RITU CHOPRA,PANCHKULA vs. INCOME TAX OFFICER, WARD-3, PANCHKULA, PANCHKULA

That the Ld. Commissioner of Income Tax (Appeals) has erred in law in upholding the reopening of the assessment by issuance of notice u/s 148 of the Act which was issued after the statutory period of six years prescribed under the Act and as such the order passed is illegal, arbitrary and unjustified.

That the Ld. Commissioner of Income Tax(Appeals) has erred in law as well as on facts in upholding of the reassessment in as much as there has been no reason to believe that there was an escapement of income and as such the order passed is illegal, arbitrary and unjustified.

That Ld. Commissioner of Income Tax(Appeals) has erred in upholding the reassessment proceedings in the absence of issuance and thereafter service of notice u/s 143(2) of the Act which is a mandatory requirement and as such the order is illegal, arbitrary and unjustified.

That the Ld. Commissioner of Income Tax (Appeals) has erred in law in enhancing the income without affording mandatory opportunity and notice and as such the enhancement made is illegal, arbitrary and unjustified.

That the Ld. Commissioner of Income Tax(Appeals) has further erred in enhancing the income on an issue of capital gains which was not the reason for re-opening and the addition made on the reason recorded regarding alleged unexplained investment in property stands deleted by Commissioner

Without prejudice to the above, the Ld. Commissioner of Income Tax(Appeals) has further erred in assessing the Capital gains at Rs.98,94,000/- on sale of residential property # 125, Sector 1, Manesar, Gurgaon sold on 22.06.2012 for Rs.1,20,00,000/- which was not the issue before him and as such enhancing the income is arbitrary and unjustified.

That the Ld. Commissioner of Income Tax(Appeals) has further erred in not giving benefit of the indexed cost of improvement while computing capital gains resulting in computation of higher Capital gains which is arbitrary and unjustified.

That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.

That the order of Ld. Commissioner of Income Tax(Appeals) Officer is arbitrary, opposed to the facts of the case and thus untenable.

Briefly stated, the facts of the case are that the assessee filed her return of income declaring total income of Rs.33,38,850/-. Subsequently, information was received by the Assessing Officer that the assessee had purchased an immovable property situated at Sector-26, Panchkula for a consideration of Rs.79,20,000/- during the relevant previous year. Based on the said information, the assessment was reopened by issuance of notice under section 148 of the Income Tax Act, 1961 dated 30.03.2021. 4. During the reassessment proceedings, the Assessing Officer required the assessee to explain the source of investment made in the aforesaid property. According to the Assessing Officer, despite various opportunities, the assessee failed to furnish satisfactory documentary evidence explaining the source of investment. The Assessing Officer, therefore, treated the amount of Rs.79,20,000/- as unexplained investment under section 69 of the Act and completed the assessment under section 147 read with section 144 of the Act at a total income of Rs.1,12,58,850/-.

Aggrieved against the assessment order, the assessee preferred an appeal before the Ld. CIT(A). During the appellate proceedings, the assessee submitted that the investment in the Panchkula property had been made entirely out of the sale proceeds received from sale of property bearing Plot

After examining the material available on record, the Ld. CIT(A) accepted the explanation furnished by the assessee and recorded a categorical finding that the sale proceeds of the Manesar property had been credited into the bank account of the assessee and payments towards purchase of the Panchkula property had been made from the same account. The addition of Rs.79,20,000/- made under section 69 of the Act was accordingly deleted.

However, while disposing of the appeal, the Ld. CIT(A) further noticed that the assessee had sold the Manesar property for a consideration of Rs.1.20 crores and according to him no taxable capital gain arising therefrom had been offered to tax. The Ld. CIT(A) further observed that the assessee had failed to establish the indexed cost of construction and had also failed to fulfill the conditions prescribed under sections 54/54F of the Act. Accordingly, exercising powers under section 251 of the Act, the Ld. CIT(A) enhanced the income of the assessee by computing Long Term Capital Gain at Rs.98,94,000/-.

Aggrieved by the aforesaid action of the Ld. CIT(A), the assessee is in appeal before us.

The Ld. Counsel for the assessee submitted that the enhancement made by the Ld. CIT(A) is wholly without juri iction. It was contended that the reassessment proceedings were initiated solely for examining the source of investment in the Panchkula property and the issue relating to taxability of capital gains arising from sale of the Manesar property was never the subject matter of reassessment proceedings. It was submitted that neither the reasons recorded under section 148 nor the notices issued by the Assessing Officer nor the assessment order contained any discussion regarding taxability of capital gains arising from sale of the Manesar property. Therefore,

The Ld. Counsel further submitted that once the Ld. CIT(A) accepted the source of investment and deleted the addition made under section 69 of the Act, the very basis of reopening stood extinguished. It was further submitted that even on merits the enhancement was unsustainable as the property sold at Manesar was a residential house property and not a vacant plot and the assessee was entitled to indexed cost of construction as well as deduction under sections 54/54F of the Act.

