Case Law Details
Ganesh Ramchandra More Vs ITO (ITAT Pune)
CIT(A) Enhancement Quashed for No Notice – ITAT Restores LTCG Issues to AO
The ITAT Pune partly allowed the appeal of the assessee, primarily holding that enhancement by CIT(A) without issuing mandatory notice u/s 251(2) is invalid, and accordingly quashed the enhancement of income and related directions for penalty proceedings u/s 271D.
On merits, the Tribunal held that indexed cost of acquisition must be allowed while computing capital gains. Since the assessee had not furnished the purchase deed earlier, the matter was restored to the AO for fresh computation after verifying documents.
Further, the Tribunal noted that the sale consideration should be taken at ₹27 lakh (as admitted) and not ₹30 lakh as enhanced by CIT(A), and directed fresh determination accordingly.
The additional claim that the land was agricultural (hence not a capital asset) was also restored to the AO for verification.
Result: Enhancement quashed; penalty directions nullified; capital gains issues remanded to AO – appeal allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 25.09.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2017-18.
2. The appellant has raised the following grounds of appeal :-
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeal), National Faceless Appeal Centre (NFAC) erred in holding that the Long Term Capital Gains on sale of the impugned property enhanced to Rs.30,00,000/- as admitted by the appellant for the reason of non furnishing of copy of purchase deed of the said land thereby disallowing the benefit of Cost of Acquisition/Indexed Cost of Acquisition for determining the income from capital gains ignoring and without appreciating the facts that for computation of capital gains within the provisions of section 45 to 48 of the I T Act, 1961, the appellant was entitled to get the benefit of Cost of Acquisition/Indexed Cost of Acquisition for this relevant Assessment Year. The Assessing Officer be directed to allow such Cost of Acquisition after considering the purchase deed of the said property.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeal), National Faceless Appeal Centre (NFAC) erred in holding that in the case of the appellant under consideration the provisions of section 2695S r.w.s. 271D of the IT Act, 1961 were attracted for this relevant AY 2017-18 for acceptance of cash owing sale of the immovable property and directing the Assessing Officer to take necessary action in this regard ignoring and without appreciating the facts that no such penalty proceedings were initiated by the Ld. Assessing Officer in the Assessment Order when he had the materials of cash transactions in his possession during such proceedings and therefore such proceedings cannot be initiated later on the direction of the Ld. CIT(A) in the Appellate Order. Such direction given for initiating proceedings u/8.271D of the Act by the Ld. CTT(A) being, arbitrary, illegal and bad-in-law be quashed.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeal), National Faceless Appeal Centre (NFAC) erred in holding that in the case of the appellant under consideration the provisions of section 269SS r.w.s. 271D of the IT Act, 1961 were attracted for this relevant AY 2017-18 for acceptance of cash owing sale of the immovable property and directing the Assessing Officer to take necessary action in this regard ignoring and without appreciating the facts that no such penalty proceedings were initiated by the Ld. Assessing Officer in the Assessment Order when he had the materials of cash transactions in his possession during such proceedings and further that initiation of such proceedings on the basis of direction of the CIT(A) after almost 3172 years of the passing of the Assessment Order was barred by limitation within the provisions of section 275(1)(c) of the said Act and therefore now initiation of the said proceedings would be contrary to the law and therefore such direction given in the Appellate Order being arbitrary, illegal and bad-in-law be quashed.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeal), National Faceless Appeal Centre (NFAC) erred in holding that in the case of the appellant under consideration the provisions of section 269SS r.w.s. 271D of the IT Act, 1961 were attracted for this relevant AY 2017-18 for acceptance of cash owing sale of the immovable property and directing the Assessing Officer to take necessary action in this regard ignoring and without appreciating the facts that the transactions of cash for sale of the said property made by the appellant and the buyer on compulsion and need of the hour and the genuineness of such transaction was not under any suspicion being duly admitted by the assessee in the statement recorded by the DDIT (Inv) Unit-1(3), Pune and on which income from Capital Gains was subjected to tax as assessed by the Assessing Officer in the Assessment Order and so also considered by the Ld. CIT(A). The direction therefore so given for initiation of such penalty proceedings being arbitrary, illegal and bad-in-law be quashed.
