NAGARAJ ARIGA,ONGOLE vs. ITO, WARD -1, ONGOLE

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ITA 173/HYD/2026Status: DisposedITAT Hyderabad15 July 2026AY 2018-196 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the cost of acquisition must be allowed while computing capital gains. It restored the issue to the Assessing Officer for recomputation of capital gains after considering the cost of acquisition and other admissible deductions.

What were the facts?

The assessee sold an immovable property for ₹1,72,75,000 but did not file a return of income. The Assessing Officer treated the entire sale consideration as capital gains without allowing for the cost of acquisition. The CIT(A) dismissed the assessee's appeal.

What were the issues?

Whether capital gains were correctly computed without allowing for the cost of acquisition. Whether the penalty proceedings can survive when the quantum addition is set aside.

Which sections of the Income-tax Act were involved?

Section 147,Section 148A,Section 144,Section 139,Section 127

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘A‘ Bench, Hyderabad

Before: Shri Ravish SoodShri Madhusudan Sawdia

Hearing: 06/07/2026

आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A‘ Bench, Hyderabad �ी रिवश सूद,�ाियक सद� एवं �ी मधुसूदन साविड़या लेखा सद� सम� | Before Shri Ravish Sood, Judicial Member A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA Nos.172 & 173/Hyd/2026 (िनधा�रण वष�/Assessment Year: 2018-19) Shri Nagraj Ariga Vs. Income Tax Officer ONGOLE Ward -1 PAN: CDDPA3037P ONGOLE (Appellant) (Respondent) िनधा�रती �ारा/Assessee by: CA A Srinivas राज� व �ारा/Revenue by: Shri Mohan Babu, Sr. AR सुनवाई की तारीख/Date of hearing: 06/07/2026 घोषणा की तारीख/Pronouncement: 15/07/2026 आदेश/ORDER Per Bench.:

These two appeals are filed by Shri Nagraj Ariga (“the assessee”), feeling aggrieved by the separate orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) (“Ld. CIT(A)”) both dated 06.01.2026 for the A.Y. 2018-19. Since the issues raised by the assessee in both these appeals are inter-related, for the sake of convenience, these were heard together and are being disposed of by this common and consolidated order.

ITA No 172/Hyd/2026:

2.

The assessee has raised the following grounds of appeal:

“1. The order of the Appellate Commissioner is contrary to law, facts and circumstances of the case. 2. The Appellate Commissioner erred in confirming the order passed u/s.147 r.w.s 144B, which was bad in law and deserves to be quashed. 3. The Appellate Commissioner erred in confirming the issue of notice u/s.148A(b) issued on 25.03.2022, which is without jurisdiction, as it has been issued by the Jurisdictional A.O, Ward 1, Ongole, Andhra Pradesh. 4. The Appellate Commissioner ought to have seen that the Jurisdictional A.O, Ward 1, Ongole, Andhra Pradesh, has no jurisdiction to issue a notice u/s.148A(d), after the introduction of "Faceless Jurisdiction of the Income Tax Authority Scheme 2022", and as such the notice issued by the JAO needs to be quashed. 5. Without prejudice to the above grounds, the case once having been transferred to the National Faceless unit, vide a notice dated 27.01.2023, the local jurisdictional officer has lost jurisdiction over the case, and as such the subsequent notices issued by the JAO, are without the sanction of lawand deserve to be quashed, and also the assessment order framed by the JAO. 6. The assumption of jurisdiction by the JAO, after transferring the case to faceless unit, is void ab initio, as no order transferring the case back to the JAO, was passed under section 127 of the Income Tax Act. 7. Without prejudice to the above grounds, the Appellate Commissioner erred in confirming the addition of an amount of Rs.1,72,75,000/- as short-term capital gains. 8. Any other grounds which the assessee may urge either before or at the time during the hearing.”

3.

The brief facts of the case are that the assessee is an individual who had not filed any return of income for Assessment Year 2018-19 under section 139 of the Income-tax Act, 1961 (“the Act”). Based on the information available with the Learned Assessing Officer (“Ld. AO”), it came to his notice that during the year under consideration, the assessee had sold an immovable property for a consideration of ₹1,72,75,000/-. Accordingly, the Ld. AO initiated reassessment proceedings under section 147 of the Act and, after passing an order under section 148A(d) of the Act, issued notice under section 148 of the Act on 10.04.2022. However, the assessee neither filed any return of income in response to the notice issued under section 148 of the Act nor complied with any of the notices issued by the Ld. AO during the reassessment proceedings. Consequently, the Ld. AO treated the entire sale consideration of ₹1,72,75,000/- received on transfer of the immovable property as capital gains in the hands of the assessee and completed the assessment under section 147 read with section 144 of the Act vide order dated 29.03.2024. 4. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), however, dismissed the appeal of the assessee. 5. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the assessee is pressing only one issue arising from the impugned order, namely, the computation of capital gains at ₹1,72,75,000/-. The Ld. AR submitted that the Ld. AO has erroneously treated the entire sale consideration as capital gains without allowing any deduction towards the cost of

