Bangalore ITAT: NRI Allowed Indexed Interest Cost on Housing Loan; Travel Expenses for Property Sale Sent Back for Verification

Santanu Arun Nandi Vs ITO (ITAT Bangalore)

Bangalore ITAT: NRI Allowed Indexed Interest Cost on Housing Loan; Travel Expenses for Property Sale Sent Back for Verification

In a significant ruling for NRIs, the Bangalore ITAT held that interest paid on housing loan can form part of the cost of acquisition and be allowed with indexation, provided the same was not earlier claimed under the head “Income from House Property”.

The assessee, an NRI, had sold a residential property for ₹2.63 crore and while computing long-term capital gains claimed deductions towards travel expenses incurred for coming to India for the sale, one-time maintenance deposit, electricity/water deposits and indexed interest on housing loan. The AO rejected most of these claims and recomputed capital gains at a substantially higher figure.

A major procedural aspect in the case was that the appeal before the ITAT was delayed by 737 days because the assessee mistakenly filed appeal before the CIT(A) instead of directly approaching the Tribunal after DRP directions. The ITAT condoned the delay, observing that pursuing a wrong remedy under a bona fide mistake by a non-resident constituted sufficient cause.

On merits, the Tribunal held that the one-time maintenance deposit paid to the builder and the electricity/water deposits were intrinsically linked to acquisition of the flat and therefore constituted part of the cost of acquisition eligible for indexation.

Further, relying on the Karnataka High Court ruling in Hariram Hotels Pvt. Ltd., the ITAT held that the interest paid on housing loan was also allowable as part of cost of acquisition since the assessee demonstrated that no deduction for such interest had been claimed earlier u/s 24(b). The Tribunal specifically directed that indexed benefit be granted on such interest cost as well.

However, regarding foreign travel, hotel stay and related expenses claimed as expenditure incurred wholly and exclusively in connection with transfer u/s 48, the Tribunal noted that the assessee had stayed in India for 17 days and had also travelled to multiple cities. Since the nexus with the actual transfer required closer examination, the issue was restored back to the AO for fresh verification.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal is filed by SANTANU ARUN NANDI [the Assessee / Appellant] against the order passed by the ITO, WARD INTL. Taxation 1(2), Bengaluru [the ld. AO] dated 16-Jun-2023 for the Assessment Year 2020-21 wherein the total income of the assessee as per return of income of Rs.37,09,400 is assessed at Rs.76,00,744.

2. The issue in this appeal is with respect to the computation of long term capital gains in the hands of the assessee. Assessee has been denied the deduction of expenses from the net consideration as incurred by assessee wholly and exclusively in connection with transfer u/s 48(i) of The Act and Further the deposits of the maintenance to the society and to the Electricity board etc. Further the assessee has acquired the property transferred by securing loan on interest, for which assessee has not claimed any deduction under the income from house property and therefore it is eligible to consider the cost of acquisition and deduction at indexed value needs to be granted to the assessee.

3. Meanwhile, it was found that the appeal filed by the assessee against the final assessment order is late by 737 days. The assessee has filed a petition for condonation of delay in filing of the appeal before the Tribunal.

4. The facts show that the draft assessment order was passed on 19.9.2022. The assessee filed his objections before the Dispute Resolution Panel [ld. DRP] on 18.10.2022. The ld. DRP dismissed the objections of the assessee vide direction dated 29.5.2023 and consequent to that on 16.6.2023 the final assessment order was passed. The assessee under a mistaken belief instead of filing the appeal before the ITAT preferred appeal before the ld. CIT(A) within 30 days of the assessment order. The ld. CIT(A) vide appellate order dated 11.7.2025 dismissed the appeal of the assessee on the ground that since the Directions have been issued by the ld. DRP, the CIT(A) does not have any jurisdiction. The assessee thereafter contacted the Advisor, who filed the appeal before the ld. CIT(A), admitting the error and filed the appeal before the Tribunal on 23.7.2025 i.e., immediately after the order of the ld. CIT(A) and this caused the delay of 737 days in filing the appeal before the Tribunal.

5. In the petition for condonation of delay as well as in the Affidavit, the assessee explained that the reason for delay in filing this appeal is for sufficient cause.

6. The ld. DR vehemently submitted that the delay is not because of sufficient cause and therefore it should not be admitted.

7. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The assessee is a Non-Resident Indian. He has sold a property and admitted total income of Rs.16,70,250 by filing a revised return of income on 17.2.2022. The return was picked up for scrutiny and consequently a show cause notice was issued to the assessee on 24.3.2022 giving 4 days notice. Based on this on 19.9.2022 the draft assessment order was passed against which objections were raised on 18.10.2022 wherein the DRP summarily rejected the objections of the assessee on 29.5.2023 resulting in a final assessment order on 16.6.2023. As the assessee was not aware about the income tax proceedings, he approached the ld. CIT(A) by filing an appeal on 14.7.2023. On 11.7.2025, the appeal of the assessee was dismissed by the ld. CIT(A). Therefore the appeal of the assessee from 14.7.2023 till 11.7.2025 almost for 700 days remained filed before the CIT(A). The CIT(A) rejected the appeal of the assessee for the obvious reason that appeal does not lie before him, when the DRP has issued direction. Immediately on that date within 10 days, the assessee filed an appeal before the Tribunal. Pursuing an alternative remedy under a mistaken belief by a Non-resident assessee is a sufficient cause in n filing the delay in appeal , hence the delay in filing of the appeal of 737 days is condoned and the appeal is admitted.

8. The brief facts show that assessee has sold a house property for Rs.2,63,00,000 as per Sale Deed dated 6.1.2020. The assessee has computed long term capital gains of Rs.16,33,022 after claiming indexed cost of acquisition of Rs.2,30,15,679. The computation of capital gain shown by the assessee is that out of sale consideration, a brokerage amount of Rs.4,50,000 and expenses towards the travel of Rs.12,01,299 were reduced from the sale consideration resulting into net sale consideration of Rs.2,46,48,701. The assessee claimed indexed cost of acquisition of Rs.1,64,33,923, indexed cost of improvement of Rs.28,43,316 and also claimed deduction of interest aid on loan of Rs.37,38,440. Thus Rs.2,30,15,679 was considered as cost of acquisition and improvement from the net sale consideration of Rs.2,46,48,701 and offered long term capital gain of Rs.16,33,022.

9. The ld. AO asked for the details of expenses towards travel of Rs.12,01,299 and found that maintenance deposit paid by the assessee and other deposits of electricity etc. paid of Rs.5,66,144 and Rs.4,24,608 were considered as cost of acquisition and indexed and claimed deduction. The ld. AO also found that assessee has paid interest on housing loan of Rs.37,38,440 and claimed as deduction. With respect to expenditure, the expenses incurred in foreign travel of Rs.12,01,299 were claimed as expenses for travel. The AO did not allow the same and further did not consider the interest expenses as cost of acquisitions etc. The AO allowed the brokerage expenditure from sale consideration of Rs.4,50,000 and computed the net sale consideration of Rs.2,58,50,000. From that deduction and indexed cost of acquisition of Rs.1,64,3,923 along with the indexed cost of furniture & fixture of Rs.18,52,564 and thereby computed the net capital gain of Rs.75,63,513.

10. Before the ld. DRP, the claim of the assessee was as under:-

(1) To grant deduction of expenses towards transfer of capital assets of Rs.12,01,900 which were incurred by the assessee for coming to India such as air ticket, Hotel stay, etc. and claimed that same is considered as expenditure incurred in relation to the transfer of a capital asset in view of the decision of the Hon’ble Karnataka High Court in the case of Mrs. June Perrett v. ITO.

(2) The assessee further stated Rs.2,29,200 being maintenance deposit paid by the assessee to the builder which is also part of the cost of acquisition of the property it should be indexed and assessee must be granted deduction of Rs.5,66,144.

(3) The assessee has deposited Rs.1,71,900 which has an indexed cost of Rs.4,24,608 which was electricity and water deposit should also be considered as cost of acquisition or improvement of the property.

(4) The assessee has paid interest of Rs.21,60,275 for the purchase of the property and same should also be indexed of Rs.37,38,450 and should be granted to the assessee as a deduction.

11. The ld. DRP considered the above objections of the assessee at Objection 3, obtained a remand report of the ld. AO on the additional evidences submitted by the assessee. The remand report was also forwarded to the assessee vide email and assessee was heard. Therefore the ld. DRP passed the directions.

12. With respect to the expense of transfer of capital asset, the ld. DRP held that assessee stayed for 17 days in India in different places such as Kolkata, Trivandrum & Bangalore. Therefore such expense cannot be considered to be wholly and exclusively incurred for sale of property. Further with respect to transfer deposits such as maintenance, electricity and water deposits, were also not considered as exclusively for the sale. With respect to interest on house property, it was stated that the assessee failed to substantiate that interest has not been claimed by him in earlier years and therefore the objections of the assessee were rejected. The final assessment order was passed on the similar line.

13. The ld. AR, Mr. P.R. Suresh, CA, was heard. A detailed paperbook containing 330 pages was filed. The assessee submitted the detailed of stay expenses, travel tickets, professional fees, housing loan certificates and evidences of his earlier returns where such interest expenditure was not claimed in the return of income. The summary of income tax returns was also filed from AY 2007-08 to 2020-21 to show that assessee has not claimed interest on housing loan as deduction u/s. 24(b) of the Act. With respect to the expenses in relation to transfer of the property, the assessee also submitted that he has paid Rs.1,50,000 to Povas Financial Consultants which is placed at page 321 of PB for the purpose of professional charges for rendering services in relation to sale of property, drafting of sale deed and advise towards tax matters. Thus the claim of the assessee for the expenditure of travel and consultancy fee was claimed as expenditure in connection with the transfer of property.

14. The assessee relied on the decision of Hon’ble Karnataka High Court in ITA No.58/2009 in the case of Hariram Hotels Pvt. Ltd. dated 01.12.2019 wherein the Hon’ble Court was dealing with deduction of interest paid to the Director of a company for purchase of property where the interest expenditure was allowed while calculating cost of acquisition of the asset. He further relied on the decision of the Coordinate Bench in ITA No.120/JP/2019 dated 28.2.2020 wherein the interest paid on loan to LIC Housing where the interest paid is allowed as part of the cost of the assets while computing the capital gain.

15. The ld. AR further relied upon the decision of the Coordinate Bench in the case of Adil Rehman in ITA No.15/Hyd/2024 dated 19.3.2024 wherein the Coordinate Bench has allowed the claim of the assessee of travel expenses, hotel accommodation, etc., where the non-resident assessee from USA was allowed the deduction of travelling expenses while computing the capital gain relying on the decision of Hon’ble Bombay High Court in the case of Shakuntala Kantilal, 190 ITR 56. Therefore his claim was that this issue is also covered in favour of the assessee.

16. The ld. DR vehemently referred to the provisions of section 48 of the Act and submitted that only those expenditure which are incurred wholly and exclusively in connection with such transfer are required to be reduced from the full value of consideration u/s. 48(1) of the Act. It was submitted that the travel expenditure incurred are not incurred wholly and exclusively in connection with such transfer. It was stated that the ld. DRP has also considered this issue. He submitted that assessee has stayed in India for 17 days which are far from excessive than what is required for the purpose of transfer. With respect to the interest expenditure, he referred to the provisions of section 55 and submitted that according to section 55(1)(b)(2)(ii) expenses which are incurred and are deductible as income from house property cannot be considered as cost of any improvement. He further referred to section 55(2) regarding cost of acquisition stating that according to sub-clause (b) the amount of deposit cannot be considered as cost of acquisition of the property. He heavily relied upon the orders of ld. lower authorities. It was further stated that before the ld. DRP despite assessee being given enough opportunity, he did not submit any rejoinder to the remand report as stated in para 4.2 of the order.

17. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities and also considered the various judicial precedents relied up on by the ld. AR.

18. According to the provision of section 48 (i) of The Act The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the amounts, expenditure incurred wholly and exclusively in connection with such transfer .

19. The facts in this case show that assessee is a non-resident who has sold a property in India and offered capital gain thereon. However, while computing capital gain assessee has claimed the expenses towards transfer of Rs.12,01,299 which is explained for travel from US to India and Boarding expenses incurred by him amounting to Rs.12,01,299 stating that such travel expenses has to be allowed as deduction to the assessee from the sale consideration in terms of provisions of section 48 (1) of the Act wherein the expenditure incurred wholly and exclusively in connection with such transfer is allowed as a deduction. The assessee has relied upon several judicial precedents including the decision of Hon’ble Karnataka High Court wherein the Hon’ble High Court has allowed the expenses relating to sale of property including legal & professional fees. For this proposition the assessee has also relied on the decision of the Coordinate Bench in the case of Adil Rehman (supra). The facts of that case show that assessee has claimed travel expenses of Rs.2,81,425 which included expenses towards obtaining of journey air tickets, hotel accommodation, postal charges, lawyer fees, etc. The Coordinate Bench has held that these are specifically needed to execute a sale. The Coordinate Bench also relied upon the decision of Hon’ble Bombay High Court in the case of Shakuntala Kantilal, 190 ITR 56. In this case, we find that the ld. DRP in para 4.3.1 has held that assessee has submitted air travel bills and bills for hotel stay for 2 to 3 people. The assessee has travelled and stayed in hotel in different places such as Kolkata, Trivandrum and Bangalore during his 17 days stay in India and therefore the ld. DRP held that expenses are not incurred wholly and exclusively in connection with such transfer and therefore the same was disallowed. The ld. DRP also did not consider the decision of the Coordinate Bench.

