VENKATA NAGESH BABU BALIVADA,BANGALORE vs. ITO INTL TAXN, WARD 1(1), BENGALURU

PDF · subscribers
ITITA 244/BANG/2025Status: DisposedITAT Bangalore12 September 2025AY 2016-178 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the disallowance made by the AO on various deposits made by the assessee for getting essential facilities could not be sustained. The Tribunal reasoned that deposits made for BWSSB/BESCOM and apartment associations are mandatory for obtaining power supply, water, and sewerage connections, without which the apartment cannot be used as a dwelling. Therefore, these expenditures are to be treated as part of the cost of the property or cost of improvement, as they are essential for making the property dwellable. The Tribunal relied on the Cuttack Tribunal's decision in Abani Pattanayak vs. ACIT, which held BWSSB deposits as part of the cost of the building, and the Delhi Tribunal's decision in (2024) 160 taxmann.com 509 (Delhi), which allowed deduction for expenses essential for making a house habitable. The Tribunal noted that while the assessee inadvertently claimed these as cost of improvement, they would form part of the cost of the property itself. The Tribunal also considered the additional ground raised by the assessee regarding a mistake in the computation of capital gains and decided to remit the appeal to the AO for verification and recalculation if found in order. Therefore, the appeal was allowed on merits regarding the disallowance of deposits, and the matter was remanded for recalculating capital gains based on the additional ground.

What were the facts?

The assessee, Shri Venkata Nagesh Babu Balivada, a non-resident, sold a residential apartment in 2016 for Rs. 90 Lakhs. He had purchased the property in 2008. The assessee did not initially file a return of income for Assessment Year 2016-17, citing technical difficulties in logging into the portal, but had paid capital gains tax of Rs. 3,87,670/-. The Assessing Officer (AO) initiated reassessment proceedings under Section 148A and issued a notice under Section 148. The assessee filed a return on March 15, 2024, disclosing a total income of Rs. 19,79,800/-. The AO treated the return as invalid and proceeded with assessment. In the draft assessment order, the AO proposed disallowance of Rs. 9,60,806/- as cost of improvement, as no evidence was submitted. The assessee filed objections before the Director of Revenue Intelligence (DRP), submitting additional evidence. The DRP sought a remand report from the AO, who accepted the assessee's claim in his report. However, the DRP partially accepted the cost of improvement, allowing stamp duty and registration charges but disallowing maintenance deposit, BWSSB/BESCOM deposits, and other charges.

What were the issues?

1. Whether the assessment order passed by the AO, as per the directions of the DRP, disregarding the AO's own finding in his remand report, is bad in law and against principles of natural justice and equity, warranting deletion? 2. Whether the AO erred in disallowing Rs. 9,60,806/- as cost of improvement as per DRP's directions, violating principles of natural justice and equity? 3. Whether the DRP erred in directing the AO to disallow Rs. 9,60,806/- towards cost of improvement, despite the AO accepting the claim in his remand report, thereby violating principles of natural justice and equity? 4. Whether the DRP erred in holding BWSSB/BESCOM deposits as not forming part of the cost of the property, which are essential for making the property dwellable, against principles of natural justice and equity? 5. Whether the DRP erred in holding maintenance deposit and other charges paid at the time of purchase as not forming part of the cost of the property, which are essential for making the property dwellable, against principles of natural justice and equity? 6. Whether the DRP failed to appreciate the inadvertent claim by the tax consultant regarding maintenance deposits, BWSSB/BESCOM deposits, and other charges as cost of improvement instead of cost of capital asset, against principles of natural justice and equity? 7. Whether the DRP failed to appreciate that the said deposits/expenses incurred are sine qua non for making the unit dwellable? 8. Whether the AO's initiation of penalty proceedings under Section 271(1)(c) is against principles of natural justice and equity, given the assessee paid capital gains taxes along with TDS? 9. Whether the AO's initiation of penalty proceedings under Section 271F is against principles of natural justice and equity, given the assessee paid capital gains taxes along with TDS and filed his return, though verification was not possible due to technical reasons? Assessee's Contentions: - The assessment order is bad in law and against principles of natural justice. (Grounds 1-7) - BWSSB/BESCOM deposits are essential to make the property dwellable and form part of the cost of the property. (Ground 4, 6, 7) - Maintenance deposit and other charges are mandatory and essential for dwelling. (Ground 5, 6, 7) - The expenditures are towards cost of improvement and should be allowed while calculating capital gains. (Ground 6) - Penalty proceedings under Section 271(1)(c) and 271F are unjustified as taxes were paid. (Grounds 8, 9) Revenue's Contentions: - The revenue relied on the orders of the lower authorities.