5. The appellant craves leave to add, alter, modem, revise, amend, withdraw or substitute any ground or grounds of appeal or to add any new ground or grounds of appeal on or before the hearing of appeal.”
3. The appellant has raised the following additional grounds of appeal by filing written submission dated 30.01.2026 :-
“i. On the facts and circumstance of the case and in law, the Ld. Assessing Officer erred in computing the income from Long Term Capital Gains (LTCG) in respect of sale of an Agricultural Land ignoring and without appreciating the facts that the sale proceeds of an agricultural land is not subjected to Income Tax being not a capital asset within the provisions of section 2(14) r.w.s. 10(1) of teh I.T. Act, 1961. The Assessment Order passed taxing of the profit from such sale of land as income from Long Term Capital Gains by the AO being arbitrary, illegal and bad-in-law be quashed/set-aside.
ii. On the facts and circumstance of the case and in law, the Ld. Assessing Officer erred in computing the income from Long Term Capital Gains (LTCG) of Rs.27,00,000/- in respect of sale of an Agricultural Land ignoring and without appreciating the facts that the Agreement to Sale executed and registered vide Document No. 1365/2016 dated 12/04/2016 relying on which the income from Long Term Capital Gains had been computed by him clearly mentioned the land as an agricultural land besides the other Revenue records such as 7/12 extracts etc. and therefore sale consideration from the sale of an agricultural land was not subjected to Income Tax being not a capital asset within the provisions of section 2(14) r.w.s. 10(1) of the I.T. Act, 1961. The addition made on account of Long Term Capital Gains of Rs.27,00,000/- in the Assessment Order duly confirmed by the Ld. CIT(A), NFAC in the Appellate Order passed dated 25/09/2025 be deleted.”
4. The appellant has also raised the following additional ground of appeal by filing an application dated 05.02.2026 :-
“1 On the facts in the circumstance of the case and in law, CIT(Appeal), National Faceless Appeal Centre (NFAC) erred in passing the assessment order in violation of provisions of section 251(1) (a) of the I.T. Act, 1961 in enhancing the total income of the appellant in the appellate order of Rs.30,00,000/-, as against the total income assessed by the Ld. Assessing Officer in the assessment order passed u/s. 144(1) (a) r.w.s. 147 of the Act dated 23/03/2022 at Rs. 11,50,000/-. Without providing opportunity being heard to the appellant be quashed/set-aside and/or the enhanced income determined be deleted.
2. On the facts and in the circumstances of the case and in law the Ld. CITA), NFAC patently erred in enhancing the total income at Rs.3,00,000/- as against the income assessed by the Ld. Assessing officer at Rs. 11,50,000/- in the assessment order passed u/s. 144(1)(a) r.w.s. 147 of the Act on 23/03/2022 ignoring and without appreciating the facts that for such enhancement of income by him in the appellate order a mandatory notice u/s. 251(2) of the LT Act, 1961 was required to be issued to the appellant providing opportunity of being heard and obtain in explanation from the appellant. The total income enhanced in the appellate order without giving any opportunity of hearing to the appellant in compliance to section 251(1)(a) of the said Act being arbitrary, illegal and bad- in-law be deleted and/or appellate orders passed be quashed.”
5. Facts of the case, in brief, are that the assessee is an individual and has not furnished his return of income for the year under consideration. On the basis of information received from the Assistant Police Inspector, Bharti Vidhyapeeth Police Station, Pune, that cash amounting to Rs.15 lakhs was seized from the assessee, the case of the assessee was reopened u/s 147 of the IT Act and statutory notices u/s 148 and 142(1) of the IT Act and show cause notice respectively were issued to the assessee. The assessee did not comply with any of the above notices and the Assessing Officer on the basis of the statement of assessee recorded u/s 131(1) of the IT Act completed the assessment proceedings and vide order dated 23.03.2000 passed u/s 147 r.w.s. 144 of the IT Act determined total income of the assessee at Rs.27 lakhs as against no return filed by the assessee. The above assessed income includes unexplained money of Rs.15,50,000/- u/s 69A of the IT Act and long-term capital gain of Rs.11,50,000/-.
6. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. After considering the reply and submissions of the assessee, Ld. CIT(A)/NFAC dismissed all the grounds of appeal except the ground raised against addition of Rs.15,50,000/- u/s 69A of the IT Act. This addition of Rs.15,50,000/- u/s 69A of the IT Act was deleted by Ld. CIT(A)/NFAC, however at the same time Ld. CIT(A)/NFAC enhanced long term capital gain on sale of land to Rs.30,00,000/- & also directed the Assessing Officer to take action to initiate penalty proceedings u/s 271D of the IT Act for violation of section 269SS of the IT Act and partly allowed the appeal by observing as under :-
“5.1 Further, the appellant has claimed that the Assessing Officer has accepted that fact that the money has been received on the sale of land, however still added u/s 69A of the Act as unexplained money. The appellant has stated that he has also furnished statement u/s 131 of the Act recorded by the DDIT(INTO Unit 1(3), Pune, and while answering the question no. 14, the assesse had admitted that the impugned land had been sold for a consideration of Rs. 30,00,000/-and entered into an Agreement to Sale for a consideration of Rs. 14,50,000/- vide document no. 1365/2016 dated 12.04.2016 and rest of the amount of Rs. 15,50,000/- has been paid in cash by the purchaser. Therefore, the Ld. Assessing Officer should have considered the amount of Rs. 15,50,000/- as sale consideration. The appellant contention on this account is accepted and as per statement, the entire consideration of Rs. 30,00,000/- is treated as amount received on sale of property. The addition made by the Assessing Officer u/s 69A of the Act of Rs. 15,50,000/- is hereby deleted. The appellant during the proceeding from 17.01.2023 to 25.09.2025 furnished reply only once. The appellant has submitted that he is furnished purchase deed to get cost of acquisition benefit, however no purchase deed was provided. Therefore, long term capital gain on sale of land is enhanced to Rs. 30,00,000/- as sale consideration of the immovable property accepted by the appellant.
5.2 The acceptance of money on sale of immovable property is violation of provision of section 269SS of the Act and attract penalty as per provision of section 271D of the Act. During the appellate proceeding and also in the statement recorded u/s 131 of the Act, the appellant has accepted this fact that he has violated the provision of section 2699SS of the Act and therefore liable to pay penalty as per provision of section 271D of the Act. The Assessing Officer may take necessary action, if already not taken in this regard.
6.0 In result, the appeal of the appellant stands “partly allowed”.”
7. It is the above order against which the assessee is in appeal before this Tribunal. Apart from regular grounds of appeal the assessee has raised additional grounds as well.
8. We have heard Ld. counsels from both the sides and perused the material available on record including the paper book and written submission and application for admitting additional grounds furnished by the assessee. In this regard, we deem it appropriate to decide the appeal ground-wise as under.
9. Ground No. 1 : In this ground of appeal, the assessee has challenged the action of Ld. CIT(A)/NFAC in not allowing the benefit of indexed cost of acquisition and also challenged the determination of the sale value of the impugned property at Rs.30 lakhs.
10. In this regard, we find that the Assessing Officer has not allowed the indexed cost of acquisition while computing the long term capital gain from sale of impugned property since the orders were passed ex-parte e. u/s 144 of the IT Act in the absence of the assessee. Before Ld. CIT(A)/NFAC, the assessee claimed that cost of acquisition is required to be allowed, however in the absence of purchase deed Ld. CIT(A)/NFAC did not allow the same. In this regard, we are of the considered opinion that to determine capital gain, as per provisions of section 48 of the IT Act, indexed cost of acquisition is required to be allowed and if any capital gain is computed, without allowing the benefit of indexed cost of acquisition the same cannot be said to be correct. Accordingly, we deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC on this ground and restore the matter back to the file of the Assessing Officer with a direction to allow the benefit of indexed cost of acquisition on the basis of purchase deed or any other relevant document, if any, for the purposes of determination of cost of acquisition after verifying the same and after providing reasonable opportunity of hearing to the assessee.
