Sale Deed Not Final Word: ITAT Accepts Higher Actual Purchase Cost and Restores Full Indexation Benefit

Jagjeeth Singh Sethi Vs ITO (ITAT Bangalore)

Sale Deed Not Final Word: ITAT Accepts Higher Actual Purchase Cost and Restores Full Indexation Benefit

Actual Cost, Not Sale Deed Value, Determines Capital Gains: Bangalore ITAT Grants Full Relief

he Bangalore ITAT held that for computing capital gains, the actual cost of acquisition paid by the assessee must prevail over the lower value mentioned in the sale deed, provided the assessee is able to substantiate the higher payment with credible evidence.

In this case, the assessee had purchased a plot from the Telecom Employees’ Co-operative Housing Society and claimed a cost of acquisition of about ₹11.93 lakh based on payments actually made to the society. However, the sale deed reflected a much lower figure corresponding to the guideline value. The assessee produced a certificate issued by the housing society along with receipts evidencing payment of ₹11.53 lakh towards the site. Despite these documents, the Assessing Officer adopted the lower value mentioned in the sale deed and recomputed the capital gains.

The Tribunal observed that once the assessee had successfully demonstrated through independent evidence that the actual consideration paid was higher than the amount recorded in the sale deed, the Revenue could not insist on adopting the sale deed value as the cost of acquisition. The Tribunal accepted the certificate and receipts issued by the cooperative society as reliable evidence of the actual purchase price and directed that the indexed cost of acquisition be computed accordingly.

The Tribunal also struck down the Assessing Officer’s action of restricting the cost of improvement to 30%. It noted that in the earlier round of litigation the Tribunal had remanded only the issue relating to verification of the cost of acquisition. Since the cost of improvement was never a disputed issue in the original remand proceedings, the Assessing Officer exceeded the scope of the remand by making a fresh disallowance on that count. The Tribunal therefore directed the AO to allow 100% of the cost of improvement claimed by the assessee.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 04/07/2025 in respect of the A.Y. 2014-15.

2. The brief facts of the case are that the assessee is a Director in a private limited company and filed his return of income on 13/12/2014. The case was selected for scrutiny and an order u/s. 143(3) was passed by taking the cost of acquisition as Rs 5,00,794 based on the purchase deed. Aggrieved by this order, the assessee filed an appeal before the Ld.CIT(A) and the same was dismissed on 07/02/2018.

3. Subsequently, the assessee filed an appeal before the Tribunal and the Tribunal by an order dated 13/09/2019 in ITA No. 1093/Bang/2018 had set aside the issue to the file of the AO for fresh decision after examining the nature of the difference between the amount of cost of acquisition as per the purchase deed and as per the certificate issued by the Telecom Employees’ Co-operative Housing Society Ltd. dated 17/01/2017. The Tribunal also held that the revenue cannot reduce the cost of acquisition based on the sale consideration mentioned in the sale deed when the assessee was able to establish that the actual cost of acquisition of the property in question is Rs. 12,29,982/- as claimed by the assessee.

4. Pursuant to the said remand, the AO had issued notice u/ s. 142(1) seeking the documentary evidence for the above said difference. The assessee again submitted the letter issued by the Telecom Employees’ Co­operative Housing Society Ltd. as a proof for the payment of the cost of Rs. 11,53,125/-. The AO had not accepted the explanation offered by the assessee as well as the confirmation letter given by the housing society and proceeded to take the cost of acquisition of the property at Rs. 5,00,794/-and arrived the indexed cost of acquisition at Rs. 9,46,168/-. The AO had also disallowed the 30% of the development expenses in the absence of proper vouchers and the indexed cost of expenses has been arrived at Rs. 13,29,619/-. Based on the above, the long term capital gain was recomputed by the AO at Rs. 24,24,213/-.

5. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and contended that the disallowance of the cost of acquisition and improvement is not in accordance with provisions of the Act. Unfortunately, the assessee had not responded to the various hearing notices and therefore the Ld.CIT(A) had dismissed the appeal filed by the assessee.

