AARTI PAWAN NAYAK,BENGALURU V. INCOME TAX OFFICER, WARD INTERNATIONAL TAXATION-1(2), BANGALORE

ITITA 791/BANG/2025

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Ms. Aarti Pawan Nayak, a non-resident individual, appealed against the order of the Income Tax Officer, Ward-International Taxation 1(2), Bengaluru, which was passed under sections 147 and 144 of the Income Tax Act, 1961 for the Assessment Year 2015-16. The primary issues in the appeal included the disallowance of certain costs related to the acquisition of a new property and the calculation of capital gains. The Tribunal considered additional grounds regarding the non-consideration of actual interest expenses and the timing of the assessee's registration on the e-filing portal. The Tribunal's decision involved a detailed examination of the costs claimed by the assessee, including stamp duty, registration charges, and interest on housing loans, and their relevance to the calculation of capital gains and eligibility for exemptions under the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783714 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 04-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 01-04-2025
• Other Referred Cases: CIT Vs Indian Bank (2015) 230 Taxman 635 (Madras), Smt. Syeda Bibi Sidique vs. DCIT reported in 164 taxman.com 128, CIT v. Tata Iron & Steel Co. Ltd. Reported in [1998] 231 ITR 285 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DIVYA K.J.
• Assessee Lawyers: VIGNESH K.; WAY OF ADDITIONAL GROUNDS HAD CLAIMED
• Keywords: Capital asset; Cost of acquisition; Capital Gains
• Section: 147; 148; 144; 142(1); 54; 139

Judgement Text

"IT(IT)ANo.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “C’’BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI,VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER IT(IT)A No.791/Bang/2025 Assessment Year : 2015-16 Ms. Aarti Pawan Nayak G8, Himagiri Green Forest B-8, Ground Floor, Himagiri Green Forest, J.P. Nagar, 7th Phase Puttenahalli Bangalore 560078 PAN NO : AHKPN7106M Vs. ITO Ward International Taxation 1(2) Bangalore APPELLANT RESPONDENT Appellant by : Sri Vignesh K., A.R. Respondent by : Dr. Divya K.J., D.R. Date of Hearing : 07.08.2025 Date of Pronouncement : 04.11.2025 O R D E R PER KESHAV DUBEY, JUDICIAL MEMBER: This appeal at the instance of the assessee is directed against the order of the Income Tax Officer, Ward- International Taxation 1(2), Bengaluru dated 15.01.2025 vide DIN & Order No. ITBA/AST/S/147/2024-25/1072202831(1) passed u/s 147 r.w.s. 144 of the Income Tax Act, 1961 (in short “The Act”) for the Assessment Year 2015-16. 2. The assessee has raised the following grounds of appeal: Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 2 of 15 Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 3 of 15 3. At the outset, the ld. A.R. of the assessee submitted that there is a delay of one day in filing the appeal before this Tribunal. Further the ld. AR of the assessee submitted that the delay of one day was due to the fact that on 31/03/2025, the Tribunal was closed on the occasion of Eid-Ul-Fitr. 3.1 Having heard the ld. Counsel of the assessee as well as the ld. D.R, it is perceived that the explanation offered in the condonation application is plausible and sufficient cause is shown by the assessee, which prevented her from filing the appeal within the specified period before this Tribunal. Accordingly, we are inclined to condone the delay of one day and admit the appeal for adjudication. 4. The assessee has also raised the following additional grounds of appeal:- 13. That the learned assessing officer and the Hon’ble Dispute Resolution Panel erred in not considering the actual interest expense of Rs.15,73,236/- rather than Rs.12,29,648/- (without indexation). Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 4 of 15 14. That, the learned assessing officer and the Hon’ble Dispute Resolution Panel erred in not considering the fact that the appellant had registered in the e-filling portal only in the month of April 2025. It is prayed that the above additional grounds be admitted as they are purely legal in nature and can be decided on the basis of the existing facts on record and decide them on merits in the interest of equity, justice and good conscience. 