DILIP KUMAR GUPTA,HYDERABAD vs. DCIT, CIRCLE-5(1), HYDERABAD

Succinctly stated, the assessee, who is a director with M/s. Patwari Bakers Private Limited filed his return of income for AY 2012-13 on 29/06/2013, declaring an income of Rs. 17,18,860/-.

Thereafter, the AO based on information that the assessee a/w his two brothers, has sold an immovable property situated at B.K. Guda, W-B:7-1, Plot:99, bearing House No.7-1-307/14/G/6/5 admeasuring 180 Sq yds for a consideration of Rs.39 lakhs during the subject year and had though disclosed in his return of income the “Long term capital gains” (LTCG) of Rs.13 lakhs (1/3rd share of the assessee), but the 3 Dilip Kumar Gupta vs. DCIT segment value of the said property as per the SRO was Rs.75,90,000/- as per which his share worked out at Rs.25,30,000/- (1/3rd share of Rs.75,90,000/-), thus holding a conviction that the income of the assessee chargeable to tax on the aforesaid sale transaction had escaped assessment, initiated proceedings under section 147 of the Act. Notice under section 148 of the act, dated 27/03/2019, was issued and served upon the assessee.

In response, the assessee filed his return of income for AY 2012- 13 on 24/09/2019 declaring an income of Rs.19,50,990/-, wherein he had admitted “capital gains” of Rs.9,84,649/- after deducting, viz., (i) indexed cost of acquisition: Rs.4,05,605/-; and (ii) indexed cost of improvement: Rs.11,39,746/- on his share of capital gains.

During the course of the assessment proceedings, the AO observed that, as per section 50C of the Act, no deduction of indexed cost of improvement was allowable. Accordingly, the AO called upon the assessee to explain as to why his claim for deduction of indexed cost of improvement of Rs.11,39,746/- may not be added as per Section 50C of the Act. In reply, the assessee claimed that he had sold the subject property during the year under consideration for Rs. 13 lakhs, i.e., below the SRO value of Rs. 25,30,000/- due to adverse vastu and a disadvantageous location. Elaborating further, it was stated by him that he had purchased the land on 14/05/2004 for a consideration of Rs.2 1,000 Sq ft., which property was thereafter sold on 02/06/2011 for a consideration of Rs.13 lakhs. He submitted that he had initially considered only the land value when computing the capital gains on the sale of the subject property and had not considered the cost of building. It was further stated that in the return of income filed in response to the notice issued under section 148 of the Act, the cost of building of Rs.8 lakhs (covered area 1,000 sq ft) was considered, and the consequential capital gains was computed after considering the SRO value of Rs.25,30,000/-. Accordingly, it was submitted that, as in the return of income filed in response to notice under section 148 of the Act, the cost of improvement, i.e., expenses incurred on the construction of the building, was considered; therefore, the capital gains arising on the transfer of the sale transaction had rightly been disclosed.

However, the AO did not find favour with the aforesaid explanation of the assessee. The AO held a firm conviction that the deduction of the indexed cost of improvement Rs.11,39,746/- claimed by the assessee was not allowable as per section 50C of the Act, thus, disallowed the same and made an addition of the said amount to the income returned by the assessee in response to the notice issued under section 148 of the Act.

Aggrieved, the assessee carried the matter in appeal before the CIT(A), but without success.

Per contra, Shri Vamshi Krishna, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) did not raise any objection to the seeking of the condonation of the delay involved in the appeal filed by the assessee.

We have given thoughtful consideration and are of the view that, as the delay involved in the present appeal had crept in because of the 6 Dilip Kumar Gupta vs. DCIT ill-health of the assessee and not on account of any lackadaisical approach on his part, the same, in all fairness and in the interest of justice, merits to be condoned. Our aforesaid view that a liberal approach should be adopted for condoning the delay involved in the appeal is supported by the recent decision of the Hon'ble Supreme Officer, Ward-2, Ambikapur in Special Leave Petition (Civil) Nos. 26310-26311/2024, dated 31st January, 2025. The Hon'ble Apex Court, while setting aside the order of the Hon'ble High Court of Chhattisgarh, which had approved the declining of the condonation of the delay of 166 days by the Income-Tax Appellate Tribunal, Raipur Bench, had observed that a justice-oriented and liberal approach should be adopted while considering the application filed by an appellant seeking condonation of the delay involved in filing the appeal.

