CHANDARANI N.GOYAL,THANE vs. INCOME TAX OFFICER-WARD2(3), MUMBAI

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case, as emanating from the record, are that the assessee is an individual and is engaged in the business of stitching work at home. For the year under consideration, the assessee filed her return of income on 30/03/2013 declaring a total income of Rs.1,75,660. The return filed by the assessee was selected for scrutiny through CASS to verify the large investment in property as compared to the total income. During the assessment proceedings, it was observed that the assessee jointly with her husband owned non-agricultural land measuring 84915.02 sq.yd. The assessee jointly with her husband entered into a development agreement with M/s Indus Colonisers Pvt. Ltd., under which the developer agreed to develop the said land as per the sanctioned plan and hand over the possession of 15 bungalows in favour of the assessee upon completion of the project. Under the aforesaid agreement, the developer also paid an advance of Rs.25 lakh to the assessee. Accordingly, during the assessment proceedings, the assessee was Chandarani N. Goyal ITA no.3661/Mum./2023 asked to show cause as to why the capital gain arising out of the transaction entered into with the developer for the intended development of the land should not be taxed. After considering the submissions of the assessee, the Assessing Officer (“AO”) vide order dated 27/03/2014 passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that there is a written agreement for transfer/creation of interest in favour of the transferee, under which the transferee has taken over the possession and transferor has handed over the possession for an agreed consideration of 15 constructed bungalows apart from the assessee receiving Rs.25 lakh from the transferee, which constitutes transfer within the meaning of the Transfer of Property Act, 1882. The AO further held that the assessee has not submitted any proof, either in the form of any correspondence with the transferee or in the form of any cancellation agreement to support her argument that the agreement is going to be cancelled. Accordingly, in view of the aforesaid facts, the AO came to the conclusion that the receipt is taxable in the hands of the assessee and computed the long-term capital gains of Rs. 95,69,037 taxable in the hands of the assessee.

In further appeal, the learned CIT(A), vide impugned order, allowed the ground raised by the assessee and deleted the addition on account of long- term capital gains made by the AO on the basis that the terms and conditions of the development agreement were not acted upon by the developer and the assessee has cancelled the development agreement, since the developer neither started any construction on the land owned by the assessee nor did it hand over 15 bungalows as agreed in the development agreement resulting in violation of terms of the agreement. Page | 3

The learned CIT(A), after deletion of the aforesaid addition, noted that at the time of execution of the development agreement, the developer made a payment of Rs.25 lakh to the assessee as a security deposit which was retained by the assessee and there is no documentary evidence to prove that this amount was returned to the developer. The learned CIT(A) further noted that the AO has not made any addition on this account as the AO computed the long-term capital gains on the entire transaction. Accordingly, vide impugned order, the learned CIT(A) came to the conclusion that the amount of Rs.25 lakh received by the assessee as deposit is taxable in the hands of the assessee as per the provisions of section 56(2)(vii)(a) of the Act. Accordingly, the learned CIT(A) directed the AO to tax Rs.25 lakh in the hands of the assessee as “income from other sources” under section 56(2)(vii)(a) of the Act. Being aggrieved by the aforesaid addition made by the learned CIT(A), which was not made in the assessment order, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that while making the aforesaid addition under section 56(2)(vii)(a) of the Act, the learned CIT(A) did not comply with the provisions of section 251(2) of the Act and did not grant reasonable opportunity to the assessee of showing causes against the aforesaid enhancement.

Section 251 of the Act deals with the powers of the learned CIT(A) and provides that in disposing of an appeal against an order of assessment, the learned CIT(A) shall have the powers to confirm, reduce, enhance, or annul the assessment. Section 251(2) further provides as under:- Page | 4

Therefore, from the perusal of the provisions of section 251 of the Act, it is pertinent to note that though the statute has conferred the power of enhancement on the learned CIT(A) while disposing of an appeal against an order of assessment, however, as per the provisions of sub-section (2) the learned CIT(A) is required to grant reasonable opportunity of showing cause against such enhancement to the assessee prior to making any such enhancement. Ostensibly, in the present case, no such opportunity was granted by the learned CIT(A) to the assessee while making the aforesaid enhancement and directing the AO to tax Rs.25 lakh in the hands of the assessee under section 56(2)(vii)(a) of the Act. Therefore, we are of the considered view that the learned CIT(A), while directing the impugned addition under section 56(2)(vii)(a) of the Act, did not comply with the provisions of section 251(2) of the Act.

Now the question arises as to whether such a contravention is an illegality or irregularity. As if it is considered as an illegality then the entire addition is void ab initio. However, we are of the considered view that the non- grant of a reasonable opportunity to the assessee to show cause against the proposed enhancement results in an irregularity, as the learned CIT(A) failed to comply with the procedure laid down under section 251(2) of the Act prior to making the impugned enhancement. In any other case, in the aforesaid scenario, the issue should be restored to the file of the learned CIT(A) for de novo adjudication after granting the opportunity to the assessee to show cause

On merits of the addition, the learned AR submitted that the amount of Rs.25 lakh received by the assessee from the developer as a security deposit was repaid by the assessee on 10/10/2023. In this regard, the learned AR referred to the bank statement of the assessee’s account in SVC Co-operative Bank Ltd. The learned AR further submitted that the developer has also issued a confirmation in this regard and also issued a no objection certificate, which forms part of the paper book on pages 43-44. In the present case, it is pertinent to note that the impugned addition of Rs.25 lakh, received by the assessee as a security deposit under the development agreement entered with the developer, is made under section 56(2)(vii)(a) of the Act, which reads as under:-

Therefore, as per the provisions of section 56(2)(vii)(a) of the Act, any sum of money, the aggregate of which exceeds Rs.50,000, received by an individual without consideration is taxable as income from other sources. Thus, Page | 6

In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 21/03/2024