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Facts
The assessee, a 76-year-old individual engaged in agriculture, purchased an agricultural land with his brother. The AO noted a difference between the sale consideration and the fair market value and added it to the assessee's income under Section 56(2)(vii)(b)(ii) of the Income Tax Act. The assessee failed to respond to notices served electronically due to lack of technical knowledge, leading to ex-parte orders.
Held
The Tribunal held that the assessee's failure to respond to notices was due to his age, lack of knowledge of electronic communication, and the practice of physical service of notices. Principles of natural justice demand that adequate opportunity be given. Therefore, the order of the CIT(A) and the assessment order were set aside.
Key Issues
Whether the addition made under Section 56(2)(vii)(b)(ii) was justified when the assessee was not given a proper opportunity to present his case due to his lack of understanding of electronic communication methods? Whether principles of natural justice were violated?
Sections Cited
56(2)(vii)(b)(ii), 148, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, New Delhi vide order dated 21/01/2025 in DIN No. ITBA/NFAC/S/250/2024-25/1073439239(1) for the assessment year 2017-18.
The issue raised by the assessee is that the learned NFAC/CIT(A) erred in confirming the addition of Rs. 4.5 lakh under section 56(2)(vii)(b)(ii) of the Act.
The relevant facts are that the assessee is an individual and 76 years of age. The assessee is director in a company namely Sarpan Hybrid Seeds Company Pvt Ltd. He is also partner in firm namely Sarpan Agri-Horticultural research centre. For the year under consideration, the assessee has not filed return of income.
The AO received information that the assessee has purchased immovable property being agricultural land admeasuring 4 Acers 18 Guntas along with his brother for a consideration of Rs. 30 Lakh from the vendor namely Shri Ningangouda R Patil. However, the fair market value and stamp duty value of the impugned property was of Rs. 69.3 Lakh. The AO was of the opinion that the difference between stamp value and actual consideration was liable to tax under the provision of section 56(2)(vii)(b)(ii) of the Act, but the assessee has not filed return of income, and the income escaped assessment. Accordingly, the assessment was reopened.
During the assessment proceedings, the AO found that the assessee did not explain the difference in purchase consideration and stamp value. The assessee also not explained the source of investment to the extent of Rs. 9 lakhs in the impugned property. Hence, the AO treated the amount of difference for Rs. 39.3 lakh (Rs. 69.3 – 30) and amount of unexplained investment of Rs. 9 lakh as income chargeable under the head other sources. As the property was being jointly purchased by the assessee and his brother in equal ratio, the AO made proportionate addition of Rs. 24.15 lakh {(39.3 + 9)/2} in the hand of the appellant assessee.
The aggrieved assessee preferred an appeal before the learned CIT(A).
Before the learned CIT(A), the assessee through the statement of facts submitted that the payments towards the purchase of the impugned land were made fully through cheques and banking channels. An amount of ₹ 5,25,000/- was paid from the books of Sarpan Hybrid Seeds Company Pvt. Ltd., shown as an advance to the Appellant and his brother. Further, a sum of ₹17,50,000/- was paid from the partnership firm and reflected as advance given to partners. In addition, ₹7,25,000/- , which was originally paid in the year 1995, was reflected as drawings of the partners. Thus, the entire transaction was genuine, transparent, and fully explained in the books of accounts.
It was pointed out that as early as 1993, the Appellant and his brother had entered into an agreement with the seller for purchase of the said land. However, due to long-standing legal disputes, the registration could only be completed on 12.08.2016 i.e. during the year under dispute. The Appellant duly furnished all details before the Income Tax Officer, Intelligence and Criminal Investigation (IDCI) upon receipt of notice under section 133(6) of the Act. During this process, the applicability of section 56(2)(vii)(b)(ii) of the Act was raised. The Appellant maintained that the said provision was not applicable to this transaction, but out of abundant caution and to avoid litigation, he even deposited the tax.
Subsequently, the learned Assessing Officer issued a notice under section 148 requiring the assessee for filing of return income. The .
