ITAT Ahmedabad Declares CIT(A) Order Infructuous After CPC Rectification

Yogesh Himatlal Thakker Vs ITO (ITAT Ahmedabad)

Background

The case before the Income Tax Appellate Tribunal (ITAT), Ahmedabad, concerned an appeal filed by Shri Yogesh Himatlal Thakker against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Aurangabad, dated 15.05.2024, for the Assessment Year (AY) 2020–21.

The dispute originated from adjustments made by the Centralized Processing Centre (CPC) under section 143(1) of the Income-tax Act, 1961, relating to the treatment of long-term capital gains and other additions.

Facts of the Case

1. Return of Income:
   • The assessee filed his return on 25.01.2021, declaring an income of ₹1,03,87,440.
   • He had earned long-term capital gain (LTCG) of ₹53,01,700 from the sale of property.
   • In the computation, he reduced this amount from business income and offered LTCG separately after indexation, arriving at taxable LTCG of ₹24,98,113 under section 48.
2. CPC Adjustments:
   • The CPC accepted the LTCG computation but also added back the difference of ₹28,03,587 (i.e., ₹53,01,700 as per P&L vs. ₹24,98,113 as per indexed computation) as business income.
   • Additional adjustments included:
     • ₹2,46,925: Share of loss from a partnership firm added twice.
     • ₹3,350: Addition under section 36 for delayed ESI payment. However, as per CBDT notifications during the Covid-19 lockdown, the due date had been extended, so no delay existed.
3. Refund Dispute:
   • CPC processed refund at ₹25,89,060 instead of ₹35,88,770 claimed.
   • The assessee filed rectification under section 154.
   • On 21.06.2022, CPC rectified the intimation, determining refund at ₹37,12,170, resolving the computation error.
4. Appeal to CIT(A):
   • Despite the rectification, the assessee’s appeal filed on 27.01.2022 was pursued.
   • On 15.05.2024, CIT(A) confirmed the CPC adjustments, holding that the assessee failed to substantiate during the virtual hearing that ₹28,03,587 was disclosed under capital gains.

Tribunal’s Findings

• The ITAT noted two lapses:
  1. The assessee did not inform CIT(A) about the rectification already carried out by CPC.
  2. CIT(A) failed to verify records independently, despite the fact being apparent.
• Since the rectification by CPC had already resolved the matter and refund was granted, the Tribunal held the appellate order infructuous.
• The Tribunal therefore allowed the appeal, treating the CIT(A)’s order as redundant.

Judicial Precedents Considered

While the order did not cite direct precedents, the principles involved align with settled jurisprudence:

• CIT v. Shelly Products (2003) 261 ITR 367 (SC): Refund of excess tax is a vested right and cannot be denied on technicalities.
• CIT v. Bharat General Reinsurance Co. Ltd. (1971) 81 ITR 303 (Delhi): Once income is already included under the correct head, taxing it again under another head results in duplication, which is impermissible.
• National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC): ITAT has the power to adjudicate an issue if it is apparent from records.

These precedents support the Tribunal’s approach that technical or clerical issues should not prejudice the taxpayer when facts are on record.

Decision

• The ITAT Ahmedabad held that since CPC had already rectified the error and granted the correct refund, the order of CIT(A) had become infructuous.
• The appeal was therefore allowed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal has been filed by the Assessee against the order passed by the Ld. ADDL/JCIT (A), Aurangabad (hereinafter referred to as “CIT(A)” for short) dated 15.05.2024 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act” for short], for Assessment Year (AY) 2020-21

2. The grounds of appeal raised by the Assessee are as follows:-

1. The learned CIT (A) has erred both in law and on facts of the case in confirming the addition of Rs. 28,03,587/- as income under the head income from business by making a wrong adjustment.

2. The lower authorities have passed the orders without properly appreciating the facts. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. “

3. The brief facts of the case are that the assessee had filed return of income on 25.01.2021 declaring total income of Rs. 1,03,87,440/ -. During the year under consideration, the assessee had earned Long Term Capital Gain on sale of property. As per the Profit and Loss account, the long-term gain was of Rs 53,01,700/. As the gain is to be included under the head Capital Gain, the assessee had reduced Rs 53,01,700/- from business income and added it under the head ‘Capital Gain’. As this is long term gain, the assessee worked out long term capital gain at Rs.24,98,113/- after considering indexed cost of acquisition as provided in Section 48 of the Act. The CPC has correctly computed long term capital gain in the intimation sent u/s 143(1) of the Act, but has added the difference of Rs 28,03,587/-which is the difference between long term gain as per Profit & Loss account of Rs 53,01,700 and long-term gain as per working after indexation Rs.24,98,113, as income from business. The CPC, therefore, has allowed deduction of long-term capital gain which is included under the head Capital gain from Business income instead of the long term capital gain as per profit and loss account. The CPC has also made adjustment by adding Rs.2,46,925/- twice. The assessee had debited Rs 2,46,925/- to its profit and loss account due to share of loss from partnership firm. This amount was added to the total income. The CPC has also made an addition of Rs.3,350/- on account of addition u/s 36 of the Act. However, as per tax audit report, there was no delay in depositing ESI contribution for the month of March 2020 since due to lockdown in April 2020, the EPFO had extended due date of payment of PF and ESI contribution for the month of March 20 from 15th April 2020 to 15th May 2020.

4. The CPC processed the return u/s 131(1) determining refund of Rs.25,89,060/- as against the refund claimed by the assessee of Rs.35,88,770/-.

5. Aggrieved, the assessee filed application for rectification before the CPC. The CPC has rectified the intimation issued u/s 131(1) of the Act dated 16.12.2021 and passed rectification order on 21.06.2022, determining the total refund at Rs.37,12,170/- and the matter came to rest.

6. Meanwhile, the assessee filed appeal before the Ld. CIT(A) on 27.01.2022 who has passed the order on 15.05.2024. The sequence of events are as under:-

Now comes the fascinating part of the issue.

The CPC has rectified the order on account of the capital gains which the Ld. CIT(A) has confirmed. The Ld. CIT(A), while confirming the adjustments made by the CPC, held that “the appellant has claimed that he has offered the same amount as Capital Gain as he has debited from Income from Business & Profession in the computation of income. However, the same is not found to be true. During the VC, the appellant has failed to produce/substantiate the claim that income of Rs. 28,03,587/- has been disclosed. Hence, the addition made by the CPC is found to be justified and is confirmed.”

7. Thus, we find two defaults. Why the assessee has not brought the factum of rectification already carried out by the CPC before the Ld. CIT(A) and why the Ld. CIT(A) could not examine the facts apparent on the record?

8. Since the matter has already had a breather as mentioned at paragraph No. 5 of this order, we are not inclined to dissect the questions raised at paragraph No. 7 of this order.

9. In the result, the order of the Ld. CIT(A) is treated as infructuous on this issue.

10. The appeal of the Assessee is hereby allowed.

The order is pronounced in the open Court on 11.02.2025