Sasihithlu Venkateshi Srilakshmiprasad Vs ITO (ITAT Bangalore)
Sale Price Is Not Capital Gain in Disguise: ₹63-Lakh Property Consideration Cannot Be Taxed Without Land & Construction Cost—Bangalore ITAT Condoned 119-Day Delay
Summary:
Property Sale Detected in the Case of a Non-Filer
The assessee had not filed her return of income for AY 2016-17. Information available with the Department indicated that she had sold an immovable property for ₹63,00,000.
Since she was a non-filer, the AO initiated proceedings by issuing notice u/s 148A. The assessee did not respond. Notice u/s 148 was thereafter issued on 21.03.2023.
During reassessment, the AO issued notices u/s 142(1), requiring the assessee to furnish the computation of capital gain & supporting particulars. No response was received.
The AO independently issued notice u/s 133(6) to the purchaser & obtained a copy of the sale deed. In the absence of any explanation from the assessee, the entire sale consideration of ₹63 lakh was added as unexplained income/short-term capital gain.
The assessment was completed ex parte u/s 147 r.w.s. 144 & 144B on 21.03.2024, determining total income at ₹63 lakh.
No Cost of Land or Construction Allowed
The assessee subsequently explained that she was a housewife who had purchased a site during 2014, constructed a seven-square duplex residential house & sold it on 21.03.2016.
The acquisition of the site & construction of the house were financed partly through borrowings from Mysore Merchants Co-operative Bank Limited. According to her, the transaction had actually resulted in a substantial loss.
However, because she did not participate in the reassessment proceedings, the AO had no supporting material regarding the original purchase price, construction cost, borrowing, interest or other expenditure. He consequently taxed the gross receipt itself without allowing any deduction.
Appeal Filed After Penalty Notices Arrived
The assessee claimed that although the assessment order was transmitted electronically, she was unaware of it. She had no Chartered Accountant or regular tax consultant & did not understand the implications of the notices or online proceedings.
She became aware of the assessment only when the Department initiated penalty proceedings. Upon receiving the penalty notices, she approached a Chartered Accountant, who advised her to challenge the assessment order.
The appeal before the CIT(A) was filed on 14.08.2024, resulting in a delay of 119 days. A condonation petition explained that the delay was unintentional, arose from lack of knowledge of the assessment order & was not attributable to any mala fide purpose.
CIT(A) Treated Ignorance as Negligence
The CIT(A) rejected the explanation. He observed that the assessment order had been received electronically on the date stated in Form 35 & that ignorance of law could not constitute sufficient cause.
The assessee’s unawareness of the order was treated as her own negligence. Consequently, the delay was not condoned, the appeal was not admitted & the merits of the ₹63-lakh addition were never examined.
Unawareness of the Order Is Different From Ignorance of Law
The Tribunal distinguished between ignorance of law & lack of knowledge that an assessment order had actually been passed.
The assessee was not merely claiming that she did not know the legal time limit for filing an appeal. Her case was that she did not know of the existence of the assessment order until penalty proceedings commenced.
Once she became aware of it & obtained professional advice, she filed the appeal with a condonation petition. The delay did not confer any benefit upon her & nothing indicated that it was deliberate.
The Tribunal found that the CIT(A) had failed to examine the explanation from a practical perspective. In the circumstances of a housewife without professional tax assistance, absence of knowledge of the assessment order constituted sufficient cause. The delay of 119 days was therefore condoned.
Gross Consideration Cannot Become Gross Income
The Tribunal also examined the basic injustice in the assessment. Even if the property generated short-term capital gain, only the gain could be taxed—not the entire consideration.
Computation necessarily required deduction of the cost of acquisition of the site, cost of constructing the residential house & eligible transfer-related expenditure. Treating the entire ₹63 lakh as taxable income without granting any cost was unsustainable.
Since the controversy was essentially one of verification of acquisition & construction costs, restoring the appeal to the CIT(A) would serve little purpose. The Tribunal therefore restored the entire issue directly to the AO.
The assessee was directed to substantiate her claim before the AO within 90 days from receipt of the Tribunal’s order by producing documents relating to the purchase price, construction cost, bank borrowing & other deductible expenses.
The appeal was accordingly allowed for statistical purposes.
Author’s Comments
The ruling applies two elementary but important principles. First, limitation should not defeat an appeal where the taxpayer credibly lacked knowledge of the order & acted promptly after discovering it. Secondly, capital gains tax applies to the gain computed under the Act—not mechanically to the gross sale proceeds.
