Marimuthu Durai Singh Vs DCIT (ITAT Bangalore)
Entire Sale Proceeds Taxed as Capital Gains? ITAT Orders Fresh Assessment, With ₹10,000 Cost for Non-Compliance
Form 16 and Cost of Acquisition Were Left Out
The assessee was a salaried employee. His assessment was completed ex parte under section 147 read with section 144 after he failed to represent his case before the Assessing Officer. According to the assessee, the Assessing Officer taxed his gross salary without allowing exemptions under section 10, the house property interest claim and Chapter VI-A deductions reflected in the Form 16 issued by his employer.
The assessee also disputed the computation of capital gains. He contended that the Assessing Officer had treated a long-term capital asset as a short-term capital asset and taxed the sale proceeds without reducing the cost of acquisition. The absence of documents and explanations during assessment meant that these claims had not been properly examined.
Before the CIT(A)/NFAC, the assessee obtained limited relief concerning tax credits. The CIT(A) directed the Assessing Officer to verify Form 26AS and allow eligible TDS credit and self-assessment tax in accordance with law. The other claims were not accepted because the assessee had not filed written submissions or supporting documents during the appeal proceedings either.
Appeal Delayed by 86 Days
The appeal before the ITAT was filed 86 days late. The assessee explained that he was a salaried employee unfamiliar with income-tax proceedings and dependent on external assistance. He referred to work pressure, travel, workplace email filtering and confusion about where the appeal should be filed. He maintained that the delay was unintentional and supported his application with a time chart and affidavit.
After hearing both sides, the Tribunal found the explanation plausible and held that sufficient cause had been shown. It therefore condoned the delay and admitted the appeal. Condonation, however, did not amount to acceptance of the assessee’s tax claims; it only enabled the Tribunal to consider what should happen to the disputed assessment.
Fresh Examination Ordered by the Tribunal
The Tribunal observed that the assessee had failed to represent his case before both lower authorities. It also noted that the ex parte assessment had been made without considering Form 16 and that capital gains had been computed without allowing any cost of acquisition, since the necessary details and documents were not available to the Assessing Officer.
The assessee’s further contention that the asset was long-term rather than short-term also required examination. The Tribunal accordingly restored the entire set of disputed issues to the Assessing Officer for a de novo decision in accordance with law. The Assessing Officer must provide a reasonable opportunity of being heard, and the assessee must produce the records and information needed to substantiate his claims.
The ITAT did not itself determine the allowable salary exemptions, deductions, property cost or correct period of holding. Those matters remain open for verification in the fresh proceedings.
Another Opportunity Comes at a Cost
While allowing a fresh hearing, the Tribunal did not overlook the assessee’s conduct. His continued failure to respond to statutory notices during assessment and first appeal led it to impose a token cost of ₹10,000. The assessee was directed to deposit the amount in favour of the Prime Minister Relief Fund and furnish the receipt before the Assessing Officer.
The Tribunal also warned that a further default would not attract leniency. The appeal was therefore partly allowed for statistical purposes: the original computation will be reconsidered, but the assessee has not yet obtained a finding on the merits of his claims.
Author’s Comments
The order brings out two distinct points. First, taxable capital gain cannot be determined merely by treating the entire sale consideration as the gain where a cost of acquisition is claimable. Likewise, the correct salary computation requires examination of the relevant Form 16 particulars and supporting records. The Tribunal has sent those issues back because the evidence was not examined; it has not granted the claims without verification.
Second, the right to a fair hearing carries a corresponding responsibility to participate in the proceedings. The assessee secured condonation of the 86-day delay and another chance before the Assessing Officer, but repeated non-compliance resulted in a financial cost. The practical outcome will now depend on whether he produces the Form 16, evidence supporting each claimed exemption or deduction, purchase documents, cost details and dates relevant to the period of holding during the fresh assessment.
Cases Discussed
- Pavan Kumar Vs ITO (ITAT Bangalore), ITA No. 2583/Bang/2025, AY 2015-16, order dated 21.05.2026 — relied upon by the assessee in support of condonation of delay.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the order of the Ld.CIT(A)/NFAC dated 12.09.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1080681980(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2017-18.
2. The assessee has raised the following grounds of appeal:-
1. The impugned order of the CIT (Appeals) is wrong, illegal, opposed to law, facts, judicial interpretation, principles, submissions made, details available on record, conventions and the additions sustained is liable to be cancelled.
2. NON-CONSIDERATION OF EXEMPTION u/s 10-AS PER FORM-16: The Commissioner of Income Tax (Appeals) has erred to tax the gross Salary without reducing the exempt income u/s 10 deducted in Form-16 issued by the employer.
3. NON-CONSIDERATION OF INTEREST ON HOUSE PROPERTY-AS PER
FORM-16: The Commissioner of Income Tax (Appeals) has failed to allow the interest paid on house property as computed in Form-16 issued by the employer.
4. NON-CONSIDERATION OF DEDUCTION UNDER CHAPTER-VIA-AS PER
FORM-16: The Commissioner of Income Tax (Appeals) has failed to allow deductions under chapter VI-A as computed in Form-16 issued by the employer.