acquisition of the property. He further submitted that the assessee had furnished copies of the purchase documents before the Ld. CIT(A); however, no relief was granted. The Ld. AR therefore prayed that suitable directions may be issued to the Ld. AO to recompute the capital gains after granting deduction towards the cost of acquisition of the property in accordance with law. 6. Per contra, the Learned Departmental Representative (“Ld. DR”) relied upon the orders of the lower authorities. 7. We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the Ld. AO has treated the entire sale consideration of ₹1,72,75,000/- received by the assessee on transfer of the immovable property as capital gains. We find merit in the contention of the Ld. AR that while computing capital gains under the provisions of the Act, deduction towards the cost of acquisition of the capital asset is required to be allowed in accordance with law. From the orders of the lower authorities, we find that no exercise has been undertaken to ascertain and allow the eligible cost of acquisition while computing the capital gains arising on transfer of the property. In our considered opinion, computation of capital gains without examining the claim relating to cost of acquisition would not result in a correct determination of taxable capital gains. Considering the totality of the facts and circumstances of the case, and in the interest of justice, we deem it appropriate to restore this issue to the file of the Ld. AO with a direction to recompute the capital gains arising from the transfer of the immovable property after allowing the eligible cost of acquisition and other admissible

deductions, if any, in accordance with law, on the basis of evidence available on record. The assessee shall be at liberty to file all necessary documentary evidences and submissions in support of his claim before the Ld. AO. The Ld. AO shall examine the same and decide the issue afresh in accordance with law after providing adequate opportunity of being heard to the assessee. The assessee is directed to extend full cooperation during the remand proceedings and shall not seek any unnecessary adjournment. 8. In the result, the appeal of the assessee in ITA No. 172/Hyd/2026 is allowed for statistical purposes. ITA No.173/Hyd/2026 9. We find that the present appeal relates to the penalty levied with reference to the quantum addition which is the subject matter of appeal in ITA No. 172/Hyd/2026. In ITA No. 172/Hyd/2026, we have set aside the quantum issue to the file of the Ld. AO for fresh consideration and adjudication in accordance with law. Since the very foundation of the impugned penalty is the quantum addition which has been restored to the file of the Ld. AO, the penalty proceedings arising therefrom cannot survive independently at this stage. In our considered view, the fate of the penalty proceedings depends upon the outcome of the quantum proceedings. Accordingly, following the outcome of the quantum appeal in ITA No. 172/Hyd/2026, we set aside the impugned penalty order and restore the matter to the file of the Ld. AO with a direction to reconsider and decide the penalty proceedings afresh after finalization of the quantum assessment pursuant to the directions contained in the order of the Tribunal in ITA

No. 172/Hyd/2026. The assessee shall be at liberty to raise all factual and legal contentions available under law during the penalty proceedings. The Ld. AO shall afford adequate opportunity of being heard to the assessee before passing the order in accordance with law.

10.

Accordingly, the appeal of the assessee in ITA No. 173/Hyd/2026 is allowed for statistical purposes.

11.

To sum up, both the appeals of the assessee are allowed for statistical purposes.

Order pronounced in the Open Court on 15th July, 2026. Sd/- Sd/- (RAVISH SOOD) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 15th July, 2026. Vinodan/sps Copy to: S.No Addresses 1 Shri Nagraj Ariga, 2-1-109 Near Ramalayam, Graddalagunta, ONGOLE 523002 2 Income Tax Officer Ward-1 Income Tax Office, Roshan Plaza, 8th Line Ramnagar, Ongole 3 Pr. CIT, GUNTUR 4 DR, ITAT Hyderabad Benches 5 Guard File

By Order Digitally signed by TUMMALACHARLA TUMMALACHARLA LAKSHMI NARAYANA DN: cn=TUMMALACHARLA LAKSHMI LAKSHMI NARAYANA, c=IN, o=INCOME TAX APPELLATE TRIBUNAL, ou=INCOME TAX NARAYANA APPELLATE TRIBUNAL, CHENNAI BENCH Date: 2026.07.15 12:19:36 +05'30'

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