The remand does not guarantee that every claimed expense will be accepted. The assessee must prove the amounts through the purchase deed, construction bills, bank-loan records, contractor payments & related evidence.
Still, the computational principle is beyond debate: the Department may tax the profit on a house, but it cannot pretend that the site & construction came free.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE
1. ITA No. 2259/Bang/2025 is filed by Mrs. Sasihithlu Venkateshi Srilakshmiprasad (the Assessee/Appellant) for Assessment Year 2016-17 against the Appellate Order passed by the National Faceless Appeal Centre, Delhi (the Ld. CIT(A)) dated 20.08.2025 wherein the Appeal filed by the Assessee against the Reassessment Order dated 21.03.2024 passed u/s. 147 r.w.s. 144 of the Income Tax Act,1961 by the National Faceless Assessment Centre, Delhi (the Ld. Assessing Officer) was dismissed for the reason that the delay in filing of the Appeal after 119 days was not considered by the Ld. CIT(A) as for sufficient cause. Thus, the Appeal of the Assessee was not admitted and hence dismissed.
2. Aggrieved by the same, the Assessee is in appeal before us raising several grounds of appeal but the concern is that the delay of 119 days was not condoned by the First Appellate Authority despite showing him the sufficient cause for such delay.
3. The brief stated facts shows that Assessee is a person who has not filed her return of income and the information was received that there is a sale of an immovable property of Rs. 63,00,000/- made by the Assessee. As the Assessee is a non-filer, she was given an opportunity to be heard through issuance of notice u/s. 148A, but no compliance was made by the Assessee. Consequently, the notice u/s. 148 was issued on 21.03.2023. The facts shows that the Assessee has sold an immovable property for a sale consideration amounting to Rs. 63,00,000/- and Assessee has not filed any return of income and notice u/s. 133 (6) was also issued to the purchaser of the property and the copy of the sale deed was obtained. Further notices u/s.142 (1) were also issued to furnish the computation of capital gain to the Assessee but the Assessee failed to file any reply. Consequently, the Ld.Assessing Officer made an addition of Rs. 63,00,000/- being sale consideration of the property without granting any cost of acquisition etc., as deduction as unexplained income. The Assessment Order was passed u/s. 147 r.w.s 144 r.w.s. 144B of the Act on 21.03.2024 determining the total income of the Assessee at Rs. 63,00,000/-.
4. The Assessee aggrieved with the Assessment Order preferred an Appeal before the Ld. CIT(A). The Assessee submitted that Assessment Order passed on 21.03.2024 was received by the Assessee on 21.03.2024, however, the Appeal was filed on 14.08.2024 and thereby there was a delay in filing of the Appeal. The Assessee has also filed a petition for condonation of the delay showing cause that the services of the proper tax consultants were not acquired by the Assessee and therefore Assessee could not respond to the notices and did not file the return of income. The Assessee came to know about passing of the order only on the receipt of the penalty notices as soon as the assessee came to know about the above Assessment Order and she consequently approached the Chartered Accountant to file the Appeal on his advice and therefore it caused the delay of 119 days. It was also stated that the delay was unintentional, without any malafide intention and therefore same may be condoned.
5. The Ld. CIT(A) noted that there is a substantial delay in filing of the Appeal despite receipt of the Assessment Order stated in form No. 35 on 21.03.2024 (the date of passing of the order). As per paragraph no. 2.7 of the Appellate Order, he considered the explanation given by the Assessee and stated that same is not for a sufficient cause and ignorance of the law cannot be stated to be an excuse and therefore he did not condone the delay of 119 days stating that the appellant’s unawareness about the passing of the order is her own negligence and therefore the delay was not condoned and Appeal of the Assessee was not admitted.
6. Against the above Appellate Order, the Assessee is in appeal before us. It was the claim that the delay of 119 days was for sufficient cause as the Assessee was not aware about the passing of the Assessment Order by the Ld. Assessing Officer and did not have any services of a Chartered Accountant or regular tax consultant and therefore the Assessment Order served on the email of the Assessee could not be traced by the Assessee. Further, when the penalty notices were issued to the Assessee, the Assessee came to know about the Assessment Order passed u/s. 144 of the Income Tax Act. He contacted the Chartered Accountant and on his advice the Appeal was filed which is inadvertently delayed by 119 days. It was the claim of the Assessee that the delay is for sufficient cause and therefore the Ld. CIT(A) should have condoned the same.
