Loading judgment…
Facts
The assessee filed a revised return reducing long-term capital gains without explanation, leading to an ex-parte assessment order. The assessee claimed improvement expenses but failed to provide documentary evidence for the same.
Held
The Tribunal held that while the assessee's claim for improvement expenses was not fully documented, disallowing the entire amount would be unjust given the old nature of the transaction and the assessee's inability to produce records. However, the penalty levied under Section 270A was found to be unjustified.
Key Issues
Whether the assessee is entitled to a deduction for improvement expenses without sufficient documentation, and whether penalty under Section 270A is leviable for reduced capital gains in a revised return.
Sections Cited
144, 270A, 1962
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
These appeals have been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide orders dated 20.01.2025 passed for A.Y. 2020-21.
At the outset, we observe that the appeals are time barred by 10 days. The delay of 10 days is condoned on due consideration of facts of assessee’s case and owing to causing no perceptible prejudice to other side.
The assessee has raised the following grounds of appeal:
(A.Y. 2020-21) “1. The Ld. CIT(A) erred in confirming the addition of Rs. 9,51,796/- under Long Term Capital Gain (LTCG) without properly considering the circumstances of the case. The Appellant has explained the reduction in income and claims that the improvement expenditure of Rs. 5,50,000/- (indexed to Rs. 9,51,796/-) was genuinely incurred.”
&764/Ahd/2025 Hasmukhlal Ishvarlal Patel vs. ITO Asst.Year –2020-21 - 2– 4. The brief facts of the case are that the assessee filed the original return of income for the impugned assessment year declaring total income of Rs. 18,53,860/-, which was later revised on 07.03.2021 to ₹9,33,340/-. The case of the assessee was selected for scrutiny for the purpose of analyzing the substantial decrease in long-term capital gains shown by the assessee in the revised return of income. The Assessing Officer observed that in the original return, the assessee had disclosed ₹16,09,971/- as income under the head "Capital Gains," whereas in the revised return, the assessee had reduced the capital gains to ₹6,58,175/- without any explanation. The Assessing Officer noted that the assessee failed to comply with the queries raised during the assessment proceedings and did not respond to various show-cause notices issued by him, despite being specifically asked to justify the reduction of ₹9,51,796/- in long- term capital gains. The Assessing Officer, in the absence of any documentary evidence or reply having been filed by the assessee, treated the differential amount of ₹9,51,796/- as income chargeable under the head "Long Term Capital Gains" and added it back to the income of the assessee. The assessment was completed on ex-parte basis under section 144 of the Act at a total income of ₹18,85,140/-. Penalty proceedings under Sections 270A for misreporting of income were separately initiated by the Assessing Officer.
ITA 763/Ahd/2025 relates to the assessee’s appeal with respect to the assessee’s appeal against quantum additions and ITA 764/Ahd/2025 relates to the assessee’s appeal with respect to penalty levied u/s 270A of the Act towards quantum additions We shall first discuss the assessee’s appeal with respect to quantum additions in ITA 763/Ahd/2025.
&764/Ahd/2025 Hasmukhlal Ishvarlal Patel vs. ITO Asst.Year –2020-21 - 3– 5. In appeal, CIT(Appeals) noted that the assessee had claimed a deduction of ₹9,51,796/- towards cost of improvement in relation to long-term capital gains as declared in the revised return of income for A.Y. 2020-21. The CIT(A) observed that the assessee had revised the return by reducing the capital gains and attributed the difference to construction expenditure of ₹5,50,000/- (indexed to ₹9,51,796/-). However, during both the assessment and appellate proceedings, the assessee failed to furnish any documentary evidence in support of this claim. The CIT(A) held that such a deduction cannot be allowed merely on the basis of general statements without any supporting evidence. The CIT(Appeals) also noted that once a deduction or benefit is claimed in the return, the burden lies on the assessee to produce supporting documents, and if the assessee fails to do so, the claim is liable to be disallowed. The CIT(A) accordingly held that the revised return was filed by the assessee without any basis, and the Assessing Officer had rightly added back the amount of ₹9,51,796/- to the income of the assessee by disallowing the cost of improvement. Regarding the assessee's grievance on denial of natural justice, the CIT(A) held that adequate opportunity was provided by the AO, including multiple notices and show cause opportunities. The fact that the notices were sent to the email ID of the tax consultant, which was the same ID registered by the assessee in the e-filing portal, did not make the process invalid, and any lapse on the part of the consultant could not be attributed to the Department. In light of these findings, the CIT(A) found no merit in the grounds raised by the assessee and upheld the assessment order, thereby dismissing the appeal of the assessee.
The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. We have carefully considered the submissions of the assessee and the findings of the lower &764/Ahd/2025 Hasmukhlal Ishvarlal Patel vs. ITO Asst.Year –2020-21 - 4– authorities. Upon careful evaluation of the facts and circumstances, we are of the considered view that assessee’s inability to furnish documentation comes primarily from the fact that the expenditure relates to Financial Year 2011-12, and the assessee, being an individual not subject to compulsory maintenance of books under Rule 6F of the Income Tax Rules, 1962, and is not expected to retain such records beyond the statutory period of six years. The land in question was purchased by the assessee in February 2011 and sold in November 2019. The assessee submitted that improvement expenses were incurred at the time of development of the land, which were inadvertently omitted to be claimed in the original return but were later incorporated in the revised return filed within the permissible time under the law. While the absence of evidence naturally weakens the claim, we cannot lose sight of the fact that this is an old matter and the assessee, at this point, would not be in a position to bring any further documentation on record. At the same time, it would also be unjust to disallow the entire claim, particularly when the nature and quantum of the transaction are such that some level of expenditure towards improvement may reasonably be presumed. In our view, the claim, though not fully documented, cannot be entirely disbelieved in view of the facts placed before us. In the interest of justice and with a view to putting an end to the litigation, we deem it appropriate to allow the assessee a partial relief. Accordingly, we direct the Assessing Officer to allow a sum of ₹3,00,000/- towards cost of improvement while computing the Long Term Capital Gains. The balance amount of ₹6,51,796/- shall stand disallowed.
&764/Ahd/2025 Hasmukhlal Ishvarlal Patel vs. ITO Asst.Year –2020-21 - 5– (A.Y. 2020-21)
The assessee has raised the following grounds of appeal:
1. The Ld. CIT(A) has erred in confirming the penalty under section 270A of the Income Tax Act. The Ld. AO made an addition based on the difference in Long Term Capital Gain between the original and revised returns without properly considering the legal and factual aspects of the transaction. The revised return was filed within the prescribed time to correct an inadvertent omission, and there was no misreporting of income. Therefore, the penalty levied is unjustified and should be deleted.
9. In so far as the assessee’s appeal pertaining to levy of penalty is concerned, looking into the assessee’s set of facts as narrated above, in the interests of justice, we hold that penalty is not liable to be levied.
In the result, appeal of the assessee is allowed in ITA No. 764/Ahd/2025.
In the combined result, the appeal filed by the assessee in is allowed. This Order pronounced in Open Court on 13/08/2025
Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 13/08/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT आयकर आयु�(अपील) / The CIT(A)- 4. 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,