Appellant, under a bona fide and genuine impression was of the view that the replies already filed before the IDCI authority were sufficient compliance, did not file the return in response to this notice. Without affording proper opportunity and without appreciating the facts, the learned AO proceeded to make an addition of ₹19,65,000/- being 50% of the value, wrongly invoking section 56(2)(vii)(b)(ii) of the Act. In addition, the learned AO also added a further sum of ₹4,50,000/- (50% share) without any factual or legal basis. The assessee came to know about the additions only upon receipt of penalty notice. It is therefore prayed that, in the interest of justice, the delay in filing may kindly be condoned and the impugned additions made by the AO be deleted.
However, the learned CIT(A) without going into merit of issue dismissed the appeal of the assessee on ground that the assessee has not made submission and provided supporting document to support the ground of appeal raised despite being provided with several opportunities.
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before this tribunal.
The assessee through the learned AR filed affidavit. Through the affidavit, the assessee submitted that he has been engaged throughout his life in agricultural activities and has earned his livelihood from this sector, which is predominantly traditional in nature and does not involve the use of modern technology. The assessee belongs to an older generation and is not conversant with computers, email or internet- based communication. His daily life and livelihood have consistently . relied on conventional methods of communication such as physical e- mail and personal interaction. Since agricultural activities do not require the use of email, he never learned how to operate an email account nor developed the habit of checking electronic correspondence.
It is submitted that certain income tax notices were sent to an email address created for the assessee with the help of his tax consultant. However, due to his lack of knowledge and inaccessibility of email, the assessee was completely unaware of such notices and could not respond to them within the prescribed time. This also resulted in his inability to respond to the notices issued by the learned CIT(A). At the same time, it is pertinent to mention that a physical notice on the same issue was issued by the Income Tax Officer (Intelligence and Criminal Investigation), Hubli, on 01.04.2019, to which the assessee duly submitted his response on 22.05.2019. This demonstrates that the assessee has never been reluctant to comply with departmental requirements whenever notices were received in an accessible manner.
The assessee further submits that his failure to respond to notices served electronically was not wilful or deliberate. He was under a bona fide belief that all official communications, including income tax notices, would continue to be served physically at his residential address, as had been the practice throughout his life. The assessee understands the seriousness of the matter and sincerely regrets any inconvenience caused to the department due to his inability to access email notices. He also undertakes to familiarize himself with the use of email with the assistance of younger family members or suitable individuals and . assures full cooperation with the authorities in future by furnishing all necessary documents and information as required.
On the other hand, the learned DR before us vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion and material on record, we note that the assessee, a senior citizen aged 76 years, has explained through an affidavit that he has been engaged throughout his life in agricultural activities and is not conversant with the use of computers or email. Notices issued by the Department were sent electronically to an email account created by his tax consultant, which the assessee was not aware of or capable of accessing. This has reasonably explained his failure to respond to the notices of the AO and the learned CIT(A). It is also placed on record that when a physical notice was issued by the Income Tax Officer (Intelligence and Criminal Investigation), Hubli, on 01.04.2019, the assessee duly replied on 22.05.2019. This shows that the assessee was willing to comply when notices were served through a medium accessible to him.
16.1 It is evident that the additions were made by the AO without granting proper and effective opportunity to the assessee to present his case and without fully appreciating the explanation regarding the payments made through banking channels. Further, the learned CIT(A) also dismissed the appeal ex parte without adjudicating the matter on merits. In our considered view, when substantive rights of the assessee are affected, principles of natural justice demand that adequate . opportunity must be granted to him to present relevant documents and explanations. The peculiar facts of this case particularly the age of the assessee, his lack of knowledge of electronic communication, and the fact that he had responded to physical notices constitute sufficient cause for his earlier non-compliance. Therefore, in the interest of justice and fairness, we deem it proper to set aside the order of the learned CIT(A) as well as the assessment order to the file of the AO. The AO shall provide the assessee with reasonable and sufficient opportunity to present his submissions and supporting documents, and thereafter pass a speaking order on merits in accordance with law. The assessee is also directed to extend full cooperation and file all necessary details during the proceedings. Accordingly, the ground of appeal of the assessee is allowed for statistical purposes with the above directions.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in court on 26th day of August, 2025