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Facts
The assessee, an individual carrying on a catering business, did not file a return of income for Assessment Year 2018-19. The AO issued notices under Section 148A and 148 after information regarding the sale of immovable property worth Rs. 63 lakhs was received. The assessee eventually filed a return and claimed deductions for cost of improvement and exemption under Section 54.
Held
The Tribunal held that the AO's jurisdiction was valid as the assessee had not filed the return originally and filed it belatedly. Regarding the cost of improvement, the Tribunal directed the AO to allow the benefit by applying a rate of Rs. 800 per sq.ft. for the area of 918 sq.ft. The issue of Section 54 exemption was restored to the AO for fresh examination.
Key Issues
1. Validity of AO's jurisdiction for reassessment when return was not filed originally. 2. Allowability of cost of improvement claim. 3. Entitlement to exemption under Section 54 for property acquired.
Sections Cited
139(1), 148A, 148, 142(1), 143(2), 54
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC-A” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. PRAKASH CHAND YADAV
ORDER
Per Prakash Chand Yadav, Judicial Member:
The present appeal of the assessee is arising from the Order of the learned CIT(A) dated 26.11.2024 having DIN and Order No. ITBA/NFAC/S/250/2024- 25/1071594804(1) and relates to Assessment Year 2018-19.
Brief facts of the case are that the assessee is an individual and carrying on the business of catering in Mysore. In the impugned Assessment Year, assessee has not filed any return of income. Thereafter, on the basis of information from the Office of Registrar, the AO issued notice under section 148A of the Act to the assesse on 19.03.2022 wherein the AO has enquired with respect to the sale of immovable property worth Rs.63 lakhs sold by the assessee. The assessee could not respond to this notice. Thereafter, the AO on 31.03.2022 passed an Order under section 148A(d) of the Act wherein the AO made certain observations regarding the sale of immovable property by the assessee as well as Page 2 of 6 certain deposits alleged to have been made by the assessee. In response to this Order also, the assessee could not file any reply with the AO. Accordingly, the AO on 31.03.2022 issued the notice under section 148 of the Act and directed the assessee to file the return of income for the impugned Assessment Year as the AO was of the view that certain income has escaped assessment. Thereafter, the AO issued notice under section 142(1) of the Act on 28.02.2022 and asked assessee to furnish his response. In response to this letter, assessee furnished his reply which is extracted by the AO in the Assessment Order. In this reply, assessee has denied any bank deposits during the year under consideration of Rs.31,50,000/-. Thereafter, the AO, in order to verify the claim of the assessee, again issued a questionnaire dated 11.03.2022 and finally the AO issued notice under section 142(1) of the Act on 28.10.2023. In response to the notice under section 148 of the Act, the assessee filed its return of income on 05.09.2022. Thereafter, the assessment proceedings were commenced. During the course of assessment proceedings, the AO observed that the assessee has sold property worth Rs.31,50,000/- but could not file any return of income and now assessee is claiming certain deductions for computing the capital gain related to the sale of this property. The AO, for the want of documentary evidence, disallowed the cost of improvement claimed by the assessee. Similarly, the AO has also denied the exemption of section 54 of the Act claimed by the assessee with respect to the investments made in new house. The AO denied the exemption under section 54 of the Act but the ground that assessee has purchased two houses and hence not entitled to exemption under section 54 of the Act.
Aggrieved with the Order of the AO, assessee preferred appeal before the learned CIT(A) and filed a valuation report approved by the registered valuer in support of the expenses incurred on cost of improvement. Similarly, for claiming deduction under section 54 of the Act, assessee has made submissions before the learned CIT(A) and pointed out that though assessee has purchased two separate houses but after removing the wall, the assessee has made this house as one unit and hence assessee is entitled for deduction under section 54 of the Act.
