Mr Nandi, a US-based NRI originally from Bengaluru's Hosur Road, landed in trouble after he filed his Income Tax Return (ITR) for Assessment Year (AY) 2020-21, declaring a long-term capital gain (LTCG) of Rs 16.33 lakh from the sale of a property for Rs 2.63 crore through a registered sale deed on January 1, 2020.
In his ITR, Mr Nandi showed only Rs 16.33 lakh as LTCG by claiming a total indexed cost of acquisition (inflation benefit) of Rs 2.3 crore, which included the benefit of indexation along with some other expenses he incurred in connection with the property. After factoring all these expenses, he arrived at the LTCG figure of Rs 16.33 lakh.
The Income Tax Department denied most of these expenses, increasing his taxable income and, consequently, his tax liability, and sent Nandi a tax notice.
Nandi claimed the following expenses as deductions to reduce his taxable capital gains:
- Indexed original cost of acquisition: Rs 1.64 crore
- Brokerage: Rs 4.5 lakh
- Indexed cost of maintenance paid to builder: Rs 5.66 lakh
- Indexed cost of water and electricity deposit: Rs 4.24 lakh
- Travel from Chicago( USA) to Kolkata, Trivandrum, and Bangalore: Rs 12.01 lakh
- Indexed cost of improvement: Rs 28.43 lakh
- Home loan interest: Rs 37.38 lakh
After including these expenses, Nandi's total indexed cost of acquisition increased to Rs 2.3 crore from the original Rs 1.64 crore; reducing his reported LTCG to Rs 16.33 lakh.
The Income Tax Department's International Taxation wing in Koramangala, Bengaluru, disputed his claim for all these expenses and rejected the majority of them. As a result, his total taxable income increased from Rs 37.09 lakh (as declared in his ITR) to Rs 76 lakh (which the tax department determined as his income). Nandi, feeling aggrieved, filed an appeal with the Dispute Resolution Panel (DRP), but he lost the appeal on June 16, 2023.
Nandi subsequently appealed before the Commissioner of Appeals (CIT A), but the appeal was dismissed due to lack of jurisdiction. He later admitted that he mistakenly approached the wrong forum. He then filed a condonation of delay application and an appeal before the Income Tax Appellate Tribunal (ITAT) Bangalore, albeit with a delay of 737 days.
ITAT Bangalore Bench C, consisting of Vice-President Prashant Maharishi and Judicial Member Soundararajan K, heard his case and partly allowed his appeal on May 20, 2026. CA P R Suresh represented him before the ITAT Bangalore.
Chartered Accountant Priyal Goel Jain, Partner and NRI Tax Expert, Dinesh Aarjav & Associates, said to ET Wealth Online that this ITAT Bangalore ruling is a significant relief for NRIs selling property in India.
According to Jain, the ITAT Bangalore has reaffirmed that legitimate costs connected with acquisition and transfer of property, including unclaimed housing loan interest, mandatory maintenance deposits, and certain transfer-related expenses, can significantly reduce capital gains tax liability.
Jain says: "For NRIs, this ruling highlights the importance of proper documentation, accurate tax filing in India, and technically sound capital gains computation, especially in cases where income tax notices or excess TDS deductions arise after property transactions."
ITAT Bangalore order and discussion
A summary of the ITAT Bangalore judgement is as follows:
Travel expenses must be in connection to the property sale
Nandi's CA (P R Suresh) argued before the ITAT Bangalore that a Co-ordinate Bench of the ITAT Hyderabad in the case of Adil Rehman in ITA No.15/Hyd/2024 dated March 19, 2024, had allowed travel expenses to be deducted as expenses incurred for property sale. The Coordinate Bench also relied upon the decision of the Hon'ble Bombay High Court in the case of Shakuntala Kantilal, 190 ITR 56.
The ITAT Bangalore said that the DRP held that these travel expenses are not incurred wholly and exclusively in connection with such property sale, and therefore, the same was disallowed. The DRP also did not consider the decision of the Co-ordinate Bench.
The ITAT Bangalore said that they have carefully considered his claim and ruled to remand the issue back to the file of the Income Tax Assessing Officer (AO) to examine the details given by Nandi and verify whether such expenditure is incurred wholly and exclusively in connection with the property sale and decide the issue afresh.
Maintenance deposit paid to builder and water, electricity deposit is allowed as cost of acquisition
The ITAT Bangalore examined the issue of maintenance paid by Nandi to the builder and said that such costs form part of the cost of the flat.
The ITAT Bangalore said: "Such costs are necessarily part of the cost of acquisition, as without paying a one-time maintenance deposit, the assessee (Nandi) would not have been given possession of the property purchased."
Thus, this claim of Nandi was allowed as an expense incurred for selling the property since Nandi's CA told the ITAT that he has not separately taken any money from the buyer for these specific maintenance expenses.
The ITAT Bangalore also ruled that the deposit money paid for electricity and water is allowed to be considered as cost of acquisition for the similar reasons as stated for maintenance expenses.
Home loan interest claim allowed as cost of acquisition
The ITAT Bangalore said that the issue of home loan interest cost incurred for selling this property is covered by a judgement of the Karnataka High Court in the case of CIT v. Sri Hariram Hotels P. Ltd. Thus, the ITAT Bangalore allowed his claim for home loan interest.
The ITAT Bangalore said that, respectfully following the decision of the Hon'ble Karnataka High Court, they ruled that the AO must allow the interest cost as a cost of acquisition.
The ITAT Bangalore said: "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)."
Order: The ITAT Bangalore allowed most of the grounds of appeal filed by Nandi barring the travel expenses claim. In the result, appeal filed by Nandi is partly allowed. Order pronounced in the open court on 20th May 2026.
