Expenses for making house habitable are not renovation expenses and hence qualified for exemption u/s 54

In a recent order, the ITAT Delhi has held that when house was purchased in inhabitable condition and expenditure was necessary for the proper electrification, water facilities, wood work, glass work, etc.. It cannot be called renovation expenses denying claim of exemption u/s 54

ABCAUS Case Law Citation:
ABCAUS 4147 (2024) (07) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of the Assessing Officer (AO) in restricting the claim of exemption u/s 54 of the Income Tax Act, 1961 (the Act) towards the expenses which according to the assessee was incurred for putting the house in habitable condition.

The appellant assessee was an individual. The sources of income of the assessee for the year under consideration were income from business, income from capital gain and income from other sources. The return of income was processed u/s 143(1) of the Act. This case was selected for scrutiny under CASS and a notice u/s 143(2) of the Act was issued.

During the year under consideration, assessee had claimed deduction for investment made in house property in accordance with section 54 of the Act. The assessee had purchased the said residential flat in unfinished condition from the builder. The assessee further incurred capital expenditures in the form of electrification of house and water facilities, wooden works, glass works, works to carry out cooking activities, bath room fittings and fixings and painting of wall, doors and windows, to make the new property in the habitable condition since the flat so purchased was in unfinished/in a state of general disrepair and was inhabitable.

The AO denied the claims made by assessee u/s 54 of the Act stating that the capital expenditure so made by the assessee to bring the new property in the habitable condition will not be includible in the cost of new property and hence consequently disallowed proportionate exemption claimed u/s 54 of the Act.

The Tribunal observed that as per the facts of the case, the house was purchased in inhabitable condition and expenditure was necessary for the proper electrification, water facilities, wood work, glass work, etc. as detailed above. It cannot be at all called renovation expenses. Assessee’s claim was appropriate and assessee should get exemption u/s 54 of the Act on this expenditure also.

The Tribunal opined that the decision of the Co-ordinate Bench at Ahmedabad was applicable on the facts of this fact and CIT(A) had erred in distinguishing the said case law.

Accordingly, the Tribunal set aside the orders of the authorities below and decide the issue in favour of the assessee.

In the result, the appeal of the assessee was allowed. 

Download Full Judgment Click Here >>

Also Read:

• Once assessee discharges primary onus, it shifts to AO to bring evidence to contrary – ITAT
• Cost Inflation Index for FY/Tax Year 2026-27 notified by CBDT. See Up-to-date Table of CII
• Power of CIT(A) u/s 251(1)(a) to remand case can be exercised only in best judgment assessment
• ICAI (Global Networking) Guidelines, 2025 kept in abeyance
• Bank of India-Online Concurrent Audit Empanelment FY 2026-27. Last Date : 15.07.2026