6. As against the said order, the present appeal has been filed by the assessee before this Tribunal.

7. At the time of hearing, the Ld.AR submitted that the assessee had purchased the property for a total sale consideration of Rs. 11,92,923/- as evidenced from the certificate given by the seller M/s. Telecom Employees’ Co-operative Housing Society Ltd. and after adding the registration and stamp duty charges, the actual cost of acquisition of the property comes about Rs. 12,29,982/-. The Ld.AR further submitted that because the guideline value is lesser than the actual cost of the property, to avoid the payment of the stamp duty, the guideline value has been mentioned in the sale deed and therefore the same should not be taken as the cost of acquisition of the property. The Ld.AR further submitted that in support of the said claim, the assessee had submitted the certificate issued by the allottee and therefore without any other evidence, the non-acceptance of the same by the authorities are not in accordance with the provisions of the Act. The Ld.AR further submitted that the Tribunal in the earlier round had accepted the said contention and remitted the issue for fresh decision after examining the nature of the difference between the amount of cost of acquisition as per the purchase deed and as per the certificate issued by the Telecom Employees’ Co-operative Housing Society Ltd. The Ld.AR further submitted that the assessee had explained the reasons for the said difference and also enclosed the copies of the receipts issued by the society while receiving the sale consideration from the assessee. The Ld.AR also filed a paper book enclosing the certificate dated 17/01/2017 and the three receipts issued by the society on 08/05/2004, 15/09/2005 and 16/09/2005 to show that the assessee had paid the consideration of Rs. 11,53,125/- against the allotment of Site No. 287 at Woods Enclave Layout, Bangalore. The Ld.AR relied on the said documents and prayed to allow the appeal filed by the assessee.

8. The Ld.DR on the other hand submitted that the assessee had not furnished the required details before the AO as well as before the Ld.CIT(A) and therefore the order of the lower authorities may be confirmed.

9. We have heard the arguments of both sides and perused the materials available on record.

10. The AO in the first round had not accepted the cost of acquisition as claimed by the assessee by relying on the sale deed. In the sale deed, the cost of acquisition has been mentioned as Rs. 4,61,250/- as against the actual cost of acquisition Rs. 11,53,125/-. The assessee had actually paid a sum of Rs. 11,53,125/- as the cost of the plot from the Telecom Employee’s Co-operative Housing Society Ltd. but the guideline value of the Government was less than the actual cost of the plot and therefore the assessee had mentioned the guideline value in the sale deed in order to avoid the payment of the extra stamp duty. No doubt, this is not correct but insofar as the proceedings under the Income Tax Act are concerned, we need not bother about the said act done by the assessee. In support of the said contention, the assessee had furnished the copy of the certificate given by the said society which acknowledges the receipt of Rs. 11,53,125/- towards the cost of the Site No. 287 at Woods Enclave 1. We have also gone through the three receipts issued by the said society in which the society had mentioned the sum of Rs. 11,53,125/- as received towards the cost of the Site No. 287, Woods Enclave 1. Therefore the assessee is able to demonstrate that the actual cost of the acquisition of the property is Rs. 11,92,923/- which includes the registration and stamp duty charges. On that basis, the assessee had arrived the indexed cost of acquisition at Rs. 23,23,849/-. Based on the said cost, the long term capital gain was computed by the assessee.

11. We do not think that the assessee had not calculated the indexed cost of acquisition correctly. The value mentioned in the sale deed would not be taken as the cost of acquisition of the property when the assessee was able to demonstrate that he had paid more amount than the one mentioned in the sale deed. Apart from the certificate issued by the society, the assessee had produced the receipts for the payment of the cost towards the said plot. Even though the assessee had explained the difference between the amount mentioned in the sale deed and the actual amount paid towards the sale consideration, unfortunately the authorities below had failed to consider the said details and granted the benefit in accordance with law.

12. The assessee had not appeared before the Ld.CIT(A) but before us, it was demonstrated that the cost of acquisition is not the amount mentioned in the sale deed. Therefore to render justice, we are considering the said documents and found that the assessee’s claim is in order. No purpose would be solved if the matter has been remitted to the file of the AO when the details are available before us and not disputed by the authorities. We therefore, accept the cost of acquisition given by the assessee while computing the long term capital gain.

13. Insofar as the estimation of the cost of improvement at 30% of the actual expenses, we are not in agreement with the order of the AO since the Tribunal in the earlier round had remitted for the purpose of verifying the fact of difference between the cost of acquisition mentioned in the sale deed and the actual cost shown in the certificate issued by the society. In the earlier order, there is no discussion about the estimation of the cost of improvement and the Tribunal had also not discussed this issue while remitting the issue to the file of the AO. In such circumstances, in the second round , the AO cannot make an addition in respect of the cost of improvement which was not in dispute before the earlier round of litigation. We therefore, direct the AO to grant the 100% of the cost of improvement instead of restricting it into 30%.

14. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 09th June, 2026.