ASHISH KAPOOR, DURG,DURG vs. ITO, WARD-1(1), BHILAI, BHILAI

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ITA 203/RPR/2026Status: DisposedITAT Raipur30 July 2026AY 2020-217 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that expenses incurred for additions, alterations, and improvements to make a property habitable are includible in the 'cost of new asset' under Section 54F. The Tribunal followed the Karnataka High Court's decision in Rahana Siraj v. CIT.

What were the facts?

The assessee claimed expenses for parking, amenity charges, and interior works as part of the 'cost of new asset' for Section 54F exemption. The Assessing Officer (AO) and CIT(Appeals) disallowed these expenses, considering them as improvements beyond making the property habitable.

What were the issues?

Whether expenses incurred on interior works and amenities after purchasing a habitable property can be included in the 'cost of new asset' for capital gains exemption under Section 54F.

Which sections of the Income-tax Act were involved?

Section 54F,Section 48,Section 50C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR

Before: SHRI PARTHA SARATHI CHAUDHURY

For Appellant: Shri Ravi Agrawal, CA
For Respondent: Shri Piyush Tripathi, Sr. DR
Hearing: 27.07.2026Pronounced: 30.07.2026

आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM

The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 09.01.2026 for the assessment year 2020-21 as per the grounds of appeal on record.

2.

In this case, the Ld.CIT(Appeals)/NFAC has held and observed as follows: “In the present case, the AO has applied section 50C to substitute stamp duty value for one of the plots where the apparent consideration was significantly lower than the value adopted by the stamp valuation authority, and thereby computed long -term capital gain at Rs.83,44,627 instead of Rs.81,84,627. Once section 50C is triggered and the full value of consideration for the purpose of section 48 stands substituted, the resultant capital gain becomes the starting point for any exemption claim; allowing the assessee to still compute "net consideration" on the lower actual consideration for section 54F, while computing capital gains on the higher deemed consideration, would create a mismatch not contemplated by the statute and lead to artificial erosion of the taxable base. In the absence of any binding jurisdictional decision requiring such bifurcation, the AO's action in adopting the section 50C value for purposes of both capital gains computation and corresponding "net consideration" for section 54F is reasonable and consistent with the scheme of the Act. Further, even the material relied upon by the assessee (such as commentary and case-law digests discussing decisions like Lalit Kumar Kalwar Sarwar v. ITO) shows that the issue is debatable and fact-dependent, with courts emphasising that section 50C does not automatically override all other provisions but must be harmoniously

3 Ashish Kapoor Vs. ITO-1(1), Bhilai (C.G.) ITA No.203/RPR/2026

construed. In a reassessment proceeding, where the AO has already found understatement of sale consideration vis-a-vis stamp duty value and invoked section 50C, it would not be appropriate for the appellate authority to selectively apply a beneficial Tribunal view to enlarge section 54F exemption beyond the capital gains computed, especially when no evidence of genuine hardship or bona fide valuation dispute has been brought on record. This plea is, therefore, rejected and the AO's determination of net consideration at Rs. 93,91,000 is upheld. (ii) Parking/amenity charges and improvement expenses The assessee has also claimed that, over and above the purchase price and registration charges of Flat No. 301 in Onyx Vertica, an amount of Rs.1,95,779 paid to the builder towards parking, club house and other facilities, and Rs. 31,83,776 spent on interior works, modular kitchen, furniture, sanitary fittings, air conditioners, etc., incurred to make the flat habitable, should also be treated as part of "cost of new asset" for section 54F and that the AO erred in disallowing them despite accepting that these were not part of the sale deed. The assessee has relied on various judicial pronouncements such as: 1. Rahana Siraj v. CIT (Karnataka High Court), where expenses incurred on additions, alterations, modifications and improvements to make a property convenient for living were held includible in the "cost of new asset" under section 54F. 2. Tribunal decisions like Saleem Fazelbhoy v. DCIT, Y. Manjula Reddy v. ITO, Rustom Homi Vakil v. ACIT, Meher R. Surti v. ITO, K. Rajendra v. ITO, and G. Siva Rama Krishna v. DCIT, which have, on their specific facts, treated certain improvement, renovation or interior works as part of investment in the new residential house, particularly where the house was purchased in semi-finished or dilapidated condition or substantial structural work was done to make it habitable.

