Rehana Begum Vs ITO (ITAT Bangalore)
CIT(A) Cannot Dismiss Appeal for Non-Prosecution; Bangalore ITAT Restores ₹34.10 Lakh Section 54 Claim
The assessee sold immovable property for ₹95 lakh during AY 2016-17 but did not originally file a return of income. Pursuant to reassessment proceedings, she filed a return declaring nil income and claimed exemption of ₹34,10,005 under section 54.
The AO denied the exemption on the ground that the assessee had not filed the original return within the prescribed due date. Consequently, long-term capital gains of ₹34.10 lakh, representing her 50% share in the property, were brought to tax. The AO also questioned the construction cost claimed by the assessee because no bills, vouchers or other evidence were available.
The CIT(A) confirmed the addition mainly because the assessee failed to respond to hearing notices and did not furnish supporting documents. However, the CIT(A) did not independently adjudicate the grounds of appeal on merits.
The ITAT held that the CIT(A) cannot dismiss an appeal merely for non-prosecution or non-compliance. Under section 250(6), the CIT(A) is required to decide the issues raised in the appeal on merits through a reasoned order.
Accordingly, the Tribunal set aside the ex parte appellate order and restored the matter to the CIT(A) for de novo adjudication on merits, after granting the assessee a reasonable opportunity of hearing. The substantive eligibility of the section 54 claim was left open.
The Tribunal also condoned the 171-day delay in filing the appeal before it, accepting the assessee’s explanation that continued ill health prevented timely filing.
List of Cases Discussed / Relied Upon
- Collector Land Acquisition, Anantnag vs. MST Katiji and others(SC), reported in 1987 SCR (2) 387.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. The assessee has filed the present appeal against the impugned order dated 31.07.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”] for the assessment year 2016-17.
2. The present appeal is delayed by 171 days. Along with the appeal, the assessee has filed an affidavit seeking condonation of the delay. As per the assessee, she was under medical treatment during the relevant period for various health issues and due to continued ill health, she could not file the present appeal within the prescribed limitation period, which resulted in the delay in filing the present appeal.
3. We find that the reasons stated by the assessee for seeking condonation of delay fall within the parameters for grant of condonation laid down by the Hon’ble Supreme Court in the case of Collector Land Acquisition, Anantnag vs. MST Katiji and others, reported in 1987 SCR (2) 387. It is well-established that the Rules of procedure are handmaid of justice. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. In the present case, the assessee does not stand to benefit from the late filing of the present appeal. In view of the above and having perused the affidavit filed by the assessee, we are of the considered view that there exists sufficient cause for not filing the present appeal within the limitation period, and therefore, we condone the delay in filing the appeal by the assessee, and we proceed to decide the appeal.
4. In this appeal, the assessee has raised the following grounds: –
1 On the facts and in the circumstances of the case and in law, the orders passed by both Commissioner of Income Tax Appeals at National Faceless Appeal Centre and the Assessment Unit at National Faceless Assessment Unit of the Income Tax Department are contrary to law, against the weight of evidence, violative of principles of natural justice, and opposed to the facts & probabilities.
2 On the facts and in the circumstances of the case and in law, the appellant is strongly denying the assessed income at ₹34,10,010/ – as against the NIL income declared in the return of income.
3 On the facts and in the circumstances of the case and in law, both the authorities of the Income Tax Department have failed to appreciate the true intent and spirit of Section 54 of the Act and have grossly erred in law by denying the exemption under the said provision, despite the appellant having fulfilled the substantive conditions laid down therein.
4 On the facts and in the circumstances of the case and in law, the non- filing of the return of income under Section 139 of the Act constitutes a mere technical default, which cannot be a ground to deny the appellant the benefit of exemption under Section 54 of the Income Tax Act, especially when the substantive conditions for availing the exemption have been duly complied with
5 On the facts and in the circumstances of the case and in law, the exemption under Section 54 of the Income Tax Act ought to be interpreted liberally, being a beneficial provision. The benefit of such exemption should be granted where the appellant has complied with the essential condition of purchasing a residential house property within the prescribed timelines, notwithstanding the fact that the return of income was not filed under Section 139 of the Act.
6 On the facts and in the circumstances of the case, the appellant is denying interest levied under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.
