Mumbai: The income tax appellate tribunal (ITAT) has ruled that no capital gains tax can be levied where the sale consideration of a property is equal to its purchase cost, even if the I-T officer had initially held otherwise due to lack of documentation.In a recent order, the Mumbai bench of the tribunal allowed the appeal of taxpayer Kamini V, deleting an addition of Rs 42.5 lakh made by the tax department under the head ‘short-term capital gains’ for 2015-16. The case pertained to a jointly owned residential property purchased by a couple for Rs 85 lakh and sold two years later for the same amount. The I-T officer had treated the taxpayer’s 50% share of Rs 42.5 lakh as taxable gains, citing absence of supporting evidence during reassessment proceedings. The taxpayer submitted that while this amount did represent her share of sale proceeds, the I-T officer failed to deduct the cost of acquisition of Rs 42.5 lakh and the proportionate stamp duty of Rs 2-odd lakh to compute the short-term capital gains. In simple terms, capital gains are the sale proceeds minus the cost of acquisition and associated costs such as stamp duties. If both these items were considered, no capital gains would arise. Thus, the addition of Rs 42.5 lakh made by the I-T officer should be set aside, said the taxpayer. She further submitted that in her husband’s case, the matter was re-opened and the same transaction of purchase and sale was examined. It was held that the selling price and the purchase price of the immoveable property were exactly the same and, thus, no income arose under the head ‘short-term capital gains’. The tribunal noted that the taxpayer had subsequently furnished documents establishing that the purchase and sale values were identical. It also took into account that in the case of the co-owner (the taxpayer’s husband), the tax department had already accepted that no capital gains arose from the same transaction. The ITAT ruled in favour of the taxpayer. It also condoned a delay of 19 days in filing the appeal, noting that the taxpayer had demonstrated “reasonable cause” for such delay, which was supported by an affidavit. Tax experts said that this ITAT order reinforces the principle that capital gains taxation requires a real profit element and cannot be imposed where there is no actual gain.