Which sections of the Income-tax Act were involved?

Section 148A,Section 148,Section 142(1),Section 144C,Section 271(1)(c),Section 271F

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE

Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI SOUNDARARAJAN K.

For Appellant: Shri V. Madhusudhan, CA, Smt. Suganthamala T M

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE

BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER

IT(IT)A No. 244/Bang/2025 Assessment Year : 2016-17

Shri Venkata Nagesh Babu Balivada, The Income Tax #2768, Vasavi Residence, Officer, 1st Main, E Block, International Defence Colony, Taxation, Sahakarnagar, Ward – 1 (1), Vs. Bangalore – 560 092. Bangalore. PAN: AFGPB6409P APPELLANT RESPONDENT

Assessee by : Shri V. Madhusudhan, CA : Smt. Suganthamala T M, Revenue by CIT-DR

Date of Hearing : 17-06-2025 Date of Pronouncement : 12-09-2025

ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER

This is an appeal filed by the assessee challenging the final assessment order of the AO dated 20/01/2025 in respect of the A.Y. 2016- 17 and raised the following grounds: “1. In the facts and circumstances of the case, the assessment order passed by the learned AO as per the directions of the DRP disregarding his own finding given in his remand report is bad in law, against principles of natural justice and equity, which needs to be deleted. 2. The Learned AO erred in law and facts in making a disallowance of Rs. 9,60,806/- as cost of improvement, as

Page 2 of 8 IT(IT)A No. 244/Bang/2025 per directions of the DRP which is against the principles of natural justice and equity and which needs to be deleted. 3. The learned DRP erred in giving a direction to the AO to disallow Rs. 9,60.806/- towards cost of improvement even though the Ld assessing officer in his remand report had accepted the claim made by the assesseewith regard to long term capital gain. The direction given by the Ld DRP which is againstthe principles of natural justice and equity needs to be deleted. 4. The Ld DRP had erred in holding BWSSB/BESCOM deposits as not forming part of the cost of the property which are essential to make the property dwellable is againstthe principles of natural justice and equity hence needs to be deleted. Hence, the assessment order passed by the Ld. AO relying on the directions of the Ld.DRP needs to be deleted. 5. The Ld DRP had erred in holding Maintenance Deposit paid in lumsum at the time of purchase of property to the builder and other charges not forming part of the cost of the property, which are essential to make the property dwellable is against the principles of natural justice and equity hence needs to be deleted. Hence, the assessment order passed by the Ld. AO relying on the directions of the Ld.DRP needsto be deleted. 6. The Ld DRP failed to appreciate the inadvertent claim made by the Tax Consultant of the assessee with regard to maintenance deposits, BWSSB/BESCOM deposits and other charges towards cost of improvement instead of component of cost of the capital asset which is against principles of natural justice and equity which should be deleted. Hence, the assessment order passed by the Ld. AO relying on the directions of the Ld.DRP needs to be deleted. 7. The Ld DRP failed to appreciate the fact the said deposits/expenses incurred by the assesse towards cost of purchase of property are sine qua non for making the unit dwellable. Hence, the assessment order passed by the Ld. AO relying on the directions of the Ld.DRP needsto be deleted. 8. In the facts and circumstances of the case the Ld. AO's action of initiation of penalty proceedings aga inst the assessee U/s. 271(1)(c) is against the principles of natural justice and equity as the assessee had paid the capital gains taxes along with TDS as per applicable rates. Hence,

Page 3 of 8 IT(IT)A No. 244/Bang/2025 the proceedings against the assessee u/s.271(1)(c) needs to be stayed, and abated. 9. In the facts and circumstances of the case the Ld. AO's action of initiation of penalty proceedings against the assessee U/s. 271 F is againstthe principles of natural justice and equity as the assessee had paid the capital gains taxes along with TDS as per applicable rates, and filed his return, however could not verify due to technical reasons. Hence, the proceedings against the assessee u/s.271 F needs to be stayed, and abated. That the Assessee craves leave to add, amend, alter or modify the above grounds of appeal at the time of hearing.” 2. The assessee is a non resident and employed in USA from the year 2004. During the year 2008, he purchased a residential apartment and subsequently, during the year 2016, he sold the said property for a sale consideration of Rs. 90 Lakhs.