11. So far as the other part of the ground regarding determination of enhanced sale value of impugned property at Rs.30,00,000/- is concerned, we find that the assessee himself in the statement u/s 131(1) of the IT Act has admitted the fact that the impugned property was sold for Rs.27,00,000/- only, therefore, we deem it appropriate to set-aside the order passed by Ld. CIT(A) in this regard and restore the matter back to the file of the Assessing Officer with a direction to determine the sale value of the impugned property at Rs.27,00,000/- and allow the indexed cost of acquisition, if any, and pass assessment order afresh and as per fact and law after providing reasonable opportunity of hearing to the assessee. The assessee is also hereby directed to respond to the notices issued by the Assessing Officer in this regard and to produce relevant documents, submissions and evidences, if any, in support of grounds of appeal without taking any adjournment under any pretext, otherwise the Assessing Officer shall be at liberty to pass appropriate orders as per law. Accordingly, ground no.1 raised by the assessee in appeal memo is allowed for statistical purposes.
12. Ground no.2, 3 & 4 raised in appeal memo & additional ground no.1 and 2 raised through application dated 05.02.2026 & additional ground no.(i) &(ii) raised through written submission dated 30.01.2026 :
13. In the above ground no 2, 3 & 4 raised in appeal memo, the assessee has challenged the action of Ld. CIT(A)/NFAC in suggesting the Assessing Officer to take necessary action if already not taken with regard to violation of provision of section 269SS for receiving specified sum in cash which attracts penalty as per provisions of section 271D of the IT Act.
14. In additional grounds no.1 & 2 raised in application dated 05.02.2026, the assessee challenged the action of Ld. CIT(A)/NFAC in enhancing the sale value of the impugned property at Rs.30 lakhs as against determined by the Assessing Officer at Rs.11,50,000/-.
15. In additional ground no.(i) & (ii) raised through written submission dated 30.01.2026, the assessee has claimed that the impugned land was an agricultural land hence not a capital asset accordingly sale transaction was not liable for any capital gain.
16. With regard to above grounds, we find that Ld. CIT(A)/NFAC has enhanced the sale value of impugned property to Rs.30,00,000/- whereas the Assessing Officer determined the sale value of the impugned property at Rs.11,50,000/- only. Apart from this Ld. CIT(A)/NFAC has also suggested the Assessing Officer to take action for imposition of penalty u/s 271D of the IT Act for violation of section 269SS of the IT Act for receiving specified sum in cash. This action of Ld. CIT(A)/NFAC also tantamount to enhancement of assessment. In this regard, it was the contention of the assessee that Ld. CIT(A)/NFAC can enhance the assessment u/s 251(1)(a) of the IT Act but at the same time for any such enhancement a notice is mandatory to the assessee as per section 251(2) of the IT Act to submit his response against such an enhancement. In this regard, we find that no such notice of enhancement was given by Ld. CIT(A)/NFAC to the assessee & this fact could not be controverted by Ld. DR.
17. Considering the totality of the facts of the case & in view of our above discussion & also in the light of various judgements relied on by the assessee, we find force in the arguments of Ld. counsel of the assessee and accordingly deem it appropriate to quash the enhancement made by Ld. CIT(A)/NFAC since prior to making enhancement u/s 251(1)(a) of the IT Act, Ld. CIT(A)/NFAC ought to have issued notice as mandated by section 251(2) of the IT Act but the requirement of section 251(2) was not complied with. Since we have already quashed the enhancement order passed by Ld. CIT(A)/NFAC, the suggestions or directions given by Ld. CIT(A)/NFAC to the Assessing Officer do not have any legs to stand accordingly they also do not survive. Consequently the grounds no.2, 3, 4 raised in appeal memo and the additional grounds no.1 & 2 raised in application dated 05.02.2026 are allowed.
18. By additional ground no.(i) &(ii) raised through written submission dated 30.01.2026 the impugned land is claimed to be as an agricultural land. We find that no such claim was made before the subordinate authorities. However since while deciding the ground no.1 of appeal memo, we have already restored the matter back to the file of the Assessing Officer with a direction to allow the indexed cost of acquisition for the purposes of calculation of capital gain tax, if any, we also deem it appropriate to restore this issue back to the file of the Assessing Officer with a direction to verify the claim of the assessee in this regard and pass the assessment order afresh and as per fact and law after providing reasonable opportunity of hearing to the assessee. Accordingly, additional ground no.(i) & (ii) raised through written submission dated 30.01.2026 are also allowed for statistical purposes.
19. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on this 17th day of April, 2026.
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