On merits, the Ld. AR reiterated the submissions and the contentions made before the AO and the CIT(A). The Ld. AR submitted that the CIT(A) had erred in law and facts of the case while upholding the addition and confirming the view taken by the AO. Elaborating on his contention, the Ld. AR submitted that there was justification for the AO to have declined the assessee’s claim for deduction of the indexed cost of improvement of the subject property as was raised in the return of income filed in response to the notice issued under Section 148 of the Act. The Ld. AR submitted that both the lower authorities had 7

Per contra, the Ld. Sr-DR relied upon the orders of the authorities below and supported their decision while rejecting the claim of the assessee.

We have given thoughtful consideration and are unable to persuade ourselves to concur with the view taken by the AO, which, thereafter, has been approved by the CIT(A). Before proceeding further, we deem it apposite to observe that as the case of the assessee was reopened under section 147 of the Act on the ground that he had wrongly computed the “Long term capital gain” (LTCG) on transfer of the subject property by not adopting the “deemed sale consideration” as contemplated under section 50C of the Act, therefore, the assessee in his return of income filed on 24/09/2019 remained well within his right to claim deduction of the indexed cost of improvement of Rs.11,39,746/-, i.e., the investment made by him towards construction of the property, which, though was not claimed by him in his original return of income filed on 29/06/2013. We say so, for the reason that pursuant to the notice issued by the AO under section 148 of the Act, dated 27/03/2019, the previous under-assessment of the income of the assessee qua the “Long term capital gain” (LTCG) arising on the transfer of the aforementioned property was set aside, as a result whereof the 8 Dilip Kumar Gupta vs. DCIT assessee in his return of income filed in response to the aforesaid notice issued under section 148 of the Act, dated 27/03/2019 remained well within his right to raise a claim for deduction of the cost of construction of the property while computing the “Long term capital gain” (LTCG) arising on the subject sale transaction. Our aforesaid view that the assessee, pursuant to notice under section 148 of the Act, remains well within his right to raise a claim of deduction regarding the issue based on which his case has been reopened is supported by the judgment of the Hon’ble Supreme Court in the case of Commissioner of Income Tax v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC). In the said case, the Hon’ble Supreme Court had, inter alia, observed that pursuant to the reopening of the case under section 148 of the Act, what is set aside is, thus, only the previous under assessment and not the original assessment proceedings. In our view, as the case of the assessee before us had been reopened on the ground of suppression of “Long term capital gain” (LTCG) arising on the transfer of the subject property, the assessee remained well within his right to claim deduction of the cost of construction of the subject property, i.e., the indexed cost of improvement while computing the LTCG arising on the transfer of the same in his return of income filed in response to notice issued under section 148 of the Act.

At this stage, we deem it apposite to observe that there is no restriction provided in section 50C of the Act that prevents an assessee

Be that as it may, we are unable to persuade ourselves to concur with the AO, who had declined the assessee’s claim of deduction of Rs.11,39,746/- on the ground that the same was not permissible as per section 50C of the Act. At the same time, we are also not oblivious of the fact that as the AO had summarily declined the assessee’s claim for deduction of indexed cost of improvement of Rs.11,39,746/- based on his aforementioned observation, therefore, he had no occasion to verify the veracity of the quantum of the said claim of deduction as was raised by the assessee. We thus, while principally approving the claim of the assessee for deduction of indexed cost of improvement while computing the LTCG on the transfer of the subject property under section 50C of the Act, set aside the matter to the file of the AO only for the limited purpose of verifying the veracity of the quantum of deduction of the indexed cost of improvement as had been so claimed by the assessee.

In the result, the appeal filed by the assessee is allowed for statistical purposes in terms of our aforesaid observations.

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file