No Disallowance of Cost of Improvement Just Because It Wasn’t Mentioned in Sale Deed | ITAT

Case Details: Nagajyothi Myneni vs. ADIT (Int-Taxn.) - [2025] 173 taxmann.com 101 (Hyderabad-Trib.)

Judiciary and Counsel Details

• Vijay Pal Rao, Vice President & Manjunatha G., Accountant Member
• P. Murali Mohan Rao, CA, for the Appellant.
• B. Bala Krishna, CIT-DR for the Respondent.

Facts of the Case

Assessee-individual, a non-resident, sold an immovable property during the relevant assessment year. While computing the long-term capital gains, the assessee claimed the cost of acquisition with indexation, including additional amount spent on cost of interiors and modifications. The assessee declared long-term capital gains in the return of income.

During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee made additional payments for the cost of acquisition, which were not mentioned in the purchase deed. The assessee also made payments for infra expenses and additional interior works, which were not mentioned in the deed. Thus, AO disallowed the claim of the assessee for cost of acquisition and improvement and computed the long-term capital gains accordingly.

Aggrieved by the order, the assessee preferred an appeal to the Hyderabad Tribunal.

ITAT Held

The Tribunal held that the assessee paid an additional amount to the seller for the purchase of the property. The seller confirmed the receipt of the amount towards the additional consideration put-up in the property. Once the assessee furnished relevant evidence, including confirmation from the seller, and proved that an additional amount has been paid for the purpose of purchase of the property, it cannot be said that the amount paid by the assessee is not for the purpose of purchase of the property.

Similarly, the assessee paid a sum to the original developer of the property for infra expenses. Although the assessee purchased the property from the seller, the property was under the maintenance from the developer. While transferring the property to the assessee, whatever dues payable to the developer has been cleared by the assessee. This fact has been confirmed by the developer. Therefore, it cannot be said that the payment is not for the purpose of purchase of the property.

Likewise, the assessee claimed that she had paid a sum for carrying out further interior works to the flat after she purchased it. To support her contention, the assessee furnished a bill from the contractor. When the payment is made by cheque and the person who carried out the work has confirmed the payment for the purpose of interior works, merely for the reason of no VAT registration for the vendor, the genuineness of payment cannot be doubted.

Since the assessee furnished relevant evidence to prove payment to the contractor for carrying out interior works, the said payment is in the nature of the cost of improvement to the building, and the same needs to be allowed as the cost of acquisition and improvement while computing long-term capital gains from the sale of property.

List of Cases Referred to

• Pr. CIT v. Flextronics Technologies (India) (P.) Ltd. [2023] 148 taxmann.com 123/459 ITR 493 (Karnataka) (para 3.1)
• CIT v. Daulat Enterprises [2018] 94 taxmann.com 261 (Rajasthan) (para 3.1)
• ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of India [2016] 68 taxmann.com 377/241 Taxman 38/388 ITR 383 (Delhi) (para 3.1)
• Software Paradigms Infotech (P.) Ltd. v. Asstt. CIT [2018] 89 taxmann.com 339 (Bangalore – Trib.) (para 3.1)
• S. P. Balasubramaniam v. Asstt. CIT [2017] 81 taxmann.com 154/248 Taxman 326/399 ITR 191 (Madras) (para 3.2).