I have a query regarding the computation of Long Term capital gains under the Income-tax Act, 1961.
A land was purchased in 2004 for ₹2,98,000. In 2005, a building was constructed on the said land, and the total cost of construction was approximately ₹60,00,000. Before selling of land, the building was demolished, and the property was sold as vacant land for ₹1,90,00,000. and in the sale deed it is mentioned that it is a vacant land.
My question is: While computing the capital gains on the sale of the property, can the ₹60,00,000 incurred towards construction of the building be considered as the "cost of improvement", even though the building was demolished before the sale? Alternatively, should only the original cost of acquisition of the land (₹2,98,000) be considered for computing the capital gains, since the asset transferred at the time of sale was vacant land?
I would appreciate guidance on the correct legal position, particularly regarding the applicability of the cost of improvement in case a building constructed on the land is subsequently demolished before the sale.
Any relevant case law, CBDT circular, or judicial precedent would also be helpful.
Thank you.
CAclubindia
