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Facts
The assessee sold two flats, declaring a long-term capital loss after claiming indexed cost of improvement. However, the Assessing Officer recomputed the capital gains, resulting in a significantly higher total income and a penalty notice. The assessee's subsequent appeal to the CIT(A) was dismissed ex parte without providing an opportunity for a proper hearing.
Held
The Tribunal determined that the CIT(A) violated the principles of natural justice by dismissing the appeal ex parte without ensuring an effective opportunity of being heard for the assessee. Consequently, the impugned order of the CIT(A) was set aside, and the matter was restored to the CIT(A) for fresh adjudication after giving the assessee due opportunity to present their case.
Key Issues
Whether the CIT(A) violated natural justice by dismissing the appeal ex parte; and the correct computation of Long Term Capital Gains, including the allowability of indexation benefit, interest expenditure, stamp duty, and selling expenses, and levy of interest under various sections.
Sections Cited
250, 143(2), 142(1), 143(3), 274, 271(1)(c), 234B, 234C, 234D
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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI. OM PRAKASH KANT & SHRI. RAJ KUMAR CHAUHAN
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI. OM PRAKASH KANT, ACCOUNTANT MEMBER AND SHRI. RAJ KUMAR CHAUHAN, JUDICIAL MEMBER ITA NO. 819/MUM/2024 (A.Y: 2016-17) Nilesh Raghavji Savla Vs. ITO, Ward 23(2)(4) 31, 1652/53, Vinay CHS Ltd., Kher Matru Mandir, Tardeo Road, Nagar, MHB Colony, Bandra Mumbai – 400 007. (East), Mumbai - 400 051. PAN: AKXPS2366Q (Appellant) (Respondent)
Assessee Represented by : Shri. K. Gopal Department Represented by : Shri. Ashok Kumar Ambastha- Sr. AR. Date of conclusion of : 28.05.2024 Hearing Date of Pronouncement : 07.06.2024
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order dated 29.12.2023 of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the A.Y. 2016-17, wherein the appeal was dismissed ex parte as the assessee has failed to file response and submit arguments after filing of the appeal from the order of the
ITA No. 819/Mum/2024 Nilesh Raghvji Savla; A.Y. 2016-17 Learned Assessing Officer, Ward 23(2)(4), Mumbai (hereinafter referred to as the “AO”). 2. The brief facts are that the assessee has filed return of income on 16.10.2016 declaring total income at Rs. 7,19,770/- for A.Y. 2016-17. The case was selected for the limited scrutiny and the notice u/s. 143(2) 142(1) were issued calling about the details from the assessee. The details were filed and examined by the Ld. AO. 3. It is further stated that in the previous year relevant to the A.Y. 2016- 17, the assessee has sold two flats for a consideration of Rs. 1,61,90,000/- each. After claiming indexed cost of improvement at Rs. 1,57,48,709/- and Rs. 1,22,85,877/- incurred in various financial years, long-term capital loss of Rs. 53,80,635/- has been shown in the return of income. Various opportunities were given to the assessee to furnish the details called for and final opportunity was given and explanation and comments of the assessee were called for with regard to the total amount of cost of flat no. 101 and 102 incurred by the assessee had been only Rs. 45,00,000/- each. The assessee has not filed any comments or explanation and accordingly the total long term capital gains in respect of the flat no. 101 and 102 was worked out to Rs. 1,99,86,370/-. Thus, the total income of assessee was rounded of Rs. 2,07,06,135/- instead of Rs. 7,19,770/- as was declared in the return of income filed on 16.10.2016. Accordingly, the assessee was issued demand notice/challan for payment of the tax alongwith notice of penalty u/s. 274 r.w.s. 271(1)(c) of "the Act". The said order of the Ld. AO was challenged u/s. 250 of "the Act" before the Ld. CIT(A), however, the said appeal was dismissed ex parte. Hence, the appellant/assessee is in appeal before the Tribunal and raised the following grounds:
ITA No. 819/Mum/2024 Nilesh Raghvji Savla; A.Y. 2016-17 1. “The National Faceless Appeal Centre [hereinafter referred to as “NFAC"] has erred in passing the order dated 29.12.2023 without providing the Appellant a reasonable opportunity of being heard. Thus, the appellate order passed by NFAC is against the principles of natural justice and the same may be set aside. Grounds on Merits: 2. The National Faceless Appeal Centre [hereinafter referred to as 'NFAC'] has erred in confirming the assessment order dated 13.12.2018 passed under section 143(3) of the Act by determining total income at Rs.2,07,06,140/- as against returned income of the Appellant at Rs.7,19,770/- without appreciating the facts and circumstances of the case. The appellate order dated 29.12.2023 passed by NFAC is not at all justified and the same may be quashed and set aside. 3. The NFAC is not justified in confirming the action of the AO in computing the Long Term Capital Gains of Rs.1, 99, 86,370/- on sale of Flat Nos. 101 and 102 sold by the Appellant during the year under consideration (i.e. Rs.99, 93,185/- for each flat) without giving the benefit of indexation on cost of acquisition and cost of improvement without appreciating the facts and circumstances of the case. Thus, the addition of Rs.1, 99, 86,370/- made on account of Long Term Capital Gains is not justified and the same may be deleted. 4. The NFAC failed to appreciate that the Appellant had incurred a cous of Rs.18,08,058 on acquisition of Flat No. 10 and Rs. 22,18,354/-on Flat No. 2 in Sunita Kutir CHS, Malad West, during the Financial Year 2005-06 and also incurred the total cost of improvement of Rs 93,80,442/- in the process of redevelopment of the said society in order to get two commercial units, being Unit No. 101 and 102 in lieu of the old flats. Thus, the Appellant is entitled to claim the benefit of indexation on the said cost of acquisition and cost of improvement. Hence, the disallowance of the claim of indexation by the AO and confirmed by the NFAC is not justified and the same may be deleted.
