Income mistakenly offered to tax in return of income when assessed amounts to incorrect assessment of taxes

Brief facts of the case relating to section 45 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) –

Shri Chandrashekhar Bahirwani (hereinafter referred to as the “Assessee” or the “Appellant”) was engaged in the business of trading of tractors and machineries spare parts and accessories. For the year under consideration, the Assessee declared the income under the head ‘Business income’, ‘capital gains’ and income from ‘other sources’. In the assessment proceedings, the Assessee submitted before the Assessing Officer (hereinafter referred to as the AO) that an amount of Rs. 14,50,000/- received on surrender of transferable development rights (TDR) from the builder through the co-operative society was wrongly declared as income from capital gains as the same was exempt in the hands of the Assessee. The AO, however, assessed the returned income and thereby also taxed the capital gains. The Assessee preferred appeal before the Ld. CIT(A) who confirmed the order of AO. The Ld. CIT(A), however, observed that the Assessee himself had voluntarily offered the said amount as capital gains in the return of income. The AO has not noted in the assessment order that the taxation on the said capital gains was contested by the Assessee. The Ld. CIT(A) thereafter observed that the Assessee, if, was of the view that he had mistakenly offered the income for taxation, the proper course for him was to make the claim by way of filing a revised return of income. He further held that the AO cannot assess the income below the returned income. Even on merits, he held that it was an afterthought version of the Assessee that the amount of Rs.14,50,000/- was not taxable at all.

Aggrieved by the order of AO and Ld. CIT(A) the Assessee filed appeal before Mumbai Tribunal raising the following question of law –

“1.1 The Learned CIT (Appeals)-30 erred in dismissing the appeal of the appellant as not maintainable. 

1.2  On merits, the learned CIT (Appeals) erred in confirming the action of A.O. in taxing Rs.14,50,000/- as long term capital gain in the hands of the appellant.”

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