4.1 We have heard both the parties on admission of additional grounds. In our Opinion all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of the adjudication of above grounds & these are critical for a fair adjudication of the matter. The Madras High Court in CIT Vs Indian Bank (2015) 230 Taxman 635 (Madras) held that Rule 11 of the I.T. Rules makes it clear that the assessee has the right to raise additional grounds and if the same is beneficial to the assessee, the same should be considered by the Tribunal. Accordingly, we inclined to admit the additional grounds for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide. 5. Now the brief facts are that the case of the assessee was reopened u/s. 147 of the Act after following the due procedure as envisaged u/s. 148A of the Act. Accordingly, notice u/s. 148 of the Act was issued to the assessee. In response to notice u/s.148 of the Act, the assessee filed her return of income on 09/11/2023 declaring NIL income after claiming an exemption u/s. 54 of the Act amounting to Rs.54,48,835/-. Subsequently the notices u/s.143(2) Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 5 of 15 as well as u/s. 142(1) of the Act were issued on various dates seeking documents and information. The assessee is a non-resident Individual and did not file her return of income as per provisions of section u/s. 139 of the Act. During the FY 2015-16 relevant to AY 2016-17, the assessee had sold an immovable property on 19/03/2015 for a total consideration of Rs.1,20,00,000/- ( Sale deed placed at pages 16 to 49 of PB) which was originally purchased in the form of apartment unit in the joint name with her husband vide agreement dated 17/07/2001 for Rs.16,45,000/-. The purchased property was out of the loan borrowed from ICICI Bank amounting to Rs.11,45,000/- on 14/04/2003 and a top-up loan of Rs.3,00,000/- on 05/05/2005 totaling to Rs.14,45,000/-( placed at page 64 to 90 of PB). Out of the total sale proceeds, a sum of Rs.62,36,730/- was invested in another property in Bangalore vide sale deed dated 07/04/2015 i.e. before the due date of filing the return of income u/s. 139 of the Act for the AY 2015-16 which is eligible for exemption u/s. 54 of the Act. The assessee being a non-resident had also incurred sum of Rs.1,20,000/- as commission expenses towards selling the property as he hired a broker to help in convening the property. 5.1 The assessing officer noted that the assessee in her submission filed claimed the sale consideration and stamp duty/registration charges paid amounting to Rs.16,45,000/- as cost which is indexed to Rs.36,38,186/-. Further, the assessee had also claimed the interest cost of Rs.12,29,648/- and indexed the same at Rs.21,74,870/-. Additionally, the assessee had also claimed improvement cost and selling expenses. The AO accepted the indexed cost of acquisition of Rs.36,38,186/- as found to be in order & allowable. However the AO observed that no evidences in support of improvement cost incurred and selling expenses claimed Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 6 of 15 have been submitted and accordingly held that the cost claimed on account of these expenses are not allowable. 5.2 It is also noticed by AO that the assessee had claimed the Housing Loan interest as cost of acquisition. The assessee had not furnished any details to substantiate that the interest expenses were not claimed u/s. 24 of the Act as deduction and accordingly the remaining cost on account of interest expenses, improvement and selling expenses are disallowed. 5.3 In respect of deduction claimed u/s. 54 of the Act, the AO noticed that the investment in a residential flat of Rs.58,50,000/- is made in the month of April 2015 and accordingly held that the investment qualifies for deduction u/s. 54 of the Act as the investments have been made within the due date of filing of return of income u/s. 139(1) of the Act. Considering the same long term capital gain was worked out at Rs. 83,61,814/-(1,20,00,000 – 36,38,186) and deduction amounting to Rs.58,50,000/- was allowed on the same. In view of the above facts, a sum totaling to Rs.25,11,814/-, being income earned on sale of immovable property was brought to tax as income under the ambit of provisions of Section 45 of the Act, as long term capital gains. 6. Aggrieved by the assessment completed u/s. 147 r.w.s 148 of the Act dated 15/01/2025, the assessee has filed the present appeal before this Tribunal. The assessee has also filed a paper book comprising 115 pages containing the written submissions, various documents/record along with various case laws relied upon by the assessee. 