Expenses on Interiors and Utility Connections for Residential Property Qualify as Cost of Acquisition u/s 54: ITAT [Read Order]
The Tribunal relied upon the valuation report by VJPS Developer as special evidence substantiating the appellant’s claim regarding expenditure on interiors and fittings. This evidence was crucial in supporting the appellant’s contention that the costs were genuine and necessary for habitation of the property.
![Expenses on Interiors and Utility Connections for Residential Property Qualify as Cost of Acquisition u/s 54: ITAT [Read Order]](https://images.taxscan.in/h-upload/2025/08/29/2081820-section-54-itat-chennai-cost-of-acquisition-property-taxscan.webp "Expenses on Interiors and Utility Connections for Residential Property Qualify as Cost of Acquisition u/s 54: ITAT [Read Order]")
The Income Tax Appellate Tribunal (ITAT), Chennai, has ruled that expenditure incurred on interior works and essential utility connections can be treated as part of the cost of acquisition of a new residential property and thereby qualify for exemption under Section 54 of the Income Tax Act, 1961.
The appellant, Venkatraman Jayashree Priyadharshini, filed her return of income for the assessment year 2015 - 16 declaring total income of ₹1.41 crore, which included long-term capital gains of ₹1.37 crore. The Assessing Officer, however, determined the capital gains at ₹2.87 crore.
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On appeal, the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [CIT(A)], restricted the taxable gains to ₹2.01 crore by allowing a deduction of ₹88.85 lakh under Section 54 of the Act. Aggrieved by the sustained addition of ₹64.60 lakh, the appellant approached the Tribunal.
The appellant represented by Y. Sridhar, F.C.A., contended that additional expenses of ₹21 lakh incurred towards interior works such as painting, wardrobe fittings, modular kitchen, and cupboard interiors ought to be allowed as they were necessary to make the residential property habitable.
It was further submitted that incidental charges of ₹2 lakh, paid to the builder for electricity, water, and sewerage connections, were also essential and should qualify for exemption.
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Reliance was placed on the Bangalore Bench rulings in Sapna Hemanshu Shah v. DCIT and Y. Manjula Reddy v. ITO, which held that such expenses fall within the ambit of Section 54 relief.
The respondent represented by Ms. R. Anita, Additional CIT, argued that adequate relief had already been provided by the CIT(A) based on the available records. It was submitted that no further claims should be entertained, as the appellant had already received substantial benefit under Section 54.
The Bench comprising S.S. Viswanethra Ravi Judicial Member and Amitabh Shukla Accountant Member, noted that the appellant had produced a valuation report dated March 16, 2020, from VJPS Developer. The report confirmed the expenditure on interior works and utility connections.
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The Tribunal observed that such expenses are integral to rendering a residential property habitable and therefore fall within the scope of Section 54.
Accordingly, it directed the Assessing Officer to grant additional deductions of ₹21 lakh towards interiors and ₹2 lakh towards utilities, thereby reducing the taxable long-term capital gains to ₹1.75 crore.
The appeal was accordingly partly allowed, granting relief that reduced the taxable long-term capital gains.
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