Indexed Cost of Renovation Allowed in Part: ITAT Grants Partial Relief to Assessee in Long-Term Capital Gain Dispute [Read Order]

In a recent ruling, the Nagpur Bench of the Income Tax Appellate Tribunal (ITAT) granted partial relief to the assessee, Geetadevi Badrinarayan Panpaliya, by allowing part of the indexed cost of improvement claimed towards computation of long-term capital gain (LTCG), while holding that some renovation expenses lacked credible evidence.

The appeal arose out of the order passed by the Commissioner of Income Tax [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi, for Assessment Year (AY) 2014–15, in which the assessee challenged the disallowance of the indexed cost of improvement in a jointly owned residential property.

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In computing LTCG, the assessee claimed deductions for indexed cost of acquisition and indexed cost of improvement totalling ₹30,43,168 (of which her 50% share was ₹15,21,584). Further deductions were claimed under sections 54, 54EC, and investment in the Capital Gain Account Scheme, reducing the taxable LTCG to ₹19,36,150.

However, the Assessing Officer (AO) disallowed the entire improvement cost, citing a lack of supporting documentation or audit trail, which the CIT(A) upheld. Before the Tribunal, the assessee raised two key points: that the notice issued under Section 143(2) was barred by limitation (not pressed during hearing) and that the disallowance of the indexed cost of improvement was unjustified, especially given the property’s old age and condition, requiring extensive renovation to make it habitable.

The assessee’s representative submitted the computation sheet of LTCG along with sale deeds, arguing that the renovations carried out over the years were reasonable and necessary for the property’s saleability.

The Tribunal observed that the property was constructed in 1954, and renovation was expected to make it livable. While there was merit in the claim of improvements done in the early 1980s, the expenditures allegedly incurred in 1990–91 were found to be impossible and lacking authentic proof, such as bank statements or ledger entries.

The bench comprising Shri V. Durga Rao (Judicial Member) and Shri K. M. Roy (Accountant Member) carefully examined the documentary evidence. The ITAT allowed the indexed cost of improvement only for the years 1981–82 and 1983–84, amounting to ₹10,81,234, and disallowed the balance. This resulted in partial relief to the assessee, acknowledging part of the renovation claim.

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