5. We have considered the submissions of both sides and perused the materials available on record. The brief facts of the case are that the assessee is an individual and, for the year under consideration, did not file her return of income. On the basis of information received from the Insight Portal regarding the non-filers, it was noticed that the assessee has sold immovable property for a total consideration of Rs. 95 lakh during the year under consideration. Since the assessee did not file any return of income, proceedings under section 148 of the Act were initiated. Vide order dated 28.02.2023, passed under section 148A(d) of the Act, it was held that it is a fit case for issuance of notice under section 148 of the Act. Subsequently, on 07.03.2023, notice under section 148 of the Act was issued to the assessee. In response, the assessee filed its return of income on 09.03.2023, declaring a total income of Rs. NIL. During the assessment proceedings, notices under section 142(1) of the Act were issued to the assessee seeking details regarding the immovable property sold during the year under consideration. In response, the assessee submitted that the property was purchased in the financial year 2002-03 for a consideration of Rs. 4,75,000/- and that Rs. 24,600/- were incurred on registration and stamp duty charges. It was submitted that Rs. 11,60,000/ – was spent on the construction of such property in the financial year 2012-13, and 50% of the said property was gifted to the assessee’s brother. Since the assessee did not furnish any evidence, i.e. bills/vouchers, details of material purchased, payment to contractors, etc., in support of the cost of construction of Rs. 11,60,000/-. The assessee was asked to show cause as to why the capital gains should not be reduced to the extent of the indexed value of Rs. 14,71,784/- on the cost of construction. Further, since the assessee did not file the return of income, the assessee was asked to show cause as to why the exemption of Rs. 34,10,005/ – claimed under section 54 should not be disallowed. In response, the assessee submitted that she constructed a three-floor building during the financial year 2012-13 on the property acquired during the financial year 2002-03, and the entire contract for construction was given to a known person of the relative. It was further submitted that no written agreement was made, and payments were made in cash on a weekly basis during the course of construction. The assessee submitted that the payments made were recorded in a rough book, which is not preserved, as more than 10 years have lapsed.
6. The Assessing Officer (“AO”), vide order dated 27.12.2023 passed under section 147 r.w.s. 144B of the Act, disagreed with the submissions of the assessee and held that the precondition for claiming any kind of exemption is to file the return of income within the due date, and since the assessee failed to file a return of income for the year under consideration, the exemption claimed under section 54 of the Act is not allowable. Accordingly, the long-term capital gains to an extent of Rs. 34,10,005/-, considering the assessee to have 50% share of the property, were added to the total income of the assessee.
7. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee observing as follows: –
“5. DECISION -I have carefully perused the facts of the case and the assessment order. I do not find any merit in the contentions raised by the appellant in the absence of any plausible explanation and documentary evidences in support of the claims made. However, it is evident that the appellant has uploaded submission dated 12.04.2024 only Form 35 and receipt of Form 35 which is already available. Consequently, other hearing notices issued to the appellant to upload cogent/supporting documents in support of grounds of appeal. However, till date the appellant has not uploaded any cogent/supporting documents in support of grounds of appeal. Hence, the assessment order passed by AO under section 147 r.w.s144B of the Income-tax Act, 1961 stands as a well-reasoned and comprehensive document, thoroughly discussing the issues involved and the reasons behind rejecting the appellant’s contentions. In the circumstances, the action of the AO is upheld and the amount of addition of Rs.34,10,005/- is confirmed.”
Being aggrieved, the assessee is in appeal before us.
8. Having considered the submissions of both sides and perused the materials available on record, it is evident that the learned CIT(A) has passed the order ex parte due to the non-appearance of/on behalf of the assessee. We further find that the learned CIT(A) mainly on the basis of non-compliance with the notices, dismissed the appeal filed by the assessee without adjudicating the grounds raised by the assessee on merits as required under section 250(6) of the Act. It is well-settled that the learned CIT(A) cannot dismiss the appeal on account of non -prosecution of the appeal by the assessee. Consequently, we set aside the impugned order and restore the matter to the file of the de novo adjudication of the appeals on merits. We further direct that no order shall be passed without affording reasonable opportunity of hearing to the assessee. As the matter has been restored to the file of the learned CIT(A) for adjudication on merits, the other grievances raised by the assessee in the present appeal do not call for adjudication at this stage. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
9. In the result, the appeal by the assessee is allowed for statistical purposes.
Order pronounced in the open court on18-Aug-2026.
