2022 (1) TMI 603 - HC - Income Tax

Addition of LTCG - determination of cost of construction - Ignorance of documents furnished by the appellant in support of his claim with regard to the agreement to sell - authority considered the value of the construction based on the available material - HELD THAT - AO has determined the cost of construction said to have been incurred based on the information collected but the same is not disclosed in the order. Even assuming the said cost of construction and the cost of acquisition determined is on the basis of the material available on record, the same ought to have been reflected in the assessment order, to clarify that the authority has applied the mind in the right perspective. It is discernable that the CIT (Appeals) though has issued notice, the same having been returned without due service of summons, as there was no other option, proceeded to pass ex-parte order. In such circumstances, in the interest of justice and equity, keeping in mind the principles of natural justice and in view of the CIT (Appeals) dismissing the appeal merely recording the observations made in paragraph No.6 of the assessment order sans independent application of mind, we are of the considered opinion that the said order calls for interference by this Court. Further, the finding of the Tribunal based on ex-parte order of the CIT (Appeals) also warrants interference. We deem it appropriate to set aside the orders passed by the Tribunal as well as the CIT (Appeals) in order to provide one more opportunity to the assessee to putforth the material evidence inasmuch as the cost of construction and the valuation report as well as the additional expenses said to have been incurred towards new house, before the CIT (Appeals).

Summary

Issues:
Challenge to the order passed by the Income Tax Appellate Tribunal related to assessment year 2009-10.

Analysis:
The appellant, an individual, challenged the order passed by the Income Tax Appellate Tribunal regarding the assessment year 2009-10. The appellant filed the appeal under Section 260A of the Income Tax Act, 1961, contesting the addition of long-term capital gains to the total income. The appellant's return of income was selected for scrutiny, leading to the addition of a significant amount as long-term capital gains. The appellant's appeal before the CIT (Appeals) was dismissed, and the subsequent appeal before the Tribunal was also unsuccessful, prompting the current appeal before the High Court.

The High Court admitted the appeal to consider substantial questions of law, including the Tribunal's dismissal of the appellant's claim regarding the agreement to sell, the treatment of capital gains issue, and the dismissal of the appeal without proper consideration of documents furnished by the appellant. The appellant argued that the Assessing Officer's determination of construction costs lacked a proper basis and that the authorities did not provide a reasonable opportunity to rebut the same. The appellant also contested the cost of acquisition of the new property and the commission amount paid, highlighting the need for a correct valuation report.

The Revenue, on the other hand, argued that the appellant mixed up the cost of construction and acquisition to evade capital gains tax. They contended that the authorities correctly assessed the construction value based on available material and that no remand to the Assessing Officer was necessary. The Tribunal's analysis was deemed sufficient, and no substantial question of law was found to warrant consideration.

After considering the arguments and perusing the material, the High Court found deficiencies in the assessment process. The Assessing Officer's determination of costs lacked transparency, and the ex-parte order by the CIT (Appeals) raised concerns about natural justice principles. Consequently, the High Court set aside the orders of the Tribunal and CIT (Appeals), providing the appellant with an opportunity to present additional evidence regarding construction costs and valuation before the CIT (Appeals). The High Court did not answer the substantial questions of law but directed a fresh consideration of the matter by the CIT (Appeals) with proper notice and hearing for both parties, leaving all rights and contentions open.