Kaminiben, an NRI from Anand, Gujarat, ran into trouble with the income tax department after selling a house in AY 2018-19. She had originally purchased the property back in 2005 for Rs 1.94 lakh, and sold it for Rs 21.4 lakh. Tax notices followed but since she was living abroad at that time, she never got around to responding to them.
Since Kaminiben sold this property in 2018-19, she was entitled to get inflation (indexation) benefits. Once applied, the indexed cost of acquisition came to Rs 4.52 lakh. She had also spent money on improving the house over the years, and the indexed cost of these improvements added up to Rs 8.87 lakh, backed by contractor’s bills which she had kept as evidence. Running the numbers: Rs 21.4 lakh minus Rs 4.52 lakh minus Rs 8.87 lakh, left her with a long term capital gain of roughly Rs 8 lakh.
However, the Income Tax Department was unaware of all of this, and only saw that she sold her house for Rs 21.4 lakh and that she had purchased in 2005. Also the fact that Kaminiben did not explain all of this, indexation figures and improvement cost, when the tax department sent her tax notices, did not help the matter. Thus after waiting for a considerable amount of time, the Income Tax Department marked her as non-responsive and went ahead with a best judgement assessment instead.
Without any documentation on the cost of improvement and indexed acquisition cost, the tax officer disregarded both altogether. The entire sale proceeds of Rs 21.4 lakh got classified as short-term capital gains and on top of that additions were made for fixed deposits created from the sale proceeds.
Kaminiben, meanwhile, had no idea this was happening and went on with her life as usual. When she subsequently got to know about the assessment, she moved to challenge it, filing an appeal before the Commissioner of Appeals (CIT A). CIT(A) rejected her request for condonation of delay in filing the appeal, despite her explanation that she was an NRI living abroad and dismissed the appeal outright without even examining whether the assessment made by the Assessing Officer was correct.
Unhappy with the development, Kaminiben appealed to the Income Tax Appellate Tribunal (ITAT) Ahmedabad. Judicial Member Suchitra Kamble and Vice-President Dr. B.R.R. Kumar heard her appeal and decided the case on its merits. ITAT Ahmedabad ruled in her favour on March 27, 2026. Chartered Accountant AK Khandelwal had represented her before ITAT Ahmedabad.
On appeal, the Ahmedabad ITAT held that the property had been held long enough to qualify for long-term capital gains, accepted the indexed costs, computed the taxable LTCG at Rs 8 lakh, and allowed her appeal.
Also read: NRI sells his Bangalore property for Rs 2.63 crore, declares Rs 16.33 lakh LTCG, gets tax notice; he fights and wins partial relief from ITAT for this reason
Aarjav Jain, Executive Director and NRI Tax Expert, Dinesh Aarjav & Associates, explained to ET Wealth Online that ITAT Ahmedabad’s ruling is a significant reaffirmation that taxation must be imposed on real income and not merely on gross transactional value.
Jain says: “For NRIs selling property in India, the judgement rightly underscores that legitimate deductions such as indexed cost of acquisition and cost of improvement cannot be disregarded merely for procedural lapses or non-response to notices.”
According to Jain, equally important is the Tribunal’s recognition of practical difficulties faced by overseas taxpayers, signalling that substantive justice should prevail over technical non-compliance where documentary evidence exists.
Also read: Man sells property for Rs 48 lakh, constructs a new house but faces delay, income tax dept denies Section 54 claim; he fights and wins case in ITAT Chennai
ITAT Ahmedabad order
ITAT Ahmedabad said that on going through the records, they find that the Income Tax Assessing Officer has not considered the cost of improvement and treated the entire sale consideration as “Short Term Capital Gain”. The AO also made additions of fixed deposits coming out of the sale proceeds.
After considering the material placed before ITAT Ahmedabad, they said that they are of the view that the interest of justice would be served by adjudicating the issue on merits. The sale value, purchase cost, and cost of improvement of the property are not in dispute. Further, the fixed deposits made out of the sale consideration of the property are also not in dispute.
In view of the above facts, ITAT Ahmedabad determined the “Long Term Capital Gain” at Rs 8,00,164. Thus, the appeal of the assessee was allowed. The order was pronounced in the open Court on 27.03.2026.
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