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Facts
The assessee filed a return of income declaring total income including long-term capital gains. The Assessing Officer made additions, and the CIT(A) restricted the gains but sustained some addition. The assessee appealed against the quantum of addition.
Held
The Tribunal held that interior expenses for making a new house habitable, including costs for painting, wardrobe fitting, and modular kitchen, are eligible for deduction under Section 54 of the Act. Similarly, costs for electricity, water, and sewerage connections paid to the builder were also allowed.
Key Issues
Whether interior decoration expenses and costs for utility connections for a new residential property are eligible for deduction under Section 54/54F of the Income Tax Act, 1961.
Sections Cited
54, 54F
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Before: Shri S.S. Viswanethra Ravi&
Year: 2015-16 Venkatraman Jayashree Vs. The Assistant Commissioner of Priyadharshini, No. 8/5, Income Tax, Rajaji 1st Street, Lake Area, Non Corporate Circle 3(1), Nungambakkam, Chennai 600 034. Chennai. [PAN:ADAPJ3317L] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Shri Y. Sridhar, F.C.A. ��थ� की ओर से/Respondent by : Ms. R. Anita, Addl.CIT सुनवाई की तारीख/ Date of hearing : 05.06.2025 घोषणा की तारीख /Date of Pronouncement : 18.08.2025 आदेश /O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order dated 26.03.2025 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2015-16.
The assessee raised 5 grounds of appeal amongst which, the only issue emanates for our consideration as to whether the ld. CIT(A) is justified in giving relief to the extent of ₹.88,85,000/- under section 54 of the Income Tax Act, 1961 [“Act” in short]
3. Heard both the parties and perused the material available on record. We note that the assessee filed return of income declaring total income of ₹.1,41,02,880/- including the claim of long term capital gains at ₹.1,37,10,855/-. The Assessing Officer determined the same at ₹.2,87,30,855/-. The ld. CIT(A) restricted the long term capital gains at ₹.2,01,70,855/- by giving benefit to an extent of ₹.88,85,000/-. The assessee is in appeal before the Tribunal in challenging the quantum addition sustained by the ld. CIT(A) to an extent of ₹.64,60,000/- [AO at ₹.2,87,30,855 – CIT(A) at ₹.2,01,70,855].
The ld. AR Shri Y. Sridhar, F.C.A. drew our attention to the valuation report dated 16.03.2020 by VJPS Developer and placed on record the same. On perusal of the same, we note that the Proprietor of VJPS Developer visited the subjected property, inspection and verification done by them, confirmed that the assessee incurred expenditure relating to interior work, paining, wardrobe fitting, modular kitchen, cupboard interior, etc. to an extent of ₹.21,00,000/-, which includes labour and material cost. The ld. AR drew our attention to the case law in the case of Sapna Hemanshu Shah v. DCIT 160 taxmann.com 1194 [Bang. Trib] and submits that the Bangalore Benches of the Tribunal held that interior expenses can be claimed under section 54 of the Act, where a new house is constructed or purchased. Further, he referred to the case law in the case of Y. Manjula Reddy v. ITO 140 taxmann.com 441 [Bang. Trib] and submits that the Bangalore Benches of the Tribunal held that the assessee is entitled to claim additional expenditure incurred by the assessee on interior renovation and furnishing of said new residential property after date of registrations as to make said house habitable under section 54F of the Act.
The ld. DR Ms. R. Anita, Addl. CIT drew our attention the written submissions filed on behalf of the respondent-Revenue and argued that the assessee got relief to the extent allowed by the ld. CIT(A) basing on the evidence produced on record. The ld. DR opposed the submissions of the ld. AR and prayed not to entertain further plea of the assessee.
As discussed above, we note from the computation made by the ld. CIT(A) to restrict long term capital gains to the extent of ₹.2,01,70,855/- as against ₹.2,87,30,855/- made by the Assessing Officer by giving benefit relating to cost of new flat/apartment at ₹.88,85,000/-. However, the ld. AR seeking further benefit of cost of expenditure incurred towards interior decoration, etc. to make the new flat habitable. On perusal of the valuation report dated 16.03.2020, it is on record, clearly supports the submissions of the ld. AR. Considering the case law as relied on by the ld. AR in the case of Sapna Hemanshu Shah v. DCIT (supra) and Y. Manjula Reddy v. ITO (supra), we hold that the assessee is entitled to claim expenditure incurred towards interior work such as paining, wardrobe fitting, modular kitchen, cupboard interior, etc. to an extent of ₹.21.00 lakhs. Thus, we direct the Assessing Officer to give benefit of to the assessee.
Further, the ld. AR argued that the builder collected additional cost of ₹.2.00 lakhs towards electricity, water and sewerage connection. The ld. AR argued that the said expenses of electricity etc. are paid to the Government, which were not considered by the ld. CIT(A) and the Assessing Officer to give benefit to the assessee. The ld. AR also submitted that all the details were already furnished before the ld. CIT(A), but, however, ignored the cost of incidental levies. Since the cost of other incidental levies towards water, sewerage and electricity are essential and were actually incurred to make the residential flat fit for habitation, we direct the Assessing Officer to allow benefit to an extent of ₹.2.00 lakhs. Accordingly, the claim of expenditure related to transfer of property to an extent of ₹.21.00 lakhs for interior work such as paining, wardrobe fitting, modular kitchen, cupboard interior, etc. and ₹.2.00 lakhs for water, sewerage and electricity are allowed. Accordingly, the long term capital gain is computed as under: Particulars ROI (Rs.) 144 order CIT(A)’s ITAT (Rs.) order (Rs.) Sale consideration 3,16,80,000 3,16,80,000 3,16,80,000 3,16,80,000 Less: indexed cost of acquisition 8,24,145 8,24,145 8,24,145 8,24,145 Less: Expenditure related to 21,25,000 21,25,000 18,00,000 21,25,000 transfer Long Term Capital Gains 2,87,30,855 2,87,30,855 2,90,55,855 2,87,30,855 Deduction u/s. 54 1,50,20,000 0 88,85,000 88,85,000 Add: Cost towards TNEB, water 0 0 2,00,000 and sewerage connection Add: Cost of interior work 0 0 21,00,000 Taxable Long Term Capital Gain 1,37,10,855 2,87,30,855 2,01,70,855 1,75,45,855 7. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on 18th August, 2025 at Chennai.