Aggrieved with the Order of the learned CIT(A), the assessee has come up in appeal and has raised certain legal grounds along with merits of the addition. The learned Counsel for the assessee drew attention of the Bench to the notices issued under section 148A(b) of the Act arguing that there is complete non application of mind by the AO because the AO has not disclosed the details of the property in this notice. The AR of the assessee argued that the AO has passed the Order under section 148A(d) of the Act by including certain other items which are not all related to the assessee. Thirdly, the Counsel for the assessee argued that in this case, the approval has been granted by the authority on 01.04.2022 and hence the approval in this case is not a valid approval as the same has been obtained from PCIT instead of PCCIT.
Refuting the arguments of the learned AR, the learned Counsel Mr. Ganesh Gale appearing on behalf of the Revenue argued that it is a case where originally the assessee has not filed any return of income and therefore there is no error in assumption of jurisdiction by the AO under section 148 of the Act.
We have heard the rival submissions and perused the material on record. It is an admitted position of fact that originally the assessee has not filed any return of income under section 139(1) of the Act. Assessee has filed the return of income only after the issuance of notice under section 148 of the Act and that too belatedly, means not in the time prescribed by the AO in notice issued under section 148 of the Act. Therefore, we are of the view that there is no error in the jurisdiction of the AO. So far as the argument of the assessee that no notice under section 143(2) of the Act has been issued by the AO is concerned, we observe that in this case the assessee has not filed return of income within 30 days from the date of issuance of notice under section 148 of the Act and the assessee has filed the return of income after the issuance of notices under section 142(1) of the Page 4 of 6 Act. Therefore, we do not find any force in the arguments of the assessee. The case law relied upon by the Counsel for the assessee are based upon the facts wherein assessee has timely filed the return of income and the Department failed to issue notice under section 143(2) of the Act. Therefore, we dismiss all the legal grounds of the assessee and proceed to decide the merits of the case.
So far as merits of the case are concerned, the learned AR contended that the assessee has claimed the cost of improvement to the tune of Rs.9,80,000/- and the AO has denied the claim of the assessee on the ground that no documentary evidence was filed by the assessee with respect to the claim. The Counsel for the assessee further argued that cost of improvement has been made somewhere in Assessment Years 2005-06 and 2008-09 and hence it is next to impossible to collect the documentary evidence of that period. Further, the Counsel for the assessee argued that the assessee, in order to support his claim, has filed report of registered valuer which report has been discarded by the CIT(A) in a summary manner. Counsel for the assessee further argued that it is evident from the sale deed filed in Paper Book that the property was having super structure on the area of 918 sq.ft.
Learned DR vehemently opposed the arguments of the assessee and placed reliance upon the Orders of the AO and CIT(A).
We have heard the rival submissions and perused the material available on record. It is a settled position of law that CIT(A) is not expert and cannot make comment upon the subjects which are technical in nature. Reference is made to the decision of the Hon’ble Supreme Court in the case of Swati Industrial Esate vs. CIT reported in 237 ITR 1, wherein the Hon’ble Supreme Court has categorically held that when technical issues are involved then opinion of the technical people is required to be obtained before discarding any evidence. In the present case, the CIT(A) has discarded the report of the registered valuer without seeking counter comments of the Departmental Valuation Officer.
Page 5 of 6 Therefore, the matter requires fresh consideration at the end of the AO. However, the Counsel for the assessee prayed that instead of restoring the matter back to the file of AO, a reasonable estimate can be made to provide justice to the assessee. Ld DR could not object to the prayer of the assessee. Therefore, the purpose of justice would be served if we apply 800 per sq.ft for the purse of cost of improvement of 918 sq.ft. Accordingly we direct the AO to provide the assessee benefit of cost of improvement by applying the rate of 800 per sq.ft. to the area of 918 sq.ft. as mentioned in the sale deed.
So far as the claim of the assessee with respect to the exemption of 54 of the Act is concerned, we direct the AO to find out as to whether the assessee has converted both the adjacent houses as one unit. The AO would also find that as to whether the house is containing common kitchen or not and number of families residing therein. If the AO would find that there is only one kitchen and only family is residing, then the house must be considered as one unit and the assessee is entitled for deduction under section 54 of the Act. With these directions, we restore this issue to the file of AO for examining afresh.
In the result, appeal filed by the assessee is allowed for statistical purposes as indicated above.