Kapoor had sold the some 1,000-year-old idol to David Owsley Museum of Art at Ball State University, concealing the true identity of the artifacts.
The bronze idol is now under the custody of US Immigration and Customs Enforcement's Homeland Security Investigations and would be repatriated to India along with six other sacred Chola bronzes recovered by HSI, said an official release.
Kapoor is currently in custody in India awaiting trial for allegedly looting tens of millions of dollars' worth of rare antiquities from several nations.
Over the last three years, HSI special agents have executed a series of search warrants targeting Kapoor's Manhattan gallery, along with warehouses and storage facilities linked to the dealer, an official release said.
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Kapoor displayed the Shiva and Parvati sculpture for sale and misrepresented the idol's true origin.
"In 2005, representatives from Ball State University became unwitting victims as Kapoor provided the museum with a false provenance for their artifact. Kapoor had a fraudulent provenance attributed to Leo Figiel that placed the artifact back to a US collection in 1969," HIS said.
"The Festival Bronze of Shiva and Parvati was the only work of art in this museum's collection purchased from Kapoor. Homeland Security Investigations has presented convincing evidence that the work was stolen and its documentation falsified," said said Robert La France, director of the David Owsley Museum of Art.