NARMADA RAJAGOPALAN,BANGALORE vs. ACIT, CIRCLE-4(3)(1), BANGALORE

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ITA 285/BANG/2026Status: DisposedITAT Bangalore03 September 2026AY 2012-1312 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the cost of improvement should be accepted based on the engineer's valuation report as the lower authorities failed to point out defects and arbitrarily estimated costs. However, the claim for interiors was dismissed due to lack of supporting evidence.

What were the facts?

The assessee claimed deductions for cost of improvement and interiors for a property sale. The Assessing Officer (AO) disallowed these claims due to lack of documentary evidence. The CIT(A) partially confirmed the disallowance.

What were the issues?

Whether the cost of improvement is sufficiently substantiated by documentary evidence, and whether expenses on interiors are eligible for deduction under Section 54F without proof.

Which sections of the Income-tax Act were involved?

Section 54F,Section 143(3),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

For Appellant: CA Suman Lunkar, A.R
Hearing: 18.06.2026Pronounced: 03.09.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 17.11.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1082683296(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2012-13.

2.

The assessee has raised the following grounds of appeal: -

1.

The learned Commissioner of Income tax (Appeals) has erred in partially confirming the assessment order passed. The order passed by CIT(A) to the extent confirming the assessment order is bad in law and such order is liable to be quashed.

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 2 of 12 2. In any case and without prejudice, the learned CIT(A) has erred in partially upholding the assessment order passed by the assessing officer without properly appreciating the facts of the case. The learned CIT(A) should have on the facts of the case quashed the order passed by the assessing officer rather than partially upholding the order passed by the assessing officer.

3.

In any case and without prejudice, the learned CIT(A) has erred in partially confirming the disallowance made by the Assessing officer on account of cost of improvement to the extent of Rs. 48,16,914/- as against Rs. 1,00,22,500/- made by the Assessing officer on the ground that the appellant has not proved the cost of improvement with documentary evidences. On proper appreciation of facts and the law applicable, the cost of improvement claimed is duly supported with documentary evidences and same is to be accepted in entirety.

4.

In any case, the learned CIT(A) has erred in holding that CPWD plinth area rates are to be adopted for arriving at the cost of improvement of the property as against the actual cost of improvement incurred by the Appellant. The conclusion drawn by the CIT(A) is erroneous both on facts and law and is to be rejected and the actual cost of improvement as claimed by the appellant is to be allowed.

5.

The learned CIT(A) has erred in confirming the denial of deduction claimed u/s 54 of the Act to the extent of Rs. 5,10,300/- holding that the appellant has not proved the amounts spent on interiors with documentary evidences. On the facts and circumstances of the case, the amounts spent on interiors are duly proved and same is to be allowed as deduction u/s 54 of the Act as claimed by the appellant.

6.

The appellant denies the liability to pay interest u/s 234B and 234C of the Act. The interest having been levied erroneously is to be deleted.

7.

In view of the above and on other grounds to be adduced during the hearing, it is requested that the impugned order be quashed or at least the disallowance of cost of improvement as sustained be deleted, deduction u/s 54 of the Act be allowed and levy of interest u/s 234B & 234C also be deleted.

3.

The brief facts of the case are that the assessee filed her return of income for the AY 2012-13 on 30.07.2012 declaring total

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 3 of 12 income of Rs.49,51,880/-. The income returned consist of “income from house property” amounting to Rs.2,16,855/-, long term capital gainamounting to Rs.45,91,605/- after claiming deduction u/s 54F of the Act amounting to Rs.92,93,395/- and “income from other sources” amounting to Rs.1,43,421/-. The said return was thereafter processed and accordingly intimation u/s 143(1) of the Act was passed by accepting the income returned. Subsequently, the case was selected for scrutiny through CASS and accordingly notices u/s 143(2) of the Act as well as u/s 142(1) of the Act were issued. In response to the notices, the ld. A.R. of the assessee appeared from time to time and filed the details as called for.

3.1. During the course of assessment proceedings, the AO observed that the assessee had sold a residential/commercial property situated at No.622, HAL II Stage, Bangalore 560 008 for a total sales consideration of Rs.2,50,00,000/- and had claimed deduction for brokerage expenses of Rs.7,00,000/-, for indexed cost of acquisition of Rs.3,92,500/- and indexed cost of improvement amounting to Rs.1,00,22,500/- to arrive at the long term capital gain of Rs.1,38,85,000/-. Further, the assessee had also claimed a deduction of Rs.92,93,395/- u/s 54F of the Act towards the purchase of new residential property and accordingly, declared net taxable long term capital gain of Rs.45,91,605/-.