5. CIT (APPEAL) HAS ERRED TO TAX THE ENTIRE SALE CONSIDERATIONAS SHORT TERM CAPITAL GAIN WITHOUT REDUCING COST: In facts, law and circumstances, the learned CIT (Appeals) has failed to note that the Assessing Officer has computed capital gains without reducing cost of acquisition and taxed a Long term asset, wrongly as short term
6. PRAYER: The appellant craves leave to file additional grounds of appeal / Additional evidences, if any at the time of hearing and it is prayed that the contested addition be deleted, tax demand.be cancelled
3. At the outset, the Ld.AR of the Assessee submitted that there is a delay of 86 days in filing the appeal before this Tribunal. Further, the Ld.AR of the assessee drew our attention to an application for condonation of delay stating therein the reasons for the delay which is reproduced below for ease of reference and convenience-
CONDONATION OF 86 DAY DELAY IN FILING APPEAL BEFORE ITAT IS REQUESTED:
A Time Chart along with affidavit explaining the delay is submitted as part of paper Book. The delay of 86 days is requested to be condoned on the following grounds-
a) That the appellant is a salaried employee with job pressure, taking external assistance as he was not aware of and has not participated earlier in any income tax proceedings.
b) That his job nature is such that, e-mail security is high resulting in filtering of emails, had travel, there was confusion if appeal had to be filed in which state, resulting in delay and the same was unintentional.
c) That it should be appreciated that no assessee will want to jeopardize his own well being and there is no reason to want only delay and suffer the consequences.
d) That appeal proceedings are continuation of assessment proceedings and no harm will arise to the interest of revenue by admitting the appeal.
e) That the appeal goes to the root of the matter and are absolutely essential and integral that the appeal be admitted so that proper justice can be rendered.
f) That the serving of substantial justice needs to be given weightage over technicalities and denial of justice.
g) That if these grounds and evidences are adjudicated, proper evaluation could be arrived at, to determine the proper and just tax liability for the appellant.
h) That CBDT Circular: No. 14(XL-35), dated 11-4-1955 has mandated clearly the approach of the department towards assessee in general and the same is requested to be adopted and render justice.
i) That the Income Tax Charter legislated and is part of Income tax, requires all proceedings to be fair, to be handled with humaneness, be assessee friendly and uphold justice and admission of these evidences will be such a step serving justice and proper adjudication.
j) Reliance is placed on Order dated 21.05.2026 of ITAT Bangalore in Pavan Kumar Vs ITO in ITA No. 2583/Bang/2025 for AY-2015-16.
3.1 Perused the record and having heard the Ld. Council for the assessee as well as the Ld. DR, it is perceived that the explanation offered in the above application is plausible and sufficient cause being shown by the assessee, which prevented him from filing the appeal within the specified period u/s 253 of the Act, and accordingly we are inclined to condone the delay of 86 days and admit the appeal for adjudication on merit of the case.
4. Now having condone the delay in filing the appeal, both the parties before us fairly conceded that the assessee could not represent his case before the authorities below. The Ld.AR of the assessee vehemently submitted that the AO had passed an ex-parte order u/s 147 r.w.s 144 of the Act without considering the Form No.16 issued by the employer and the AO had computed the Capital Gain without reducing the Cost of Acquisition and also treated the Long-Term Capital Asset as Short-Term Capital Asset. Further, the Ld.AR of the assessee submitted that the Ld.CIT(A)/NFAC partly allowed the appeal of the assessee by holding that in terms of section 199 of the Act read with rule 37BA, the TDS credit can be allowed only on the basis of TDS certificate or Form 26AS, and accordingly directed the AO to verify Form 26AS and allow due credit of TDS and Self-Assessment Tax if any in accordance with law. However, the Ld. CIT(A)/NFAC didn’t accept the other contentions of the assessee solely on the ground that during the appellate proceedings also, the assessee had neither filed any written submission nor documentary evidences in support of the claim and accordingly prayed that one more opportunity may be granted before the AO to substantiate the claim of the assessee.
4.1 We have perused the orders of the lower authorities and observed that the assessee could not represent his case before both the authorities below. On perusal of the order of the AO, we observed that the AO passed an ex-parte order without considering the Form No-16 issued by the employer and also computed the Capital Gain without allowing any deduction towards the cost of acquisition in the absence of any details/documents. Before us, the AR of the assessee also contended that the AO had taxed the Capital Gain as STCG whereas the Gain was LTCG. This being so, in the interest of justice, equity and fair pay and as requested by the Ld.AR of the assessee, we deem it fit and proper to remit the entire issues in dispute to the file of AO to decide a fresh in accordance with law. Needless to say, reasonable opportunity of being heard must be granted to the assessee.
5. Further, while remitting the matter to the file of AO, we also consider it necessary to impose a token cost of Rs. 10,000/- (Rupees Ten thousand only) to the assessee in aggregate owing to the continued negligence shown to the statutory notices at both the levels. The assessee shall deposit the cost warranted in favour of the Prime Minister Relief Fund and the receipt there of shall be furnished before the AO. With these terms, the appeal of the assessee is restored to the file of the AO for de-novo adjudication in accordance with law. The assessee is also directed to produce the details/records/documents/information to substantiate his claim. We make it clear that in case of further default, the assessee shall not be entitled for any leniency. It is ordered accordingly.
6. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 15th Sept,2026