20. We find that assessee had produced travel tickets from US to India from Chicago to Frankfurt and Frankfurt to Bangalore from 5.11.2019 to 6.11.2019. He has also showed the business class ticket of Bangalore to Chicago on 21.11.2019. Thus, his travel tickets are showing that he entered in India on 04.11.2019 and reached Chicago on 21.11.2019. Further he has produced some air tickets for travelling on 2.1.2020 and 19.1.2020 from Chicago – Delhi, Kolkata – Delhi and Delhi – Chicago. This includes the travel expenditure of Mr. Pranjal Nandi over and above the assessee. The assessee has further incurred the expenditure of Rs.1,50,000 to Povas Financial Consultancy, Bangalore for professional fees towards property sale. He has further shown the stay expenses at Bangalore from 5/1 to 8/1 being hotel bill wherein the assessee has incurred expenditure of Rs.93,125. The assessee has included the Sale Deed which is placed at pages 112 to 125 of the PB. It shows that this Sale Deed was executed on 6.1.2020by Mr. Santanu Nandi and Mrs. Ela Nandi, wife of the assessee. Thus, the transfer of the property took place on 6.1.2020 and if that be the case, the assessee is not entitled to claim deduction of the expenditure of travel etc. incurred by him in Nov. 2019 as these were not ‘in connection with’ such transfer when sale deed was executed on 6.1.2020.. However, the travel expenditure so far air expenditure is concerned which relates to Mr. Santanu Nandi has been incurred by the assessee in connection with such transfer when he arrived in India for registering sale deed. However, there is one more phrase that such expenditure incurred should be wholly and exclusively in connection with such transfer is also required to be satisfied by the assessee. There is no need for elaboration of this phrase. Further it is also part of the provisions of section 37(1) of the Act which allows deduction of expenses while computing business income. Identical phares is employed for granting deduction of expenses while computing capital gains.

21. On careful consideration of the decision relied on by the assessee, there is no discussion on whether such expenses incurred by the assessee in case of Adil Rehman (supra) were wholly and exclusively in connection with such transfer. Therefore, reliance on that decision does not help the case of the assessee.

22. Further onus lies on the assessee, it is for the assessee to substantiate before the lower authorities that the total expenditure incurred by him is wholly and exclusively in connection with such transfer. The connection should be proximate to the transfer. Here the Sale Deed is executed on 6.1.2020, but the ld. DRP has stated that assessee has stayed for 17 days in India and claimed such expenditure.

23. Thus, we restore this issue back to the file of the ld. AO. The assessee is directed to substantiate before the ld. AO of these expenses are falling into the above clause. Accordingly, the ld. AO is directed to examine the details produced by the assessee and verify whether such expenditure is incurred wholly and exclusively in connection with such transfer and decide the issue afresh. Ground No.8 is allowed to that extent.

24. Ground No.9 is with respect to the claim of the assessee of one time maintenance deposit of Rs.2,29,000 which is forming part of the cost of the flat. Such cost is necessarily part of the cost of acquisition as without paying one time maintenance deposit, the assessee would not have been given possession of the property purchased. It is not the case of the Revenue that assessee has received one time maintenance deposit separately from the buyer. The claim of the ld. AR is that no separate consideration is received, and such maintenance deposit is attached to the acquisition of the flat. Accordingly, we allow ground No.8 of the appeal and direct the ld. AO to consider the one time deposit of Rs.2,29,000 as part of the cost of acquisition of the assessee.

25. Ground No. 10 is also with respect to the deposit of electricity and water of Rs.1,71,900 which is also allowed to be considered as cost of acquisition for the similar reasons as stated in Ground No.8 of this appeal. Thus, this ground of appeal is also allowed.

26. Ground No.11 is with respect to cost of Rs.21,60,275 which is interest expenditure incurred by the assessee towards loan taken from the Bank. The decision of the Hon’ble Karnataka High Court in the case of CIT v. Sri Hariram Hotels P. Ltd. (supra) squarely covers the issue in favour of the assessee. The claim of the assessee is also that he has not claimed such deduction under the head income from house property for any of the previous years. For the same the assessee has produced the income tax returns already filed by the assessee for so many years. Therefore, the claim of the assessee of deduction of interest has cost of acquisition is not hit by the provisions of section 55(1)(b)(2). Accordingly, respectfully following the decision of the Hon’ble Karnataka High Court, we direct the ld. AO to allow the interest cost of Rs.21,60,275 as cost of acquisition to the assessee. No doubt the assessee is entitled to the indexed cost of the same. Thus, this ground of appeal is allowed.

27. All other grounds of appeal are not pressed before us and therefore the same are dismissed.

28. In the result, appeal filed by the Assessee is PARTLY ALLOWED.

Order pronounced in the open court on 20^thMay, 2026.