ITA No. 819/Mum/2024 Nilesh Raghvji Savla; A.Y. 2016-17 5. The NFAC has erred in confirming the disallowance of interest expenditure of Rs.59,12,004/- and Rs.32,56,718/- incurred by the Appellant on the borrowed funds without appreciating that the same were utilized for the purpose of acquisition of the above long term capital assets. Thus, the benefit of the said interest expenditure is allowable while computing the Long Term Capital Gains. Hence, the disallowance of the same made by the AO and confirmed by the NFAC is not at all justified and the same may be deleted. 6. The NFAC has erred in confirming the disallowance on account of stamp duty of Rs.20,16,000/-(i.e. Rs.10, 08,000/- on each asset) while computing the Long Term Capital Gains without appreciating that the said amount paid by the Appellant has got direct bearing to the cost of the asset and therefore the benefit of the same should be allowed while computing the Long Term Capital Gains. Thus, disallowance of the same made by the AO and confirmed by the NFAC is not at all justified and the same may be deleted. 7. The NFAC has erred in confirming the action of the AO in not giving benefit of cost of selling expenses of Rs.5, 00,000/- incurred by the Appellant without appreciating that the said expenses are wholly and exclusively related to the transfer of the above asset. Thus, the benefit of the same is allowable while computing the Long Term Capital Gains on the same. Hence, the disallowance made by the AO to that effect and confirmed by the NFAC is not justified and the same may be deleted. 8. The appellant denies the liability to pay the interest under section 234B, 234C and 234D of the Act as the same are not leviable.” 11. We have heard the Ld. AR on behalf of the assessee and Ld. DR on behalf of the revenue. At the very outset, the Ld. AR argued that the principal of natural justice has not been followed by the Ld. CIT(A) as no opportunity was given to the appellant/assessee to present his case before deciding the appeal against the assessee while upholding the order of the Ld. AO. The Ld. DR to these legal grounds has argued that Page | 4
ITA No. 819/Mum/2024 Nilesh Raghvji Savla; A.Y. 2016-17 notice on various dates as find mentioned in para 4.1 of the impugned order were issued on five occasions but the appellant/assessee has failed to file response which constrained the Ld. CIT(A) to proceed as per law and the appeal has been decided accordingly. It is therefore argued that there is no violation of the principal of the natural justice as sufficient opportunity were afforded to the appellant which he failed to avail before the Ld. CIT(A). 12. We have considered the rival submissions and perused the record Section 250 sub section 2(a) of "the Act" provides as under: “(2) The following shall have the right to be heard at the hearing of the appeal: - a. The appellant, either in person or by an authorised representative;” 13. We have perused the impugned order to find out if the requirement of section 250(1)(A) of "the Act" has been fulfilled or not? On perusal of para 4.1 of the impugned order, it is noticed that the notice was sent through ITBA on 30.12.2020, 12.05.2023, 22.09.2023, 23.11.2023 and 30.11.2023. Nothing is mentioned in the impugned order if the said notices were served upon the appellant/assessee or not. Nothing is found mentioned in the impugned order if any attempt was made to send the physical notice or the same has been served upon the appellant/assessee. Since the affective hearing is the sin quo-non of provisions of Section 250(2) of "the Act" and the appellant/assessee is required to be heard effectively, therefore, in the given facts and circumstances and the material discussed above, it is to be noticed that no affective hearing has been given by the Ld. CIT(A) while deciding the appeal ex parte. The principal of natural justice needs to be followed by quasi-judicial authority before deciding the matter on merit. Since Page | 5
ITA No. 819/Mum/2024 Nilesh Raghvji Savla; A.Y. 2016-17 in this case, the appeal has been decided on merit without according affective opportunity of hearing as was required by law, the impugned order is accordingly set aside. 14. The matter is restored to the file of the Ld. CIT(A) with the directions to decide the same after giving effective opportunity to the appellant/assessee for presenting their case. The appellant/assessee is directed to present its case before the Ld. CIT(A) within a period of 60 days from this order. 15. In the result, appeal filed by the assessee is disposed off and partly allowed in the above terms for statistical purposes. Order pronounced in the open court on 07.06.2024
Sd/- Sd/- (OM PRAKASH KANT) (RAJ KUMAR CHAUHAN) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Mumbai / Dated 07.06.2024 Karishma J. Pawar, (Stenographer) Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mumbai