3.2 Further, on going through the details/documents furnished by the assessee, the AO seen that the assessee had claimed the cost of improvement amounting to Rs.52,75,200/- and Rs.47,47,300/- for which assessee had not given any proof towards suchcost of improvements. The AO also noticed that the assessee had claimed an amount of Rs. 5,10,300/- on account of interiors as part of deduction u/s 54F of the Act. The AO in the absence any proof issued the SCN proposing to disallow the above claims. The

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 4 of 12 assessee vide letter dated 29/12/2014 submitted that initially the building was constructed during the financial year 1981-82 by her late husbandby spending ₹ 6,72,000/-. Subsequently, during the financial year 2003-04, the additional construction was done by spending amount of ₹ 28 lakhs by availing housing loan of ₹ 24 lakhs. The assessee also furnished the saving Bank account statement maintained with the Indian Bank for the period from 9/3/2006 to 24/6/2014 along with the interest certificate for the home loan account for the period 1/4/2011 to 31/03/2012. The AO held that the certificate produced by the assessee cannot prove that the loan was taken for the purpose of construction of the said residential property by availing the loan. The AO further held that as the assessee had not furnished the loan disbursal certificate, loan sanction letter from the bank in support of her claim, the cost of improvement cannot be accepted and needs to be disallowed. Further, in the absence of any proof, the amount of ₹ 6,72,000/- spent by her late husband also was not accepted as true and correct and accordingly the indexed cost of improvement amounting to ₹ 52,75,200/- and ₹ 47,47,300/- totaling to ₹ 1,00,22,500/- was disallowed and added back to the total income under the head long term capital gains.

Further, the assessee had incurred ₹ 5,10,300/- on account 3.3 of interiors & claimed the deduction under section 54F of the Act as part of cost of acquisition of new residential house. The assessee submitted that she had spent ₹ 5,10,300/- towards the interiors of the flat and got it done by engaging the local carpenters under her personal supervision.The AO, in the absence of any proof, disallowed the amount of ₹ 5,10,300/- as claimed by the assessee and added back to the total income under the head long term capital gains. Thus, the AO completed the assessment proceedings on a total assessed income of Rs. 1,54,84,680/-.

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 5 of 12 4. Aggrieved by the assessment order of the AO dated 30/12/2014 passed under section 143(3) of the Act, the assessee preferred an appeal before the learned CIT(A) /NFAC.

5.

During the course of Appellate proceedings, the assessee had submitted the additional evidences such as copy of release deed, sanction plan, engineer valuation report and sanction letter of loan taken from bank in support of the claim for cost of improvement. The ld. CIT(A)/NFAC after admitting the additional evidences furnished by the assessee, forwarded the same to the AO for the submission of remand report. The AO in the remand report after examining the engineer’s valuation report dated 19.7.2001 observed that the building having constructed area of 1,605 sq.ft. constructed by her late husband in the year 1985 and not in 1981as claimed by the assessee. Further, the AO observed that the assessee’s claim of Rs.6,72,000/-, which works out to Rs.418/- per sq.ft. appeared to be very much on higher side. The AO therefore, held that Rs.100/- per sq.ft. would be reasonable rate of cost of construction and accordingly worked out the cost of construction at Rs.1,60,500/-. Further, with regard to construction of building of 1482 sq.ft. in 2003-04 amounting to Rs.28,00,000/-, which works out to 1889 per sq.ft. again very much on the higher side. The AO held that Rs.600/- per sq.ft. would be a reasonable rate of cost of construction and for constructed area of 1482 sq.ft. worked out the cost of construction at Rs.8,89,200/- during the financial year 2003-04. The assessee in the rejoinder submitted before the ld. CIT(A)/NFAC that there is no basis stated by the AO for adopting Rs.100/- per sq.ft. for construction of building and Rs.600/- per sq.ft. for the extension. The learned CIT(A)/NFACthereafter observed that the assessee had not furnished any bills/vouchers in support of cost of construction claimed at Rs.6,72,000/- in the year 1981-82 and Rs.28,00,000/- in the year 2003-04. Further, the

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 6 of 12 assessee had also not given any basis in support of her claim that the cost of construction incurred was Rs.6,72,000/- in the year 1981-82. The assessee in support of her claim of cost of construction incurred amounting to Rs.28,00,000/- in the year 2003-04 had relied solely on the amount of loan taken from the bank for the construction. The ld. CIT(A)/NFAC held that in the absence of any documentary evidences, the action of the AO in the remand report to estimate the cost of construction based on other documents furnished is found to be correct and proper.

