AVNISH KUMAR,HYDERABAD V. DCIT., CIRCLE-5(1), HYDERABAD

ITA 919/HYD/2025

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The case revolves around the disallowance of the cost of improvement claimed by the assessee, Shri Avnish Kumar, on a property he sold. The property was purchased as a semi-constructed house and sold as a fully furnished house. The Assessing Officer disallowed the cost of improvement claimed by the assessee, amounting to Rs.4,05,72,447/-, citing that the improvements were not commensurate with the super built-up area of 8000 sq. ft. The assessee appealed to the CIT(A), who upheld the disallowance. The Tribunal, however, found that the assessee had indeed made substantial improvements to the property, supported by bills and vouchers, and that the Assessing Officer's conclusions were not backed by concrete evidence.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792159 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2018-2019
• Appeal Filed On: 27-05-2025
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G. SARATHA
• Assessee Lawyers: P. MURALI MOHAN RAO
• Keywords: Set aside; Cost of acquisition; Capital Gains

Judgement Text

" आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad श्री विजय पाल राि, उपाध् यक्ष एिं श्री मिुसूदन सािडिया, लेखा सदस् य क े समक्ष । BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER आ.अपी.सं /ITA No.919/Hyd/2025 (निर्धारण वर्ा/Assessment Year:2018-19) Shri Avnish Kumar, Hyderabad. PAN: BCOPK2132A Vs. Dy. Commissioner of Income Tax, Circle 5(1), Hyderabad. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri P. Murali Mohan Rao, C.A. रधजस् व द्वधरध/Revenue by: Smt. G. Saratha, SR-DR सुिवधई की तधरीख/Date of hearing: 26/11/2025 घोर्णध की तधरीख/Pronouncement: 10/12/2025 आदेश/ORDER PER MANJUNATHA G, A.M. : This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 21.04.2025 for the Assessment Year 2018-19. 2. The assessee has raised the following grounds : Printed from counselvise.com ITA No.919/Hyd/2025 2 Printed from counselvise.com ITA No.919/Hyd/2025 3 3. The brief facts of the case are that the assessee has filed Return of Income declaring total income of Rs.2,66,76,180/- on 31.10.2018. The case was selected for limited scrutiny assessment to verify the income from other sources, details of assets and liabilities and Capital Gains/income on sale of property. During the assessment proceedings, the Assessing Officer noticed that the assessee had sold the property on 10.08.2017 to Sri K V K S Prasada Rao for a sale consideration of Rs.13,90,00,000/- and the said property was purchased by the assessee for the value of Rs.7,90,00,000/- on 28.07.2014. In the Return of Income for the Asst. Year 2018-19, the assessee had furnished income from Long Term Capital Gain (LTCG) at Rs.62,42,220/- after claiming cost of acquisition with indexation and cost of improvement with indexation of Rs.13,27,57,780/-. The Assessing Officer called upon the assessee to furnish details of cost of improvement with indexation of Rs.4,05,04,447/-. In Printed from counselvise.com ITA No.919/Hyd/2025 4 response, the assessee submitted before the Assessing Officer that he had purchased semi-furnished house for a consideration of Rs.7,90,00,000/- and completed the house to make it habitable by spending Rs.3,88,87,592/- on which he claimed cost of improvement with indexation of Rs.4,05,04,447/-. The assessee has furnished relevant details of expenditure incurred for completion of house to convert semi constructed house to fully constructed house for total build up area of 8000 sq. ft. for carrying out civil works as swell as other related work for construction of house. The Assessing Officer after considering the submissions and also taken note of purchase deed registered, observed that the assessee had purchased the house from Smt. G Yashodha and as per the schedule, the house was consisting of ground plus 2 upper floors (semi-constructed) with all doors, windows, fittings, electrical fittings, electrical service connections, security deposits with electricity department & GHMC for water and sewerage connections. Further the Assessing Officer observed that as per the sale deed dated Printed from counselvise.com ITA No.919/Hyd/2025 5 10.08.2017, the assessee had sold to Sri K V K S Prasada Rao the same house consisting of ground plus two upper floors along with all doors, windows, fittings, electrical fittings, electrical service connections, security deposits with electricity department & GHMC for water and sewerage connections, etc. After considering the purchase deed and sale deed of the property, the Assessing Officer denied the cost of improvement of Rs.3,88,87,592/- as claimed by the assessee. Therefore the explanation of the assessee was rejected by the Assessing Officer and made addition towards LTCG of Rs.4,05,72,447/- towards indexed cost of improvement. 