7. Before us, the ld. A.R. of the assessee vehemently submitted that the assessee had incurred Rs.3,86,730/- by way of stamp duty Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 7 of 15 charges and registration charges which is incidental to purchase the property. The A.R. of the assessee relied upon the decision of this Tribunal in the case of Smt. Syeda Bibi Sidique vs. DCIT reported in 164 taxman.com 128 wherein it is stated that the entire cost of purchase of new asset including the stamp duty and registration charges should be allowed under section 54 of the Act and accordingly prayed that exemption of Rs.62,36,730/- may be allowed u/s 54 of the Act. 7.1 Further, the ld. A.R. of the assessee submitted that the assessee had taken a loan of Rs.11,45,000/- on 14/04/2003 from ICICI Bank for the purchase of the original property in Mumbai. The loan was taken for purchase of flat as per the agreement dated 17/07/2001. The assessee is paying the EMI since June 2003 to March 2015 and for these periods the assessee had paid a sum of Rs.15,73,236/- as interest expenses and submitted that the assessee had not filed any return of income for the period from the FY 2003-04 till FY 2014-15 and accordingly did not claim any deduction u/s. 24(b) of the Act. It is also submitted by ld. A.R. that the assessee registered in the Income Tax Portal only on 06/04/2015. 7.2 With regard to disallowance of selling expenses, the ld. A.R. of the assessee submitted that the assessee shifted to UK on 30/03/2007. Since the assessee was not in India from March 2007, she hired a broker to sale the property for 1% commission on the sales consideration and accordingly prayed to allow the selling commission of Rs.1,20,000/- incurred wholly and exclusively for transfer of the property. 7.3 Lastly, the ld. A.R. of the assessee submitted that the property was handed over by the builder without any interior & it Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 8 of 15 was uninhabitable. The assessee had taken a top-up loan of Rs.3,00,000/- on 05/05/2005 from ICICI Bank and utilized the same for kitchen, wardrobes, toilets etc. which are basic necessity to make it habitable. The ld. A.R. of the assessee accordingly prayed that the cost of improvement of the building (indexed cost) should be allowed as deduction as it is incurred for improvement in value of the house property. 8. The ld. D.R. on the other hand supported the order of the AO and submitted that as the assessee could not produce any evidences in support of improvement cost incurred and selling expenses claimed, the AO had rightly disallowed the same. Further, the ld. D.R. submitted that with regard to claim of Housing Loan interest expenses as cost of acquisition, there is no direct nexus with purchase of property and thus cannot be included in cost of acquisition of property. 9. We have heard the rival submission and perused the material available on record. In the present case the claim of deduction u/s. 54 of the Act was disputed to the extent of Rs.3,86,730/- incurred towards Stamp duty & registration charges. Further dispute is with regard to calculation of capital gain such as claim of indexed cost of acquisition on account of Housing Loan interest expenses, cost of improvement and selling expenses. 9.1 Firstly with regard to claim of Exemption u/s 54 of the Act, we observed that the only dispute is with regard to Rs.3,86,730/- incurred towards Stamp duty & registration charges for the purchase of the new property. The assessee is claiming exemption of Rs.62,36,730/- (58,50,000 + 3,86,730) u/s 54 of the Act as invested in another immovable property in Bengaluru vide sale deed dated 07/04/2015 i.e. before the due date of filing the return of Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 9 of 15 income u/s 139 of the Act, whereas the AO had computed Rs. 58,50,000/- only to be allowable as exemption u/s 54 of the Act by denying Rs.3,86,730/- incurred towards Stamp duty & registration charges for the purchase of the new property. We are of the considered opinion that the stamp duty & registration cost incurred by the assessee is the legal necessity without which the purchaser cannot be a legal owner of said property. Further such Stamp duty & registration charges paid has direct nexus with the purchase of the new property and therefore in our view the stamp duty & registration charges paid by the assessee is part & parcel of the cost of acquisition of the new property and should be considered as utilization by the assessee in purchase of a new asset. Thus, the assessee should be allowed exemption of Rs.62,36,730/- u/s 54 of the Act instead of Rs.58,50,000/- and accordingly this ground of appeal of the assessee is allowed. 