MUMBAI: The Income Tax Appellate Tribunal (ITAT) has determined that capital gains tax cannot be applied when the sale price of a property matches its purchase price, despite initial disagreements from the I-T officer due to documentation issues.
In a recent decision, the Mumbai bench of the tribunal supported the appeal from taxpayer Kamini V, reversing a Rs 42.5 lakh addition made by the tax department under ‘short-term capital gains’ for the fiscal year 2015-16.
The case involved a jointly owned residential property bought for Rs 85 lakh and sold two years later for the same amount. The I-T officer had classified Kamini’s 50% stake of Rs 42.5 lakh as taxable gains, citing a lack of supporting documentation during reassessment.
The taxpayer argued that while this amount did reflect her share of the sale proceeds, the I-T officer neglected to deduct her Rs 42.5 lakh acquisition cost and the associated stamp duty of approximately Rs 2 lakh in calculating the short-term capital gains.
In simple terms, capital gains are calculated as the sale proceeds minus the purchase cost and related costs, such as stamp duties. Since both values were equal, there should be no capital gains tax. Therefore, the Rs 42.5 lakh addition by the I-T officer should be annulled, stated the taxpayer.
Furthermore, she pointed out that in her husband’s case, the same transaction was reviewed following a reassessment, leading to a conclusion that as the sale price equaled the purchase price, no short-term capital gains existed.
The tribunal acknowledged that the taxpayer provided documentation verifying that the purchase and sale amounts were identical. Additionally, it recognized that in her husband’s case, the tax department had already accepted that no capital gains were generated from this transaction. The ITAT ruled in favor of the taxpayer.
It also approved a 19-day delay in filing the appeal, noting that the taxpayer had shown “reasonable cause,” supported by an affidavit.
Tax experts stated that this ITAT ruling reinforces the notion that capital gains tax should only apply when there is a real profit element, and cannot be imposed in the absence of actual financial gains.