4. Aggrieved with the order of Assessing Officer, the assessee filed appeal before the Ld. CIT(A). The assessee reiterated the submissions made before the Assessing Officer that the Assessing Officer has erred in disallowing the cost of improvement even though the documents furnished by the assessee including purchase deed clearly showed that the assessee purchased semi constructed building and Printed from counselvise.com ITA No.919/Hyd/2025 6 subsequently he made the improvements and therefore incurred expenditure of Rs.3,88,87,592/- for which necessary bills and other evidences were furnished before the Assessing Officer. The Ld. CIT(A) after considering the submissions of the assessee and also taken note of purchase deed and sale deed of the property, opined that there was no improvement to the property as claimed by the assessee to allow the indexed cost of improvement. Further the Ld. CIT(A) observed from the purchase deed and sale deed / documents furnished by the assessee, that it is clear that the impugned property of ground plus two upper floors, there was no improvement in the property at the time of purchase as well as at the time of sale. Therefore he held that the Assessing Officer correctly disallowed the cost of improvement of Rs.4,05,72,447/-. 5. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The learned counsel of the assessee submitted that the Ld. CIT(A) is erred in upholding the assessment order towards disallowance of cost of improvement Printed from counselvise.com ITA No.919/Hyd/2025 7 with indexation of the amount of Rs.4,05,72,447/- without appreciating the facts, that the assessee has purchased semi constructed building vide purchase deed dated 28.07.2014 and sold the fully furnished house through sale deed dated 10.08.2017 which is evident from the sale deed. The learned counsel for the assessee referred to the schedule of property as per purchase deed and submitted that, the assessee has purchased the house of ground plus two upper floors and the same has been fully furnished by incurring various expenditure by the assessee and all the bills / documents submitted to the Assessing Officer. The assessee has incurred Rs.3,88,87,592/- for further construction and improvement of the house of which he has claimed indexation benefit and claimed deduction of Rs.4,05,72,447/-. The Assessing Officer without appreciating the relevant facts, simply disallowed the claim of the assessee stating that purchased house property and sold house property are one and the same even though the schedule clearly shows the difference in the property purchased by the assessee and Printed from counselvise.com ITA No.919/Hyd/2025 8 sold for the year under consideration. Therefore he submitted that the additions made by the Assessing Officer should be deleted. 6. On the other hand, the learned Department Representative supported the orders of authorities below and submitted that as per the schedule of the property which is reproduced in the assessment order, the assessee has purchased house property consisting of house plus two upper floors with all fittings, electrical fittings, electrical service connections, security deposits with electricity department & GHMC for water and sewerage connections with fixtures and schedule of the property sold on 10.08.2017, also very same house without any additions. Therefore, the arguments of the assessee that he has completed the construction by spending Rs.3,88,87,592/- cannot be accepted going by the total built up area of the house property of 8000 sq. ft. and for the said area it is impossible to spend so much amount of Rs.3,88,87,592/- for improvement. The Assessing Officer has rightly disallowed the cost of improvement Printed from counselvise.com ITA No.919/Hyd/2025 9 with indexation of the impugned property. The Ld. CIT(A) has also rightly sustained the additions made by the Assessing Officer. Therefore, he submitted that the additions should be sustained. 7. We have heard the rival submissions and also gone through the orders of authorities below in the light of the submissions made. There is no dispute with regard to sale of property by the assessee for a consideration of Rs.13,90,00,000/- vide sale deed dated 10.08.2017 and the cost of purchase of the impugned property was at Rs.7,90,00,000/- as per the purchase deed dated 28.07.2014. The assessee has computed the LTCG of Rs.62,42,220/- after claiming cost of improvement with indexation of Rs.4,05,72,447/-. The assessee claims that he had purchase of semi constructed house consisting of ground plus two upper floors and sold the house property consisting of ground plus two upper floors which was fully furnished for which he