Property Sale Tax Dispute: ITAT Remands Indexed Cost Disallowance Case Back to AO for Re-Examination
Yerragudi Venkata Siva Reddy has filed an appeal against the Income Tax Authorities in the ITAT Hyderabad, challenging an order dated June 10, 2025, passed by the CIT(A)/NFAC Delhi. The case pertains to the Assessment Year 2017-18.
The Income Tax Appellate Tribunal (ITAT), Hyderabad “B” Bench, comprising Vice President Shri Vijay Pal Rao and Accountant Member Shri Manjunatha G., announced its decision in the present matter on February 20, 2026.
The dispute concerns the disallowance of Rs. 11.24 lakh claimed as indexed cost connected to the demolition of a structure on land sold during the year. In 2012, the assessee purchased a property and sold it in 2017 for Rs. 2 Crore. The assessee filed its income tax return (ITR) for the year in consideration, declaring total income at Rs. 55.31 lakh. The Assessing Officer (AO) completed the assessment by making an addition amounting to Rs. 3.42 crore and thereafter assessed the total income of the assessee at Rs. 3.98 crore.
Later, the Principal Commissioner revised the order under Section 263. In the fresh order passed thereafter, the Assessing Officer disallowed the indexed cost claim related to demolition. When the assessee approached the CIT(A), the CIT(A) noted that the property was sold as vacant land and that no proper evidence of demolition expenses was furnished. Therefore, the disallowance made by the AO was confirmed.
When the appeal was filed before the tribunal, neither the assessee nor anyone else on behalf of the assessee appeared in the hearing. Merely hearing the tax authorities and analysing the facts of the case, the tribunal noted that the CIT(A) had not clearly examined whether the structure actually existed and whether demolition was necessary for transfer. The Tribunal observed that if demolition expenses were genuinely incurred to improve or facilitate the sale, they could qualify as the cost of improvement or transfer under Section 48.
Since proper evidence was not on record, the Tribunal sent the case back to the AO for fresh examination and verification of facts. The appeal was thus allowed for statistical purposes.
Citation: Yerragudi Venkata Siva Reddy Vs ACIT (ITAT Hyderabad); ITA No.1294/Hyd/2025; 20/02/2026; 2017-2018
