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Facts
The assessee did not file an Income Tax Return for AY 2013-14. Based on information regarding a property purchase, the AO initiated reassessment proceedings under Section 147/148, alleging escaped income. The AO made an addition of Rs. 40,00,000/- as unexplained money. The assessee claimed the income arose from the surrender of tenancy rights in FY 2011-12, and a part was used to purchase a new residential unit, claiming exemption under Section 54F.
Held
The Tribunal held that while the CIT(A) could have verified the remaining Rs. 30 lacs which was part of the same financial transaction, the addition made by the CIT(A) was not permissible without issuing a notice under Section 251(2) of the Act. The CIT(A) did not follow the due process of law by not issuing the required notice before enhancing the assessment.
Key Issues
Whether the CIT(A) can enhance an assessment by making an addition that was not part of the original assessment order without issuing a proper notice to the assessee, thus violating the principles of natural justice.
Sections Cited
144, 147, 148, 250, 251, 55(2)(a), 54F, 154, 263, 251(1)(a), 251(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI
Per: Smt. Beena Pillai, J.M.: The Present appeal filed by the assessee arises out of order dated 26/09/2024 passed by NFAC, Delhi for A.Y. 2013-14 on following grounds of appeal :
“Being aggrieved by the order dated 26.09.2024 passed by the Ld. Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre, Delhi "Ld. CIT(A)" u/s. 250 of the Income-tax Act, 1961 ("Act"), your appellant prefers this appeal, among others, on the following grounds of appeal, each of which is without prejudice to, and independent of, the other:
2 ITA 5810/Mum/2024 A.Y. 2013-14 1. On the facts and in the circumstances of the case, and in law, the order u/s. 144 r. w. s. 147 dated 09.12.2019 is bad in law in as much as no Document Identification No. (DIN) is mentioned in the said order as per mandate of CBDT's Circular No.19 of 2019. The appellant, therefore, prays that the impugned assessment order be quashed.
2. On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in directing the Ld. AO to charge tax on long term capital gain of Rs.30,00,000/- allegedly earned by the appellant on surrender of Tenancy Right. The Ld. CIT(A) failed to appreciate and ought to have held that since the appellant had surrendered its tenancy rights vide agreement dated 20.09.2011, capital gains, if any, was chargeable to tax in AY 2012-13 and not AY 2013-14, ie. year under consideration. The appellant, therefore, prays that the aforesaid addition be deleted. Your appellant craves leave to alter, modify, amend or delete any of the above grounds of appeal, or to add one or more new ground(s), as may be necessary.” Brief facts of the case are as under:
The assessee is an individual. The assessee did not file Return of Income for A Y 2013-14. As per Information available on NMS Portal of ITD System, the assessee had purchased a property at Rs. 40.00 lacs. The Ld.AO thus had reason to believe that, income has escaped assessment. The assessee was thus issued notice u/s. 148 on 26/03/2019.
2.1 As the notices issued by the Ld.AO went unattended, addition of Rs. 40,00,000/- was made in the hands of the assessee being unexplained money which was not offered to tax.
Aggrieved by the order of the Ld.AO assessee is in appeal before the Ld.CIT(A).
3 ITA 5810/Mum/2024 A.Y. 2013-14 3. Before the Ld.CIT(A) the assessee submitted that, he was a tenant of residential property in a building at Vile Parle (East), which was inherited by him after death of his father. It was further submitted that, during F.Y. 2011-12, the building where assessee resided was selected for SRA Scheme. Thus the assessee received of Rs. 70.00 lacs as compensation from builder against surrender of his tenancy rights.