9.2 Now with regard to the disallowance of housing loan Interest as cost of acquisition, we are of the considered opinion that the actual cost of acquisition would always depend upon the amount paid by the assessee to acquire the asset along with the other incidental cost incurred by the assessee which has direct nexus with the purchase of property. The interest paid on housing loan has direct nexus with the acquisition of immovable property & therefore allowed as deduction u/s 24(b) of the Act while computing the Income from house Property. What is more significant is that the assessee should not claim the double deduction in respect of Interest paid on housing Loan once u/s 24(b) of the Act and another while computing the capital gains. The main contention of the AO in rejecting the claim of housing loan interest as cost of acquisition is that the assessee had not furnished any details to substantiate that the interest expenses were not claimed u/s 24 of the Act. Therefore, we are of the opinion that the AO is also not Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 10 of 15 denying the fact that interest paid on Housing Loan has direct nexus with acquisition of the immovable property. The ld. DR strongly relied upon the decision of the Apex Court in the case of CIT v. Tata Iron & Steel Co. Ltd. Reported in [1998] 231 ITR 285 (SC), however we are of the opinion that the facts & context of the present case is distinguishable as before the Apex court the issue was impact of fluctuation of foreign currency loan borrowed for purchase of the asset. 9.2.1 The assessee is a non-resident and by raising the additional ground also contended that the assessee registered in the Income Tax Portal only on 06/04/2015. The assessee had taken a loan of Rs.11,45,000/- on 14/04/2003 from ICICI Bank for the purchase of the original property in Mumbai. The loan was taken for purchasing the flat as per the agreement dated 17/07/2001. The assessee is paying the EMI since June 2003 to March 2015 and for these periods the assessee had paid a sum of Rs.15,73,236/- as interest expenses and submitted that the assessee had not filed any return of income for the period from the FY 2003-04 till FY 2014- 15 and accordingly did not claim any deduction u/s. 24(b) of the Act. 9.2.2 Therefore, we are of the considered opinion that as the assessee had not claimed any deductions of Interest paid on Housing Loan u/s 24(b) of the Act from the very beginning, the same may be allowed as cost of acquisition/cost of improvements while calculating the Capital Gains. Our opinion also supports from the fact that the Finance Act, 2023, w.e.f 1-4-2024 inserted a proviso to Section 48(ii) of the Act which are reproduced below for ease of reference- Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 11 of 15 [Provided that the cost of acquisition of the asset or the cost of improvement thereto shall not include the deductions claimed on the amount of interest under clause (b) of section 24 or under the provisions of chapter VIA Explanation-1-……….. Explanation-2-…………] 9.2.3 Further, the Memorandum explaining the provisions in the Finance Bill, 2023 are reproduced below for ease of reference & convenience- “Prevention of double deduction claimed on interest on borrowed capital for acquiring, renewing or reconstructing a property Under the existing provisions of the Act, the amount of any interest payable on borrowed capital for acquiring, renewing or reconstructing a property is allowed as a deduction under the head \"Income from house property\" under section 24 of the Act. 2. Section 48 of the Act, inter alia, provides that the income chargeable under the head \"Capital gains\" shall be computed, by deducting the cost of acquisition of the asset and the cost of any improvement thereto from the full value of the consideration received or accruing as a result of the transfer of the capital asset. 3. It has been observed that some assessees have been claiming double deduction of interest paid on borrowed capital for acquiring, renewing or reconstructing a property. Firstly, it is claimed in the form of deduction from income from house property under section 24, and in some cases the deduction is also being claimed under other provisions of Chapter VIA of the Act. Secondly while computing capital gains on transfer of such property this same interest also forms a part of cost of acquisition or cost of improvement under section 48 of the Act. 4. In order to prevent this double deduction, it is proposed to insert a proviso after clause (ii) of the section 48 so as to provide that the cost of acquisition or the cost Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 12 of 15 of improvement shall not include the amount of interest claimed under section 24 or Chapter VIA. 5. This amendment is proposed to take effect from the 1st day of April, 2024 and shall accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment years. “ 9.2.4 Thus the intention of the legislature is very clear that while computing capital gains on transfer of such property, the interest also forms a part of cost of acquisition or cost of improvement under section 48 of the Act. Taking into consideration the above facts, we are of the considered opinion that as the assessee had not claimed any deduction towards housing loan interest as per the provisions contained in section 24(b) of the Act, the assessee is eligible to claim the same as cost of Acquisition/Cost of improvement while computing the capital gains. We are also of the considered opinion that interest on housing loan is definitely a factor which can alter the cost incurred by the assessee towards the purchase of the asset. 