has spent a sum of Rs.3,88,87,592/-. The Assessing Officer disallowed cost of improvement with indexation only on the ground that the amount spent for improvement was not Printed from counselvise.com ITA No.919/Hyd/2025 10 commensurate with the super built up area of 8000 sq. ft. constructed by the assessee. In other words, the Assessing Officer has not disputed the fact that the assessee has furnished relevant bills for expenditure of Rs.3,88,87,592/- for improvement of the property. The Assessing Officer took support from the schedule of the property as per purchase deed dated 28.07.2014 and also schedule of property as per the sale deed dated 10.08.2017 and observed that as per purchase and sale deed of the property, the assessee had not made any improvement to the property and further the cost of improvement is not commensurate with the total built up area of 8000 sq. ft. Further, the invoices submitted by the assessee were also not commensurate with the expenditure made and hence the cost of improvement with indexation has been disallowed and added back to the total income by the Assessing Officer. 8. We have given our thoughtful consideration to the various arguments of the learned counsel for the assessee along with relevant evidences and the reasons given by the Assessing Printed from counselvise.com ITA No.919/Hyd/2025 11 Officer for not allowing the cost of improvement with indexation, and, we ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that, as per purchase deed dated 28.07.2014, the assessee has purchased a house consisting of semi constructed house whereas the assessee sold the property on 10.08.2017 which was fully completed with all doors, windows, fittings, electrical fittings, electrical service connections, security deposits with electricity department & GHMC for water and sewerage connections, etc. The evidences filed by the assessee i.e. purchase deed of the property and sale deed clearly shows distinction between what was purchased by the assessee and what was sold by the assessee. Further, the assessee has also furnished ledger accounts of various contractors along with bills (including bills of VR Associates, Mohammed Abdul Masseh, Abdul Sattar Abdul Gani, Salaries payment, Aparna Enterprises Limited, Mohd. Abdul Habeen, Uday Heights Pvt. Ltd.), for expenditure incurred for Rs.3,88,87,592/- for further construction of house property and Printed from counselvise.com ITA No.919/Hyd/2025 12 improvement to the house property. Since there is a clear evidence for improvement of the house property and also there was difference between what was purchased by the assessee and what was sold by the assessee, in our considered opinion, the reasons given by the Assessing Officer to disallow the cost of improvement with indexation cannot be accepted. Further, the cost incurred by the assessee towards construction of house property cannot be said to be excessive or unreasonable only on the basis of super built up area of 8000 sq.ft and what is required to be seen is the type of house construction by the assessee and quality of the material used. In absence of relevant details, the cost incurred by the assessee of Rs.3,88,87,592/- for construction and improvement of house property with all supporting bills and vouchers cannot be said to be not commensurate with super built up area of 8000 sq. ft. In our considered view, the observation of the Assessing Officer with regard to cost of improvement of Rs.3,88,87,592/- in light of super built up area of 8000 sq. ft is only on the basis of suspicion Printed from counselvise.com ITA No.919/Hyd/2025 13 and surmise and not backed by any evidence. Since there are clear evidences in the form of bills and vouchers for incurring expenditure towards house property and further there is a clear difference between the schedule of property purchased by the assessee and the property sold by the assessee for the year under consideration, in our considered view, the additions made by the Assessing Officer and sustained by the Ld. CIT(A) cannot be upheld. Thus, we set aside the order of Ld. CIT(A) and direct the Assessing Officer to delete the additions made on account of cost of improvement with indexation of Rs.4,05,72,447/-. 8. In the result, the appeal of assessee is allowed. Order pronounced in the open Court on 10th Dec., 2025. Sd/- Sd/- (VIJAY PAL RAO) (MANJUNATHA G) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated: 10.12.2025. * Reddy gp Printed from counselvise.com ITA No.919/Hyd/2025 14 Copy of the Order forwarded to : 1. Shri Avnish Kumar, C/o P. Murali & Co., C.As. 6-3-655/2/3, Somajiguda, Hyderabad-500 082 2. The DCIT, Circle 5(1), Hyderabad. 3. Pr.CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard file. BY ORDER, Printed from counselvise.com "