3.1 The assessee submitted that, he purchased a property for Rs. 40.00 lacs from the said compensation. He further submitted documentation to prove the source of income for property purchased at Rs. 40.00 lacs during the year under consideration 3.2 The Ld.CIT(A) on going through the submissions of the assessee observed and held as under : “4.2. Aggrieved with the order, the assessee instituted the present appeal, where the only Ground taken was against the treatment of Rs. 40,00,000/- as Unexplained Investment, as concluded by the AO in the assessment order. 4.3. During the appeal proceedings, the assessee submitted his explanation, along with the documentary evidences on 20/02/2023. In such reply, the assessee claimed that he was a tenant at the premises at Room No. 13A, Gora Kaka Kala Kaka Chawal (Subhash Nagar), Vileparle East. The said Tenancy Right was inherited by him since the death of assessee’s father in the year 1989. The said property was under the ownership of M/s. Mid City Housing Pvt. Ltd. During FY 2011-12, the said premises went for re-development. During the said period, the assessee requested the owner to provide him with a permanent alternate accommodation, in lieu of surrender of his Tenancy Rights. However, the owner was unable to provide proper permanent alternate accommodation to the appellant and thus, in lieu of surrender of the Tenancy Right, the owner agreed to pay the appellant a consideration of Rs. 70,00,000/-. Accordingly, the appellant entered into an agreement with Mid City Housing (P) Ltd. for surrender of the Tenancy Rights against the compensation of Rs. 70,00,000/- on 20/09/2011. The assessee also submitted the copy of bank statement, maintained by him jointly with Mrs. Neeta Santosh Patole (Wife of the assessee), wherefrom it is seen that on 09/02/2012, a cheque issued by Mid City Housing (P) Ltd. was deposited in his bank account and the assessee paid Rs. 20,00,000/- to Mrs. Fatemah Mukadam, who is the seller of the property purchased by the assessee, which 4 ITA 5810/Mum/2024 A.Y. 2013-14 was the issue of dispute in the assessment order. Another payment of Rs. 20,00,000/- was made to the said seller was made on 03/04/2012 from the Page 4 of 5 AQMPP5085A- SANTOSH MOHAN PATOLE A.Y. 2013-14 ITBA/NFAC/S/250/2024-25/1069138130(1) same bank account. The assessee submitted that he got his purchase registered on 27/04/2012. Therefore, apparently, the source of the investment was explained. Having said so, it is seen that the assessee received compensation in lieu of his Tenancy Right for a sum of Rs. 70,00,000/-. Therefore, in terms of Sec. 55(2)(a), as Cost of Acquisition for Tenancy Rights is to be taken as NIL, the entire receipt of Rs. 70,00,000/- became the Capital Gain of the assessee. Since the Tenancy Right was held by the assessee since 1989, the said Capital Gain is to be considered as Long Term Capital Gain. Out of the said Long Term Capital Gain, the assessee had invested a sum of Rs. 40,00,000/- for purchase of a new residential unit.” 3.3 The Ld.CIT(A) allowed the claim u/s. 54F amounting to Rs. 40 lacs towards the purchase of new residential unit, however the balance amount of Rs. 30 lacs was added in the hands of the assessee for computing long term capital gain.
Aggrieved by the order of the Ld.CIT(A) assessee is in appeal before this Tribunal.
The Ld.AR at the outset submitted that, the addition made by the Ld.CIT(A) does not arise out of the assessment order. It is submitted that the Ld.CIT(A) did not issue any notice in respect of the impugned addition u/s. 251 of the Act. It was contended that, the Ld.CIT(A) cannot travel outside the addition made by the assessing officer without issuing notice u/s. 251(1)(a) of the Act. The Ld.AR contended that there was alternate remedy available with the assessing officer u/s. 154, section 148, of the Act etc. It was submitted that the Principle Chief Commissioner could have invoked u/s. 263 of the Act. But such addition is not permissible to be made by the Ld.CIT(A) without issuing notice u/s. 251(2) of the Act.
5 ITA 5810/Mum/2024 A.Y. 2013-14 5. On the contrary, the Ld.DR submitted that, the Ld.CIT(A) was well within the jurisdiction to bring to tax the balance consideration received by the assessee that was not invested under any of the applicable provisions under the Act. He submitted that assessee could not have left scot free and not pay tax at all on the balance consideration received by him upon He thus vehemently supported the orders passed by the Ld.CIT(A).
I have perused the submissions advance by both sides in the light of the records placed before this Tribunal.
It is noted that, the assessment was reopened based on information to verify whether transaction value of Rs. 40lacs escaped assessment within the meaning of section 147 of the Act. No doubt the Ld. CIT(A) could have verified the remaining 30Lacs that was not part of the reasons to reopen. However, 30 lacs formed part of the same financial transaction from where Rs. 40 lacs was invested by the assessee u/s. 54F. Be that as it may, the Ld. CIT(A) should have issued notice u/s. 251(2) before making addition in the hands of the assessee. The Ld. CIT(A) did not follow the due process of law before enhancing the assessment in the hands of the assessee. I therefore do not find any merit in the addition made by the Ld. CIT(A).
Accordingly grounds raised by the assessee stands allowed.
6 ITA 5810/Mum/2024 A.Y. 2013-14 In the result appeal filed by the assessee stands allowed
Order pronounced in the open court on 18/02/2025