5.1 However, considering the fact that the AO has not given any basis for adopting rate of Rs.100/- per sq.ft. and Rs.600/- per sq.ft. in the year 1985-86 and 2003-04 respectively in the remand report, the ld. CIT(A)/NFAC proceeded with to apply CPWD Plinth area rates – 1976 to arrive at the estimated cost of construction of 1605 sq.ft. area in the year 1985-86 amounting to Rs.2,23,095/- (139 x 1605) and finally estimated the cost of construction at Rs.2,50,000/- in the year 1985-86. Further, with regard to cost of construction in the year 2003-04 the ld. CIT(A)/NFAC calculated the estimated cost of construction of 3000 sq.ft. area in the year 2003-04 amounting to Rs.20,40,000/- (680 x 3000) and finally estimated at Rs.22,00,000/- in the year 2003-04. Consequently, the claim of the assessee for indexed cost of improvement is allowed for Rs.52,05,586/- (14,75,564 + 37,30,022) and the disallowance made by the AO at Rs.1,00,22,500/- in the assessment order is restricted to Rs.48,16,914/-.

5.2 Further, with regard to claim of deduction to the extent of Rs.5,10,300/- u/s 54F of the Act, the ld. CIT(A)/NFAC observed that even during the remand proceeding also the assessee had not furnished any supporting evidences with regard to the amount of Rs.5,10,300/- spent on the interior of new residential property and

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 7 of 12 therefore, the ld. CIT(A)/NFAC sustained the disallowance made by the AO of Rs.5,10,300/- out of the deduction claimed u/s 54F of the Act.Thus, the ld. CIT(A)/NFAC partly allowed the appeal of the assessee.

6.

Again, aggrieved by the order of ld. CIT(A)/NFAC dated 17.11.2025, the assessee has filed the present appeal before this Tribunal.

7.

Before us, the ld. A.R. of the assessee vehemently submitted that the AO without calling for any information had disallowed the claim of cost of improvement solely on the ground that the assessee cannot prove that loan was taken for the purpose of construction of the said property and the assessee has not furnished the loan disbursal certificate and loan sanction letter from the bank in support of the claim. It is submitted that the ld. CIT(A)/NFAC on the other hand, estimated the cost of construction/improvement on his own by ignoring engineer’s valuation report and summary furnished by the assessee. The ld. CIT(A)/NFAC although considered the year of construction as 1985 mentioned in the valuation report by ignoring the plea of the assessee that the construction was made by the late husband of the assessee in the year 1981-82 but on the other hand rejected the valuation of the engineer without assigning any reason. Lastly, with regard to disallowance of claim of Rs.5,10,300/-, the ld. A.R. of the assessee submitted that since already 13 years have elapsed, it is not possible to submit proof towards interiors of the flat as it was done under personal supervision by engaging local carpenters.

8.

The ld. D.R. on the other hand, vehemently submitted that the assessee did not furnish any bills/vouchers in support of the cost of improvement claimed at Rs.6,72,000/- in the year 1981-82

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 8 of 12 and Rs.28,00,000/- in the year 2003-04. Further, the ld. D.R. submitted that the assessee had also not given any basis in support of her claim towards cost of improvement as well as expenses incurred towards interior claimed u/s 54F of the Act and accordingly prayed to dismiss the appeal of the assessee.

9.

We have heard the rival submissions and perused the materials available on record. In the present case, the core issue for adjudication is the allowability of the amount of cost of improvement of the building claimed to have incurred in the year 1981-82 amounting to Rs.6,72,000/- by the late husband of the assessee and Rs.28,00,000/- in the year 2003-04 by obtaining the housing loan amounting to Rs.24,00,000/-. We take a note that both the authorities below have not disputed the fact that the construction had been done on the said building. The dispute is first with regard to year of construction & the cost of improvements. The assessee claimed that initially the building was constructed by her late husband in the FY 1981-82 whereas both the authorities below considered the initial construction year as 1985 as per the Engineers valuation report dated 19/07/2001. It is also an undisputed fact that before both the authorities below, the assessee could not produce any bills/vouchers in support of the cost of construction/improvement except Indian Bank SB account statement and Interest certificate for home loan. The assessee during the course of Appellate proceedings had submitted additional evidences by way of release deed, sanction plan, engineer’s valuation report and summary and sanction letter of the loan from bank as the AO rejected the entire cost of improvements firstly on the ground that in the absence of any proof of Rs.6,72,000/- spent by the late husband cannot be accepted as true & correct and secondly the assessee did not furnish loan disbursal certificate & loan sanction letter from bank.

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 9 of 12 We also observed that during the course of assessment proceedings, the AO without further calling for any details of construction/improvement disbelieved solely on the ground that the assessee cannot prove that the loan was taken for the purpose of construction of the said residential property by availing loan and the assessee had also not furnished the loan disbursal certificate and loan sanction letter from the bank in support of her claim. On perusal of the order of ld. CIT(A)/NFAC, we observed that the same AO in his remand report dated 02/03/2020 vide F No. Rem. Rep/ACIT-C-4(2)(1)/2019-20 after considering the auction sale deed, copy of the building plan approval and the engineer’s valuation report dated 19/07/2001 had considered the construction year 1985-86 as mentioned in the report for the purposes of calculation of LTCG. However, the AO did not accept the cost of construction as valued by the engineer vide his valuation report by merely saying that the cost of construction per Sq. ft. appears to be very much on higher side & estimated the cost of construction per Sq. ft. on his own which the AO thinks to be reasonable.

9.1 We are of the considered opinion that the AO on the one hand had picked & choose the construction year 1985-86 as mentioned in the valuation report for his support by rejecting the assessee’s contention of the construction year 1981-82, however estimated the cost of construction on his own assumption & surmises saying to be reasonable that too without giving any basis or sensible explanation. We take note of the fact that the ld. CIT(A)/NFAC is also of the opinion that the AO had not given any basis for adopting rate of Rs.100/- per sq.ft. and Rs.600/- per sq.ft. in the year 1985-86 and 2003-04 respectively in the remand report. Surprisingly, the ld. CIT(A)/NFAC also thereafter proceeded with the estimating the cost per sq. ft by taking the “CPWD Plinth Rates-

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 10 of 12 1976” as on 01/10/1976 & applied the cost indices for the year 1985 & 2003-04 in order to arrive at his estimated cost of construction/ improvement. Further while doing so, the ld. CIT(A)/NFAC not only picked & choose the construction year 1985- 86 as mentioned in the valuation report but also picked & choose the area of construction from the sale deed as well as Sanction ticket dated 24/09/2003 for the additional premises loan. We are of the considered opinion that even the ld. CIT(A)/NFAC also failed to point out any defects in the valuation report & stepped into the shoes of the civil engineer/Valuer & taken his own suitable method of “CPWD Plinth Rates-1976” as on 01/10/1976 & applied cost indices for the year 1985 & 2003-04 in order to arrive at the estimated cost of improvement. We failed to understand if both the authorities below were not in agreement with the valuation report as submitted by the assessee then what prevented them to refer the same to the another Valuer for the estimation as per the provisions of the Act. In our considered opinion, both the authorities having no expertise knowledge as of civil engineer/ Valuer of the properties calculated the cost of construction/ improvement best suited to them. Both the authorities below failed to point out any defects in the valuation report. The AO adopted the rate of Rs.100/- per sq.ft. and Rs.600/- per sq.ft. in the year 1985-86 and 2003-04 respectively by merely stating that the cost of construction per Sq. ft. appears to be very much on higher side. No reason was also given by the ld. CIT(A)/NFAC for not accepting cost of construction as valued by the Valuer. In our considered opinion the ld. CIT(A)/NFAC grossly erred in applying the CPWD Plinth Rates-1976 on his own by rejecting the Government approved Engineer’s valuation report dated 19/07/2001 especially the CIT(A)/NFAC having no knowledge of technicalities of valuation of building & also did not point out any error/defects in the valuation report. In our considered opinion, in the absence of any bills/vouchers & basis in

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 11 of 12 support of the cost of construction, the valuation report as given by the Government approved Engineer’s valuation report dated 19/07/2001 should be accepted in the absence of any adverse material brought on record by the authorities below. In view of the above, we set-aside the order of the CIT(A)/NFAC & direct the AO to accept the cost of improvement as claimed by the assessee. Accordingly, this ground of appeal of the assessee is allowed.

9.2 Now coming to the disallowance with regard to the claim of deduction to the extent of Rs.5,10,300/- u/s 54F of the Act, undisputedly the assessee before the both the authorities below could not furnished any supporting evidences/bills/ vouchers with regard to the amount of Rs.5,10,300/- spent on the interior of new residential property. The AR of the assessee before us also expressed her inability to substantiate the claim by saying that substantial time has already elapsed & the assessee cannot furnish any bills & vouchers in support of incurring Rs. 5,10,300/- on account of interiors & claimed the deduction under section 54F of the Act as part of cost of acquisition of new residential house. In view of the above, the claim of the assessee for deduction u/s 54F cannot be allowed. Accordingly, this ground of appeal of the assessee is dismissed.

10.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 3rd Sep, 2026

Sd/- Sd/- (Waseem Ahmed) (Keshav Dubey) Accountant Member Judicial Member

Bangalore, Dated 3rd Sep, 2026. VG/SPS

ITA No.285/Bang/2026 Narmada Rajagopalan, Bengaluru Page 12 of 12

Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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