3.

The assessee had not filed his return of income as he was not able to log into the portal. In spite of that, the assessee had paid a tax amount of Rs. 3,87,670/- on 23/02/2017 being the capital gains tax. The AO based on the information available through the Insight module under the head “RMS Non-Filing of Return”, had issued notice u/s. 148A(b) of the Act and thereafter an order u/s. 148A(d) was also passed. Subsequently, the AO had issued a notice u/s. 148 on 30/03/2023. Thereafter notice u/s. 142(1) was issued for which the assessee filed a detailed reply on 18/10/2023 and also enclosed the supporting documents. The assessee submitted that the notice issued u/s. 148 has gone to the spam folder of his email and therefore he has not noticed and filed his reply to the said notice. The assessee also attached the sale deed copy, detailed computation of income and the bank statement reflecting the credit of the sale consideration received by him. Finally, the return was filed on 15/03/2024 disclosing the total income of Rs. 19,79,800/-. The assessing officer treated the return as invalid return and taken the income declared by the assessee for the purpose of calculating the income and a draft assessment order u/s. 144C was communicated to the assessee. In the said draft assessment order, the

Page 4 of 8 IT(IT)A No. 244/Bang/2025 AO had not accepted the improvement cost as claimed by the assessee since no evidences was submitted. The AO had proposed to disallow the said improvement cost in the draft order dated 19/03/2024. The assessee filed their objections before the DRP and also field the various documents in support of the computation made by him by way of additional evidences. The Ld.DRP sought for a remand report from the AO since the additional evidences were filed before the Ld.DRP for the first time. The AO also forwarded the remand report after going through the additional evidences filed before the Ld.DRP and in the remand report the AO had accepted the computation made by the assessee. The AO had also accepted the explanation offered by the assessee about the cost of improvement claimed. The Ld.DRP after considering the remand report had partly accepted the cost of improvement amounting to Rs. 11,77,006/-. The Ld.DRP accepted that the stamp duty charges and registration charges would form part of the cost of acquisition. Insofar as the charges paid for the maintenance deposit, deposits to BWSSB / BESCOM and the other charges paid by the assessee, the Ld.DRP had not accepted the said expenses as cost of improvement since the expenses are not backed by proper documents. The AO followed the said directions of the Ld.DRP disallowed the cost of improvement of Rs. 9,60,806/-.

4.

As against the said order, the present appeal has been filed before this Tribunal.

5.

The assessee also filed a paper book and also filed an application to accept the additional grounds raised in which the assessee had submitted that the computation of capital gain at Rs. 19,79,795/- is not correct and the correct gain should be at Rs. 17,25,152/- which was inadvertently claimed in the original computation. The Ld.AR also filed a revised working of the capital gains along with the said additional grounds.

6.

At the time of hearing, the Ld.AR submitted that the Ld.DRP had not considered that the deposits paid to BWSSB/BESCOM would form part of

Page 5 of 8 IT(IT)A No. 244/Bang/2025 the cost of the property which are essential to make the property dwellable. The Ld.AR further submitted that all the deposit amounts are paid by the assessee before handing over the property to the assessee by the builder and therefore the said amounts would in fact be treated as the expenditures added to the value of the property. The Ld.AR further submitted that without the payment of the said deposits, there will not be any power supply and therefore the property would not be fit for dwelling. The Ld.AR further submitted that similarly without getting the water connection and the sewerage connection, the assessee could not use the apartment. Similarly, the association was formed for the maintenance of the apartments as per the Karnataka Apartment Ownership Act,1972 and therefore the deposits paid to the said association is also a mandatory one before getting the possession of the property. Therefore the Ld.AR submitted that these expenditures are towards the cost of improvement of the property and prayed that the said cost of expenditure should be allowed while calculating the capital gains.

7.

The Ld.DR relied on the order of the lower authorities.

8.

We have heard the arguments of both sides and perused the materials available on record.

9.

