PRADIPSINH MAHAVIRSINH GOHIL,BHAVNAGAR vs. ITO WARD 1(8), BHAVNAGAR

This is an appeal filed against the order dated 12-07- 2023 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2014-15.

The grounds of appeal

The assessee is an individual and filed return of income for the year under consideration on 30-03-2015 declaring income of Rs. 3,46,940/-. No assessment in this has been completed for assessment year 2014-15. Information was received that the assessee sold an immoveable property at Rs. 2,01,28,800/- during assessment year 2011-12. Out of total capital gain arrived at Rs. 1,68,91,556/-, he claimed exempt of Rs. 1,23,00,000/- investing this amount in capital gain scheme account (SBI) and remaining capital gain account of Rs. 45,51,556/- was offered for taxation. The assessee was unable to utilized capital gain amount of Rs. 48,58,365/- ( i.e. 1,23,00,000/- - 74,41,635/-) to purchase new house and the Assessing Officer observed that the same required to be taxed for assessment year 2014-15. Accordingly, the case was taken up for re-assessment and notice u/s. 148 was issued on 31- 03-2021. Later notice u/s 143(3) was issued on 21-08-2021 and subsequently notice u/s. 142(1) along with the detailed questionnaire was issued on 01-12-2021. The assessee filed detailed submission with documentary evidences. However, the Assessing Officer observed that computation with regard to the indexed cost of improvement was not provided by the assessee and accordingly the total income of the assessee is assessed u/s. 147 r.w.s. 143(3) at Rs. 34,99,890/-.

Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

The ld. A.R. submitted that the notice is issued on the basis of wrong information because assessee has already invested the required amount. In fact, during assessment proceedings, the assessee explained the fact that he has fully utilized the amount for making investment in house property and this fact stands accepted in the assessment order as no addition was made on this account. However, in the assessment order, addition has been made by disallowing indexed cost of improvement amounting to Rs. 31,52,892/- which is not tenable as said disallowance cannot be made for the year under consideration. This is so because capital gain arises in the previous year relevant to assessment year 2011- 12 and therefore cost of improvement can be subject matter of disallowance only in assessment year 2011-12 i.e. the year in which the same is claimed as deduction. As regards to the details submitted before the Assessing Officer, the ld. A.R. submitted that almost all the details even in respect of the issues that did not form part of the reasons recorded for reopening of assessment. The assessee submitted all the details. One of the issues which was not subject matter of reopening relates to the cost of improvement done in the Page No. Pradipsinh Mahavirsinh Gohil vs. ITO working of the capital gain. The assessee has explained the nature of expense incurred and also pointed out the documentary evidences relating to the improvement cost. However, the Assessing Officer did not issue any specific show cause notice asking assessee to submit the details of such expenses, but proceeded to pass the assessment order making disallowance of indexed cost of improvement amounting to Rs. 31,52,892/- (17,25,000/- multiplied by 711/389). In the assessment proceedings, the Assessing Officer after verifying the explanation of the assessee along with the evidences in respect of the issues forming part of reopening of assessment (i.e. non-utilization of amount from capital gain account) did not make any addition as assessee clearly explained to have utilized the amount which is claimed as exempt u/s. 54F of the Act. Thus, one the one hand, the Assessing Officer accepted the assessee’s submissions by not making addition in respect of the issue for which notice u/s. 148 of the Act has been issued but on the other hand proceeded to make huge disallowance of cost of improvement which is not even the subject matter for reopening of assessment. The ld. A.R. further submitted that the CIT(A) also ignored this fact and held that the reopening is valid and the documentary evidences in respect of cost of improvement lead to the conclusion to the Assessing Officer to disallow the cost incurred in respect of cost of improvement.

The ld. D.R. submitted that the income has to be determined and the Assessing Officer has validly re-opened the assessment as the reopening was not done on the basis of enhanced indexed but it is on the basis of un-utilized capital gain to purchase new house which required to be taxed for assessment year 2014-15. The ld. D.R. relied upon the assessment order and the order of the CIT(A).

Heard both the parties and perused all the relevant material available on record. It is pertinent to note that during the assessment proceedings all the documentary evidences were provided by the assessee to the Assessing Officer and from the perusal of the records, it appears that the assessee had fully utilized the amount in purchasing the new house property within the limit specified u/s. 54F of the Act. The reopening was in fact on the basis that the assessee was unable to utilize capital gain amount of Rs. 48,58,365/- but the addition made on account of disallowing indexed cost of improvement amounting to Rs. 31,52,892/- was not the issue for reopening and there was no reason recorded to that extent. The Assessing Officer cannot act beyond the scope of actual reasons for reopening the assessment u/s. 147 of the Act. The observations made by the Assessing Officer as well as by CIT(A) that the assessee sold an immoveable property during assessment year 2011-12 itself shows that the reopening was Page No. Pradipsinh Mahavirsinh Gohil vs. ITO not justifiable for assessment year 2014-15. Thus, the contention of the ld. A.R. relating to validity of the reopening appears to be justifiable. As regards to the merits of the case are concerned, the disallowance of indexed cost of improvement in the assessment year 2011-12 in the year under consideration cannot be held as addition in the assessment year 2014-15 which is the assessment year before the Tribunal herein. Hence, the appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed.