Double Addition of Long-Term Capital Gains Disallowed: Key Takeaways from ITAT Delhi in Gaurav Dye House Vs ITO

The Delhi Bench “E” of the Income Tax Appellate Tribunal (ITAT) in Gaurav Dye House Vs ITO (AY 2022-23) has delivered an important ruling on computation of long-term capital gains (LTCG), especially on:

  • Prohibition on double taxation of the same capital gain, and
  • Correct method of granting indexation on cost of acquisition, cost of improvement, and registration-related expenses.

The Tribunal held that once an assessee has already disclosed LTCG in the return of income, the Assessing Officer (AO) cannot recompute LTCG without giving due credit for the amount already offered, as that would lead to an impermissible double addition. Further, it clarified that indexation must be allowed from the actual dates of payment, and not merely from the date of registration, in the absence of any statutory support for such an approach.

Background of the Case

Basic Facts

  • The assessee, a partnership firm, filed its return of income under Section 139(1) on 29.12.2022 declaring total income of Rs. 42,67,590/- for AY 2022-23.
  • For the relevant previous year, the firm did not carry on any regular business operations. Its total income comprised:
    • Income from house property: Rs. 8,40,000/-, and
    • Long Term Capital Gain (LTCG): Rs. 34,27,593/- from sale of an immovable property.
  • The case was picked up for scrutiny under CASS on the parameter:

    “Low Long Term Capital Gain and high improvement cost”

Notice under Section 143(2) was issued on 02.06.2023, followed by statutory notices under Section 142(1) and a final show cause notice.

After considering submissions, the AO completed assessment under Section 143(3) r.w.s. Section 144B on 25.03.2024, determining total income at Rs. 1,38,33,845/-, effectively making an addition of Rs. 95,66,255/- towards LTCG on sale of property.

First Appeal Before CIT(A)

The assessee challenged the assessment before the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The Ld. CIT(A), however, sustained the addition made by the AO and dismissed the appeal.

This led to a further appeal before the ITAT.

Grounds Raised Before the ITAT

The assessee placed multiple grounds before the Tribunal, all centered on the addition of Rs. 95,66,255/- as LTCG, including:

  1. The orders of the AO and CIT(A) were contrary to law and facts.
  2. The Ld. CIT(A) erred in upholding the enhancement of LTCG by Rs. 95,66,255/- on sale of property.
  3. Non-allowance of enhanced cost of Rs. 14,10,000/- (indexed at Rs. 16,43,272/-) paid as additional cost was erroneous.
  4. The authorities failed to consider that LTCG of Rs. 34,27,593/- had already been offered in the return of income, resulting in double addition.
  5. Indexation of stamp duty and registration charges of Rs. 6,56,600/- was wrongly denied.

Since all grounds were interconnected and related to LTCG computation on the same transaction, the Tribunal considered them together.

Tribunal’s Examination of Records

1. Cost of Acquisition and Date-wise Payments

The Tribunal examined:

  • The registered sale deed for purchase of the property (pages 8–15 of paper book), and
  • The computation of income furnished by the assessee (pages 4–7 of paper book).

It noted that:

  • The assessee had actually paid the purchase consideration and related charges on multiple dates, and these individual payments were clearly reflected in the registered document.
  • In the return, the assessee had claimed indexed cost of acquisition by applying indexation from the respective years in which the payments were made, not merely from the date of registration.