9.2.5 Since the assessee by way of additional grounds had claimed that the actual interest paid on housing loan is Rs. 15,73,236/- & not Rs. 12,29,648/- (without indexation), we are remitting this issue to the file of the AO to verify the claim of the assessee & allow the actual interest on housing loan not claimed as deduction u/s 24(b) of the Act as cost of acquisition/cost of improvement. The assessee shall produce the details of interest on housing loan as produced before us at page -8 of the paper book. The AO may also direct the Bank to submit the details of actual interest paid by the assessee from F.Y 2003-04 to F.Y 2014-15. Accordingly this ground of the assessee is partly allowed. Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 13 of 15 9.3 Now with regard to the claim of commission paid to the broker amounting to Rs. 1.20,000/-, the assessee in her written submission has stated that the assessee shifted to UK on 30/03/2007. Since the assessee was not in India from March 2007, she hired a broker to sale the property for 1% commission on the sales consideration and accordingly prayed to allow the selling commission of Rs.1,20,000/- incurred wholly and exclusively for transfer of the property. 9.3.1 we are of the considered opinion that these expenditures were incurred by the assessee wholly & exclusively in connection with the transfer of the immovable property & hence allowable as deduction u/s 48(i) of the Act. As the assessee is a non-resident, obviously she cannot sell the property without the help of such broker. Accordingly this ground of the appeal is also allowed. 9.4 With regard to disallowance of the cost of improvement, the assessee claimed that the property was handed over by the builder without any interiors. The assessee had to take loan of Rs.3,00,000/- on 05.05.2005 from the ICICI Bank for the basic interiors of the home such as kitchen, wardrobes & toilets etc. The assessee contended that these are basic necessities of improvements to ensure the assessee could live in the flat. The assessee claimed that all these cost were incurred in order to make the house habitable and proper for living conditions without which no building could ever be categorised as a liveable house. The assessee all along pleaded that the purchase of various items was made in order to make the house habitable and proper for living condition which is very normal and would be incurred by every citizen who is purchasing a property from a builder. The assessee in his written submission stated that without incurring the impugned expenses claimed as cost of improvement, the house constructed by Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 14 of 15 the builder/Developer would not be habitable at all and accordingly claimed that the aforesaid cost would form an integral part of the total amount invested for improvement of the house property. 9.4.1 On going through the submissions as made by the assessee, we are in complete agreement with the arguments advanced by the assessee before both the lower authorities in respect of aforesaid expenses that these expenses are incurred only in order to make the house habitable. We are also of the considered opinion that the assessee had also obtained a loan of Rs. 3,00,000 from the ICICI Bank towards such cost of the improvements which becomes an integral part of the building. We agree with the contention of the assessee that the expenditure incurred which are permanent fixture, wall/ ground embedded are incurred only in order to make the house habitable and it becomes the part and parcel of building itself which is subject matter of sales by the assessee. Accordingly, we direct the AO to allow the claim of cost of improvement as claimed by the assessee. Accordingly, this ground of the assessee is also allowed. 10. In the result the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 4th Nov, 2025 Sd/- (Prashant Maharishi) Vice President Sd/- (Keshav Dubey) Judicial Member Bangalore, Dated 4th Nov, 2025. VG/SPS Printed from counselvise.com IT(IT)A No.791/Bang/2025 Ms. Aarti Pawan Nayak, Bangalore Page 15 of 15 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. Printed from counselvise.com "