Per contra, the Ld. DR relied upon the orders of the lower authorities. The Ld. DR further relied upon the judgment of the Hon'ble Full Bench of the Punjab & Haryana High Court in the case of CIT Vs. Smt. Aruna Luthra [(2001) 252 ITR 76 (P&H)(FB)] and submitted that the powers of the first appellate authority are wide enough to enhance the assessed income.

We have heard the rival submissions and carefully perused the material available on record.

The first issue arising for our consideration is whether the Ld. CIT(A) was justified in enhancing the income of the assessee by bringing to tax Long Term Capital Gain arising from sale of the Manesar property.

We find that the reassessment proceedings were initiated solely on the basis of information relating to investment of Rs.79,20,000/- made by the assessee in the Panchkula property. The reasons recorded under section 148, the notices issued during reassessment proceedings and the assessment order passed under section 147 read with section 144 clearly reveal that the entire enquiry conducted by the Assessing Officer was confined to examining the source of such investment. The Assessing Officer never examined the issue relating to taxability of capital gains arising from sale of the Manesar property. No enquiry was conducted by him from the standpoint of taxability of such gains and no finding whatsoever was recorded in the assessment order in this regard.

The Hon'ble Supreme Court in the cases of CIT Vs. Rai Bahadur Similar view has been expressed by the Full Bench of the Hon'ble Delhi High Court in the case of CIT Vs. Sardari Lal & Co. (251 ITR 864).

The Ld. DR has placed reliance upon the judgment of the Hon'ble Full Bench of the Punjab & Haryana High Court in the case of CIT Vs. Smt. Aruna Luthra [(2001) 252 ITR 76 (P&H)(FB)]. We have carefully gone through the said judgment. In our considered opinion, the reliance placed by the Revenue is misconceived and does not advance the case of the Revenue.

A perusal of the aforesaid judgment reveals that the controversy before the Hon'ble Full Bench related to the scope and ambit of powers exercisable under section 154 of the Act for rectification of mistakes apparent from the record. The Hon'ble High Court held that section 154 confers wide powers upon the authority to rectify any mistake apparent from the record and that while examining such mistake, the entire record of the case can be looked into. Thus, the entire discussion before the Hon'ble Full Bench was confined to rectification proceedings under section 154 of the Act.

The said judgment neither deals with nor decides the issue regarding the scope of powers of the Commissioner (Appeals) under section 251 of the Act while enhancing an assessment. More particularly, it does not examine the question whether the Ld. CIT(A) can introduce and assess a new source of income which was never examined by the Assessing Officer and which is wholly unrelated to the issue for which reassessment proceedings were initiated. Therefore, in our considered view, the judgment in the case of Smt. Aruna Luthra (supra) is clearly distinguishable on facts and has no application to the controversy involved in the present appeal.

On the contrary, the issue involved before us stands directly covered by the decisions of the Hon'ble Supreme Court in Rai Bahadur Hardutroy Motilal Chamaria (supra) and Shapoorji Pallonji Mistry (supra) as well as the Full Bench decision of the Hon'ble Delhi High Court in Sardari Lal & Co. (supra).

We further find that the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. Vs. CIT (336 ITR 136) and the Hon'ble Bombay High

There is yet another aspect of the matter which, in our considered opinion, further militates against the action of the Ld. CIT(A). The reassessment proceedings in the present case were initiated by issuance of notice under section 148 dated 30.03.2021 for Assessment Year 2013-14. The appeal against the reassessment order was filed on 08.04.2022. However, the notice proposing enhancement came to be issued by the Ld. CIT(A) only on 07.08.2024 and the enhancement was eventually made thereafter in respect of Assessment Year 2013-14. 22. It is not in dispute that the Act prescribes specific statutory conditions and time limits for reopening an assessment and bringing to tax income alleged to have escaped assessment. The reassessment juri iction is not an unbridled juri iction but is circumscribed by the limitations consciously imposed by the legislature. If the contention of the Revenue is accepted that the Ld. CIT(A) can at any stage introduce a completely new source of income unrelated to the issue for which reassessment proceedings were initiated, it would virtually render the statutory limitations prescribed under sections 147 to 149 otiose.

Such an interpretation would confer upon the appellate authority a power wider than that available to the Assessing Officer himself. The consequence would be that although the Assessing Officer may be precluded from examining a particular issue due to statutory limitations or juri ictional restrictions, the same issue could nevertheless be brought to tax years later by the appellate authority under the guise of enhancement. Such a consequence could never have been intended by the legislature.

The powers conferred under section 251 are undoubtedly wide; however, they cannot be interpreted in a manner which defeats the safeguards and limitations built into the reassessment provisions. The power of enhancement is only ancillary to appellate juri iction and cannot become an independent source of juri iction to assess income which the Assessing Officer himself could not have assessed in the reassessment proceedings.