7. The Ld. Authorised Representative stated that Assessee is a housewife who was involved in the purchase of a site constructing house thereon and selling the same for a profit. During the year 2014, the Appellant purchased the site and then proceeded to construct a seven square duplex house and sold the same on 21.03.2016 after borrowing money from M/s. Mysore Merchants Cooperative Bank Limited and utilised the same for purchase of site and construction of the residential house thereon. The Assessee did not have the services of a proper tax consultant or a Chartered Accountant and therefore could not respond to the notices and did not file even the return of income. The Assessee suffered a huge loss on purchase of the above site and therefore could not comply with the law. The Ld. Assessing Officer when no response was received from the Assessee proceeded to confirm the entire sale proceeds of the residential house property as short-term capital gain. Accordingly, it was submitted that the Ld. Assessing Officer did not grant the deduction of the cost of purchase, cost of construction as well as the expenses incurred by the Assessee for constructing the house. It was submitted that by not admitting the Appeal of the Assessee, the Ld. CIT(A)’s order has injured the interest of the Assessee and for the sake of natural justice the Assessee must get an opportunity of hearing before the lower authorities.
8. The Ld. Departmental Representative Shri Subramanian, Joint Commissioner of Income Tax vehemently supported the orders of the Ld. CIT(A) and submitted that Assessee has failed to respond to any of the notices issued by the Assessing Officer as well as the Ld. CIT(A) and therefore the addition of Rs. 63,00,000/- has been made in the hands of the Assessee and when the appeal is filed late by 119 days, the Assessee could not show any sufficient cause and therefore the delay was not condoned. There is no infirmity in the order of the Ld. lower authorities.
9. We have carefully considered the rival contention and perused the orders of the Ld. lower authorities. We find that Assessee is a non-filer but on receipt of the information by the Ld. Assessing Officer that Assessee has sold an immovable property for Rs. 63,00,000/-, several notices were issued to the Assessee at the time of reopening of the Assessment as well as at the time of the Assessment Proceedings. Further, as the no information was forthcoming from the Assessee, the Ld. Assessing Officer issued notices U/S. 133 (6) of the Act from the buyer of the property and obtained a copy of purchase deed. In absence of any information, he made the addition of Rs. 63,00,000/- which is the sale consideration of the property without granting any deduction of the cost of land, cost of construction, other expenditure also. Against this Assessment Order, the Assessee preferred an appeal. But unfortunately, this appeal was delayed by 119 days. The Assessee in form No. 35 categorically stated that there is a delay in filing of the Appeal before the Ld. CIT(A) and explained the reasons for such delay. The main contention of the Assessee is that Assessee was not aware of any Assessment Order passed by the Ld. Assessing Officer and came to know only at the time when penalty proceedings were initiated. When the penalty proceedings were initiated and were being pursued by the Income Tax Department, the Assessee who was not having earlier any services of a Chartered Accountant or tax consultant, contacted a Chartered Accountant who advised her to file the Appeal before the Ld. CIT(A) with an application for condonation of delay. The Assessee filed the same. The Ld. CIT(A) stated that ignorance of law cannot be considered as an excuse for not doing a particular thing. However, the absence of knowledge of the Assessment Order in existence is a sufficient cause. We find that the Assessee came to know only at the time of the penalty proceedings that the Assessment Order has been passed which was required to be challenged, has not been challenged and on being advised so, the Assessee immediately challenged before the Ld. CIT(A). This has caused the delay of 119 days. We find that the Ld. CIT(A) did not consider the delay in filing of the Appeal from practical aspect. We find that the delay is caused for a sufficient cause. Accordingly, the ld. CIT (A) was not correct in condoning the delay and deciding the appeal on its merits.
10. Even otherwise on the merits of the case also, the addition made by the Ld. Assessing Officer of the total sale consideration of an immovable property considering it as a short-term capital gain without granting the deduction of the cost of acquisition of land, cost of construction and other expenses has grossly unjust. Accordingly, the order of the Ld. Assessing Officer on the facts of the case and on the merits also is not sustainable. Therefore, restoring the appeal before the ld. CIT (A) will not serve any purpose as the issue is verification of cost of acquisition and deductibility of expenses.
11. In the result, we restore the whole issue back to the file of the Ld. Assessing Officer with a direction to the Assessee to substantiate her case before the Ld. Assessing Officer within 90 days from the date of receipt of this order showing the cost of construction, cost of acquisition and the claim of any deduction of the expenses against the sale consideration of Rs. 63,00,000/-.
12. In the result, the Appeal of the Assessee is allowed as indicated above for statistical purposes.
Order pronounced in the open court on 12th March, 2026.
