Narayana Chandra Reddy Vs DCIT (ITAT Bangalore)
Bangalore ITAT Allows Indexed Cost of Factory Building Despite Sale Deed Mentioning Only ‘Vacant Land’ – Stamp Duty Mischief Cannot Inflate Income Tax
The Bangalore ITAT granted major relief to the assessee by allowing indexed cost of construction while computing capital gains, despite the sale deed mentioning only a “vacant plot” and not the factory building standing on it. The assessee had sold industrial property at Bommasandra and claimed indexed cost of factory construction incurred in FY 2005-06. The AO and CIT(A) denied the claim solely because the registered sale deed did not mention any building structure.
The Tribunal noted that the assessee had produced extensive documentary evidence proving existence of the factory shed, including sanctioned building plan from KIADB, loan documents, contractor confirmations, purchase invoices for construction materials, rental income disclosures in earlier years, BESCOM records, building tax receipts and TDS deducted by tenant company GEA Westfalia Separator India Pvt. Ltd. on lease rentals. The ITAT observed that when rental income from the very same premises had been consistently accepted by the department in earlier years, the Revenue could not suddenly contend that no building existed.
The Tribunal accepted the assessee’s explanation that the building was deliberately not mentioned in the sale deed to avoid higher stamp duty liability. In a sharp observation, the ITAT remarked that such conduct may amount to “mischief” under the Karnataka Stamp Act by both buyer and seller, for which appropriate authorities may take action, but such stamp duty irregularity cannot become a basis to levy higher income tax by denying genuine indexed cost of construction.
The ITAT further criticized the AO for not conducting any meaningful enquiry despite availability of substantial evidence. The Tribunal observed that the AO could have summoned the contractor, tenant, suppliers or BESCOM authorities if he doubted the genuineness of construction, but no such exercise was undertaken. Merely relying on the sale deed alone, while ignoring overwhelming corroborative evidence, was held unsustainable.
Accordingly, the Bangalore ITAT held that the assessee had successfully established existence and transfer of the factory shed along with the land and directed allowance of indexed cost of construction while computing long-term capital gains.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
