cost of construction of house in the year of 1974 by the mother of the appellant. 12.3 It is observed that what the appellant has effectively transferred to the builder was land on which no a new residential building was to be constructed. The appellant was not transferring the old structure as the same was of no use. The appellant has already claimed and been allowed the cost of new structure. Therefore, the cost of old structure cannot be allowed. It is concluded that the AO was justified in making the impugned disallowance and the appellant was not entitled to the so-called cost of the old structure. The disallowance is confirmed. This ground is dismissed.” 3.1 This is what leaves the assessee aggrieved which is in appeal before us.
The learned counsel vehemently submits that both the learned lower authorities have erred in law and on facts in disallowing the assessee’s proportionate cost relief which is Subhash Chand Dhingra indeed allowable as a statutory relief u/s 49(1) of the Act. He seeks to buttress the points that the assessee’s predecessor in interest (Mrs. Leena Dhingra) had been allotted the plot way back in the year 1970 which devolved upon him as a cost sharer after her death on 16.01.2017. Learned counsel further clarifies that the assessee had duly filed cogent supportive evidence as well along with the registered valuer reports and therefore, his impugned claim very well deserves to be accepted.
The Revenue on the other hand has drawn strong support from both the learned lower authorities’ action making the impugned disallowance.
6. We have given our thoughtful consideration to the assessee’s and the Revenue’s vehement rival submissions. We find no reason to interfere with the impugned disallowance made by the learned lower authorities. This is for the precise reason that although there would not be any dispute about the statutory deduction of such a cost incurred by the previous owner having originally acquired capital asset in question, it has already come on record that the assessee had earlier demolished the old construction followed by the joint development agreement with the developer in the A.Y. 2010-11.
Subhash Chand Dhingra It is further noticed that all this followed yet another agreement/sale dated 06.02.2019 and therefore, we are of the considered view that the CIT(A) impugned discussion has rightly held him as not entitled for section 49(1) benefits once the same forms subject matter of the earlier development scheme as such an instance would give rise to a double deduction claim. Rejected accordingly.
This assessee’s appeal is dismissed. Order Pronounced in the Open Court on 21/03/2025.