In the present appeal, the only dispute is with regard to the disallowance of the expenditures claimed by the assessee towards the cost of improvement of the apartment purchased by him. The assessee purchased a new flat during the year 2008 after paying the entire consideration which includes the deposits to be paid to the various agencies of the government as well as to the registered association formed as per the Karnataka Apartment Ownership Act. The Ld.DRP considered the objections filed by the assessee and also considered the additional evidences filed before it in support of the claim of cost of improvement and sought for a remand report from the AO. The AO had also considered the additional evidences and gave a remand report that the claim made by the assessee is in order. But

Page 6 of 8 IT(IT)A No. 244/Bang/2025 unfortunately, after getting the remand report from the AO, the Ld.DRP had proposed to disallow the other deposits made with the BWSSB/BESCOM and the apartments association except the stamp duty charges and the registration charges.

10.

We have also considered the fact that the deposits are mandatory for getting the power supply to the apartment as well as for getting the water and sewerage lines. Without paying the said deposits, there will not be any power or water or sewerage facility so that the apartment can be used as a place for dwelling. Therefore we are of the view that the said expenditure incurred towards the deposits are to be treated as the part of the cost of the property without which the property will not be a dwellable one. Even though the assessee had inadvertently claimed the said deposits and other charges towards the cost of improvement, definitely it will form part of the cost of the property itself otherwise the property cannot have any value.

11.

We have also gone through the order of the Hon’ble Cuttack Tribunal in the case of Abani Pattanayak vs. ACIT in ITA No. 54/CTK/2023 vide order dated 18/05/2023 which was relied on by the assessee in which the Tribunal had held that the BWSSB deposits are liable to be considered as part of the cost of the building. The Tribunal further held that if KPTCL charges is in the form of deposit, the same is also to be considered as part of the building.

12.

We have also considered another judgment of the Hon’ble Delhi Tribunal reported in (2024) 160 taxmann.com 509 (Delhi) wherein the similar disallowance was made by the AO. The Tribunal in its order had held that the expenses relating to air conditioning, modular kitchen and kitchen chimney, tube well and submersible pump are essential for making the house habitable and hence the said amounts are eligible for deduction while computing the capital gains.

Page 7 of 8 IT(IT)A No. 244/Bang/2025 13. Considering the facts of the present case, it is not in dispute that the said deposits are required to be made in order to make the apartment habitable and therefore the same can be claimed as the cost of improvement. In fact, the said expenditure incurred by the assessee could be added to the value of the property but in the present case, the assessee had claimed it as a cost of improvement and sought for the deduction. The expenditures incurred towards the said deposits can be taken as the cost of the property and in any event, it can be treated as the cost of the improvement without which the apartment could be a dwellable one. Further all the payments were made before the flat was handed over to the assessee. Therefore all the expenditures incurred towards the improvement of the building, for the better living, could be treated as a eligible deduction. They all will increase the value of the property. While selling the property the expenses incurred would be added to the value of the property. In the present case, in fact the AO in his remand report had accepted the computation made by the assessee for arriving the capital gains but the Ld.DRP had allowed a part of the claim and disallowed the deposits on the ground that these are all not the cost of improvements.

14.

In view of the foregoing discussions made above, we are of the considered opinion that the deposits made by the assessee for getting essential facilities could be treated as either cost of the property or cost of improvement. The other expenditures incurred also forms part of the cost of improvement. In the additional ground filed by the assessee, the assessee had submitted that there is a mistake occurred in the computation of capital gains which was pointed out before the Ld.DRP. In such circumstances, we are of the view that the said additional ground raised by the assessee may be verified by the AO and if found that the same is in order, accept the same and calculate the capital gains accordingly. In any event, the disallowance made by the assessing officer on the various deposits made by the assessee could not be sustained. We remit the appeal to the file of the AO only for the limited purpose of considering the additional ground raised by the assessee

Page 8 of 8 IT(IT)A No. 244/Bang/2025 and on that basis work out the capital gains. In respect of the merits of the issue we allow the appeal filed by the assessee

15.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 12th September, 2025.

Sd/- Sd/- (PRASHANT MAHARISHI) (SOUNDARARAJAN K.) Vice – President Judicial Member

Bangalore, Dated, the 12th September, 2025. /MS /

Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order

Assistant Registrar, ITAT, Bangalore

More judgments on Section 148A

All 3,543 judgments and leading authorities on Section 148A →

Recent GST High Court judgments

Search GST case law →