4 Ashish Kapoor Vs. ITO-1(1), Bhilai (C.G.) ITA No.203/RPR/2026

These authorities establish the general legal proposition that, in appropriate cases, genuine and necessary expenditure incurred to make a newly acquired residential house habitable or to complete its construction can form part of the cost of the new asset for purposes of sections 54 and 54F. However, they do not lay down an unconditional rule that all post-purchase expenditures on interiors, furnishings, air conditioners, modular kitchens, club facilities or aesthetic up-gradation must invariably be treated as cost of new asset, irrespective of the nature, timing and necessity of such expenses. In the present case, the assessee has not demonstrated, through independent evidence such as builder's certificate, photographs, municipal records or contemporaneous correspondence, that the flat was incomplete or uninhabitable at the time of purchase, or that substantial structural construction was required to render it fit for occupation. The bulk of the expenses cited (modular kitchen, wardrobes, furniture, sanitary fittings beyond standard fittings, air conditioners, club membership, etc.) are essentially improvements/additions aligned with the assessee's personal lifestyle preferences and comfort, and not indispensable to render a ready-to-occupy apartment habitable, especially in an organised project like "Onyx Vertica" where standard amenities and basic liveability are typically provided by the builder. Moreover: 1. There is a significant time-spread and variety in the claimed expenditure, suggesting phased interior decoration and up-gradation rather than a one-time effort to complete a semi-finished structure. 2. Some items, such as high-end interiors and appliances, are in the nature of movable assets or luxury improvements that neither form part of the immovable property's core cost nor are statutorily mandated for habitability. 3. Section 54F provides exemption proportionate to the amount of net consideration invested in "a residential house" and cannot be extended to treat every discretionary lifestyle

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expenditure as part of the qualifying investment, particularly where such inclusion would extinguish the entire capital gains and defeat the very purpose of reassessment based on detected understatement. The Karnataka High Court decision in Rahana Siraj emphasises that "cost of new asset" is broader than mere purchase price but is still confined to such additions/alterations that are integrally connected with making the house fit for use as a residence, not merely more luxurious. On facts, the assessee has not discharged the onus of demonstrating that all, or even most, of the claimed Rs.31,83,776 expenditure meets this threshold, nor has item-wise correlation been established between invoices and specific essential improvements. In absence of such granular substantiation, and considering that the AO has already allowed substantial deduction based on the purchase price and documented payments, there is no infirmity in the AO's decision to exclude these amounts from the eligible investment for section 54F. Accordingly, the assessee's claim for enhancement of section 54F deduction to Rs.81,84,927/Rs.83,44,627 is rejected and the AO's quantified allowance of Rs.59,18,11/Rs.5,57,115 (as per assessment order working) is sustained. Ground 6 fails.”

3.

I find that decision relied upon by the Ld. Counsel for the assesse even before the First Appellate Authority have given out specific dictate and interpretation regrading what shall be the “cost of new asset” u/s. 54F of the Income Tax Act, 1961 (for short ‘the Act’). The Ld. CIT(Appeals)/NFAC has summarily brushed aside the implication of this decision. Had it been a case that the said authority had considered this decision in correct perspective, the facts and narrative would have been appreciated by him in better perspective.

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Further, I find that the Hon’ble High Court of Karnataka in the 4. case of Rahana Siraj Vs. Commissioner of Income Tax (2015) 232 Taxman 327 (Karnataka) has held and observed as follows:

“8. Insofar as the second substantial question of law is concerned, it is not in dispute that the property purchased by the assessee was habitable but had lacked certain amenities. The assessee has spent nearly about Rs.18 lakhs towards removal of mosaic flooring and laying of marble flooring, alteration of the kitchen, putting up compound wall, protecting the property with grill work and attending to other repairs. Section 54F of the Act provides that if the cost of the new asset, which is to be taken into consideration while determining the capital gain, the words used is "cost of new asset" and not "the consideration for acquisition of the new asset". In law, it is permissible for an assessee to acquire a vacant site and put up a construction thereon and the cost of the new asset would be cost of land plus (+) cost of construction On the same analogy, even though he purchased a new asset, which is habitable but which requires additions, alterations, modifications and improvements and if money is spent on those aspects, it becomes the cost of the new asset and therefore, he would be entitled to the benefit of deduction in determining the capital gains. The approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset is not eligible for deduction, is contrary to the statutory provisions. The said reasoning is unsustainable. To that extent, the impugned order passed by the Tribunal as well as the Lower authorities require to be set-aside and it is to be held that in arriving at cost of the new asset, Rs.18 lakhs spent by the assessee for modification, alterations and improvements of the asset acquired is to be taken note of. Thus, the second substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order:”

5.

Respectfully following the aforesaid dictate, on the same parity of reasoning, the appeal of the assessee is allowed.

7 Ashish Kapoor Vs. ITO-1(1), Bhilai (C.G.) ITA No.203/RPR/2026

6.

In the result, appeal of the assessee is allowed.

Order pronounced in open court on 30th day of July, 2026.

Sd/- (PARTHA SARATHI CHAUDHURY) �या�यक सद�य/JUDICIAL MEMBER रायपुर / Raipur; �दनांक / Dated : 30th July, 2026. SB, Sr. PS आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT-1, Raipur (C.G.) 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, रायपुर / DR, ITAT, “SMC” Bench, Raipur. गाड� फ़ाइल / Guard File. 5. Samiran Bera, आदेशानुसार / BY ORDER, Sr. PS, ITAT, // True Copy // Raipur Senior Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur Digitally signed by Samiran Bera, Sr. PS, ITAT, Raipur Date: 2026.07.30 10:18:59 +05'30'

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