Stated differently, what the Assessing Officer could not have done directly while exercising juri iction under sections 147/148, the Ld. CIT(A) cannot be permitted to do indirectly while exercising powers under section 251 of the Act. The settled principle of law is that what cannot be done directly cannot be permitted to be achieved indirectly. Therefore, viewed from this angle also, the enhancement made by the Ld. CIT(A) cannot be sustained.

Accordingly, respectfully following the aforesaid judicial precedents and for the reasons recorded hereinabove, we hold that the enhancement made by the Ld. CIT(A) by bringing to tax Long Term Capital Gain of Rs.98,94,000/- is beyond the scope of his juri iction and is liable to be deleted.

Since extensive arguments have also been advanced on merits and detailed evidences have been placed on record, we deem it appropriate to adjudicate the issues on merits as well.

We find that the Ld. CIT(A) denied the indexed cost of construction/improvement primarily on the ground that the assessee had 8 failed to establish existence of any residential structure over the property sold and proceeded on the assumption that only a vacant residential plot had been transferred.

We are unable to concur with the aforesaid finding of the Ld. CIT(A). A perusal of the Sale Deed dated 25.06.2012 reveals that the property transferred by the assessee has been specifically described as “Residential House Plot No.125, Sector-1, IMT Manesar, Gurgaon measuring 450 square meters”. Further, the recitals contained in the sale deed repeatedly refer to the asset transferred as “Residential House Plot No.125, Sector-1, IMT Manesar”. Thus, the very document through which the property was transferred unequivocally establishes that the property sold by the assessee was a residential house property and not merely a vacant plot.

We further note that the competent authority had granted Occupation Certificate dated 07.11.2008 in respect of the building constructed on the said property. The occupation certificate evidences completion of construction of a building consisting of ground floor admeasuring 205.43 square meters and certifies the property as fit for occupation. The issuance of such occupation certificate conclusively establishes existence of a residential building upon the property. Once the competent authority itself has recognized the existence of the building and granted occupation certificate, the finding recorded by the Ld. CIT(A) that only a plot was sold becomes factually unsustainable.

We also find support from the approved building plans, housing loan documents issued by Canara Bank, valuation report of the Architect and other supporting evidences placed on record, all of which consistently demonstrate that substantial residential construction existed on the property prior to its sale. The Revenue has failed to bring any material on record to rebut these evidences.

In view of the cumulative evidences discussed above, we hold that the property sold by the assessee was a residential house property and not a 9 vacant plot. Consequently, the assessee was entitled to claim indexed cost of construction/improvement while computing Long Term Capital Gain. The action of the Ld. CIT(A) in disallowing the indexed cost of construction merely on assumptions and presumptions cannot be sustained.

Coming to the issue relating to deduction under sections 54/54F of the Act, we find that the assessee sold the original residential property on 25.06.2012 and thereafter purchased Plot No.815, Sector-26, Panchkula on 09.08.2012 for Rs.79,20,000/-. The assessee further constructed a residential house thereon within the period prescribed under the Act and has placed on record documentary evidences substantiating the same.

The sole basis adopted by the Ld. CIT(A) for denying deduction under sections 54/54F was that the assessee had not deposited the unutilized amount in the Capital Gain Account Scheme before the due date prescribed under section 139(1) of the Act.

In our considered opinion, the denial of exemption on such technical ground cannot be sustained. It is now well settled through a catena of judicial precedents including the decisions of the Hon'ble Karnataka High Court in CIT Vs. Sambandam Udaykumar (345 ITR 389), Hon'ble Delhi High Court in CIT Vs. R.L. Sood (245 ITR 727) and various decisions of the Coordinate Benches that where the assessee has substantially invested the sale consideration in acquisition or construction of a residential house within the prescribed period, exemption under sections 54/54F cannot be denied merely on account of non-deposit of the amount in the Capital Gain Account Scheme.

The provisions of sections 54 and 54F being beneficial provisions are required to be construed liberally. In the present case, the evidences available on record clearly establish that the assessee invested the sale consideration in purchase of a residential plot and construction of a residential house thereon within the statutory period. Therefore, the substantive conditions prescribed under sections 54/54F stand duly satisfied.

Accordingly, we hold that the assessee is entitled to deduction under sections 54/54F of the Act and the denial thereof by the Ld. CIT(A) is unsustainable.

In view of our aforesaid findings, the enhancement made by the Ld. CIT(A) deserves to be deleted both on the ground of lack of juri iction as well as on merits. The grounds raised by the assessee are accordingly allowed.

In the result, the appeal of the assessee is allowed. Order pronounced on 22/06/2026 मनोज कुमारअ"वाल लिलत कुमार (MANOJ KUMAR AGGARWAL) (LALIET KUMAR) लेखा सद"/ ACCOUNTANT MEMBER "ाियक सद"/JUDICIAL MEMBER AG आदेशकी "ितिलिप अ"ेिषत/ Copy of the order forwarded to : 1. अपीलाथ"/ The Appellant

""थ"/ The Respondent 3. आयकरआयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File