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Facts
The assessee challenged the validity of reassessment proceedings and additions made to long-term and short-term capital gains. The AO initiated reassessment proceedings under Section 148 based on observations of escaped income from the sale of immovable property.
Held
The tribunal held that the reassessment proceedings were valid as the assessee had not declared the sale of property in the original return. Regarding the additions, the tribunal restricted the disallowance of cost of construction for both long-term and short-term capital gains, directing the AO to recalculate the figures.
Key Issues
Whether the reassessment proceedings initiated under Section 148 were valid. Whether the disallowances made by the AO on the cost of construction for capital gains were justified.
Sections Cited
250, 148, 143(3)
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Income Tax Appellate Tribunal, JAIPUR “SMC” BENCH : JAIPUR
Before: DR. MANISH BORAD
This appeal at the instance of assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] u/s. 250 of the Income Tax Act, 1961 (for short, 'the Act') dated 24/01/2024 for the Assessment Year 2009-10 (A.Y.) which is arising out of the assessment order dated 30/11/2016 framed by ITO, Ward-1(1), Jaipur.
Ground No.1 has been raised challenging the validity of reassessment proceedings on the ground that Ld.AO has not recorded the reasons correctly and carried out the reassessment proceedings on wrong footings and framed the assessment order in mechanical manner without application of mind.
I have heard rival contentions and perused the record placed before me. I observe that Ld.AO issued notice u/s. 148 of the Act
2 ITA.No.680/JPR/2025 (Mazhar Ilahi Shamsi) observing that assessee has not filed his return of income and that the transaction of sale consideration received Rs. 20 lakh from sale of immovable property at Jaipur has escaped assessment. I note that assessee has filed his regular return of income on 30/09/2009 declaring income of Rs. 2,68,170/-, but no income from capital gain has been shown therein. Further, the assessee has not objected to the reasons recorded by the Ld.AO nor gave information about the income tax return filed. Further, the assessee in compliance to notice u/s. 148 of the Act, has filed return on 26/10/20165 and has shown income from sale of immovable property at Rs. 26,297/- under the head „long term capital gain‟. All these facts clearly indicate that assessee has not declared the alleged transaction referred in the reasons recorded for issuing the notice u/s. 148 of the Act in its original return of income. Therefore, I find no infirmity in the reasons recorded by the Ld.AO and thus a valid notice u/s. 148 has been issued and valid reassessment proceedings have been carried out. Ground No.1 raised by the assessee challenging the validity of reassessment proceedings is hereby dismissed.
Ground No.2 raised on merits of the case against the addition made under the head „long term capital gain‟ at Rs.3,96,516/- and „short term capital gain‟ at Rs. 84,562/-.
I have heard rival contentions and perused the record placed before me. I observe that assessee has declared the transaction of receiving of sale consideration of Rs. 20 lakh under the head „long term capital gain‟ and has shown net „long term capital gain‟ at Rs.
3 ITA.No.680/JPR/2025 (Mazhar Ilahi Shamsi) 26,297/-. The Ld.AO while carrying out the reassessment proceedings has observed that two transactions of sale of immovable property fall under the long term capital gain category and one transaction falls under the short term capital gain. This bifurcation by the Ld.AO has not been disputed by the assessee. The only point of dispute is the disallowance made by the Ld.AO from the cost of construction claimed by the assessee I note that for Khasra No. 3503, against the assessee‟s claim of cost of boundary wall incurred for F.Y. 1997-98 and F.Y. 2005-06 at Rs. 3,44,200/- and Rs. 2,49,890/- respectively, the Ld.AO has made an adhoc disallowance of 30%. Similarly, under the working of short term capital gain, the Ld.AO has disallowed 20% of the cost of construction of boundary wall of Khasra No. 3513 incurred during the F.Y. 2005-06 at Rs. 2,05,330/-. The assessee failed to get any relief before the Ld.CIT(A).
Learned counsel for the assessee submitted that the assessee is regularly filing the returns and correct claim of cost of construction of boundary wall has been made. He, however, fairly accepted that proper details to this effect have not been maintained. I find that Ld.AO also made a adhoc disallowance without making any specific enquiry or carrying-out valuation of the cost of construction. I, therefore being fair to both the parties and in order to end the litigation, deem it appropriate that disallowance for cost of construction claimed under the head „long term capital gain‟ is restricted to 10% and disallowance of cost of construction claimed for „short term capital gain‟ is restricted to 4 ITA.No.680/JPR/2025 (Mazhar Ilahi Shamsi) 5%. The calculation of the same will be that against the disallowance made and sustained by the Ld.CIT(A) for the cost of construction at Rs. 1,03,260/- and Rs. 74,967/- under the head long term capital gain, the same shall be replaced by disallowance of Rs. 34,420/- and Rs. 24,989/- respectively. So far as cost of construction claimed under the head short term capital gain, disallowance sustained by Ld.CIT(A) at Rs. 41,066/- shall be restricted to Rs. 10,267/-. The Ld.AO is, thus, directed to recalculate the indexed cost of construction under the head „long term capital gain‟ and recalculate the figure of net long term capital gain. So far as short term capital gain is concerned, the addition of Rs. 84,564/- is now restricted to Rs. 53,763/-. Thus, the ground No.2 raised by the assessee is partly allowed.
In the result, appeal of the Assessee is partly allowed as per the terms indicated above.