Shashidhar Nagam Vs ACIT (ITAT Hyderabad)
Six Flats, One Villa—Section 54 Gets a Second Hearing
The Hyderabad Tribunal set aside an appellate order dismissing an assessee’s appeal for non-prosecution, holding that the Commissioner (Appeals) had failed to decide the grounds on merits as required by section 250(6).
The dispute concerned denial of a section 54 exemption of ₹4,60,71,911 following the sale of six flats and purchase of a villa. The assessee maintained that an incorrectly worded submission describing him as engaged in real estate business had led to denial of the exemption, even though the Assessing Officer assessed the gains as long-term capital gains.
The Tribunal restored the matter to the Commissioner (Appeals), subject to payment of ₹5,000 as costs. The exemption itself was not allowed by the Tribunal; its eligibility remains open for fresh adjudication.
Six Flats Sold and a Villa Purchased
The assessee sold six flats during the relevant year and purchased a villa. He claimed exemption under section 54 in respect of the capital gains arising from the sale.
As recorded by the Tribunal, the assessee explained before the Commissioner (Appeals) that the acquisition cost of the villa exceeded the sale consideration. Nevertheless, the Assessing Officer denied the exemption and brought the capital gains to tax.
The amount of the disputed denial was ₹4,60,71,911.
The controversy was therefore substantial. It involved both the treatment of the properties sold and the assessee’s entitlement to exemption for investment in the villa.
A Loosely Worded Submission Became the Problem
According to the grounds of appeal, the authorities relied on a submission made during assessment proceedings which described the assessee as being in the business of real estate.
The assessee disputed that description. He maintained that he had never carried on any business activity and that the statement submitted on his behalf was loosely worded, inadvertent and factually incorrect.
His grievance was that this statement had been used to deny section 54 relief on the premise that the properties sold were not capital assets.
These were the assessee’s contentions, rather than factual conclusions finally accepted by the Tribunal. Whether the statement was incorrect, and what the underlying records established, remained matters requiring examination.
Capital Gains Assessed, but Exemption Denied
The assessee also highlighted an apparent inconsistency in the assessment.
The Assessing Officer had assessed the income from the sale of the flats under the head long-term capital gains, yet denied the section 54 claim. The assessee argued that the authorities had failed to appreciate this treatment while rejecting the exemption.
The Tribunal expressly recorded that the Assessing Officer had assessed the income as long-term capital gains and denied the deduction under section 54.
However, classification as long-term capital gains does not by itself settle every condition of section 54. The Tribunal did not examine and finally decide those conditions. Its intervention concerned the manner in which the first appeal had been disposed of.
First Appeal Dismissed Without Examining the Merits
The Commissioner (Appeals), National Faceless Appeal Centre, dismissed the appeal because the assessee had not responded to the notices issued during appellate proceedings.
Before the Tribunal, the authorised representative submitted that the appeal had been dismissed for non-prosecution, without adjudicating the grounds concerning section 54.
He requested one further opportunity to present the case and furnish the relevant material.
The Departmental Representative did not seriously object to restoration of the matter for a fresh decision on merits.
Thus, the immediate question before the Tribunal was whether the appellate dismissal could stand when the substantive grounds remained undecided.
Section 250(6) Requires a Decision on Merits
The Tribunal held that dismissal of the appeal in limine for non-prosecution, without deciding the grounds on merits, was not in accordance with section 250(6).
It therefore granted the assessee another opportunity to present his case before the Commissioner (Appeals) and furnish the relevant records and details.
The opportunity came with a condition: the assessee must pay ₹5,000 to the ITAT Tax Bar Association, Hyderabad, within one month from the date of the order.
The impugned appellate order was set aside and the matter remanded for fresh adjudication. The appeal was consequently allowed for statistical purposes.
Author’s Comments
The order carries two practical lessons.
First, a taxpayer’s failure to respond does not dispense with the appellate authority’s duty to adjudicate the grounds on merits. At the same time, the costs imposed show that a further opportunity need not come without consequences.
Second, careless drafting can create a serious tax dispute. Describing an investor as a real estate businessman may become material when the distinction between a capital asset and business stock is central to the claim. A correction should therefore be supported by records explaining the actual nature of the transactions.
On remand, the assessee must substantiate both the treatment of the flats and compliance with section 54. He has secured another hearing -not a final exemption of ₹4.61 crore.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal by the Assessee is directed against the Order dated 19.01.2026 of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC”], Delhi, for the Assessment Year 2022-2023.
2. The Assessee has raised the following grounds of appeal:
1) “On the facts and in the circumstances of the case, the order of the ld. CIT(A) is erroneous both on facts and in law and is passed in gross violation of principles of natural justice.
2) The ld. CIT(A) erred in sustaining the disallowance made by the AO of Rs.4,60,71,911 by denying the claim of exemption u/s.54 of the Act, solely on the alleged ground that the appellant is stated to be in business of real estate as per one of the submissions filed in assessment proceedings, and therefore the Appellant is not entitled to claim deduction as the asset sold is not capital asset.
3) The authorities below failed to appreciate the record of the Appellant from which it would be evident that the Appellant was never involved in any business activity, and that the submission made on behalf of the Appellant in assessment proceedings is loosely worded without, and at any rate was an inadvertent incorrect statement submitted going by the evidences on record.
4) The ld. CIT(A) erred in sustaining the disallowance by the AO of the claim under section 54 of the Act, failing to appreciate that the AO assessed the gain arising from sale of flats as long term capital gain.
5) Any other ground that may be urged at the time of hearing.”
3. At the time of hearing, the learned Authorised Representative of the Assessee has submitted that the learned CIT(A) has dismissed the appeal of the assessee for non-prosecution and the grounds raised by the assessee particularly claiming exemption u/sec.54 of the Income Tax Act [in short “the Act”], 1961 has not been decided on merits. Thus, the learned Authorised Representative of the Assessee has submitted that the assessee may be granted one more opportunity to present his case before the learned CIT(A).
4. On the other hand, the learned DR has not seriously objected if the matter is remanded to the record of the learned CIT(A) for fresh adjudication of the appeal on merits.
5. We have considered the rival submissions as well as the impugned order of the learned CIT(A). The Assessing Officer has assessed the income of the assessee under the head long-term capital gains and denied the claim of deduction u/sec.54 of the Act. The assessee challenged the action of the Assessing Officer before the learned CIT(A) and explained that the assessee sold 06 flats during the year and also purchased a Villa. The cost of acquisition was more than the sale consideration, however; the Assessing Officer has denied the claim of deduction u/sec.54 of the Act and assessed the entire capital gain to tax. The learned CIT(A) has dismissed the appeal of the assessee in limine for non-prosecution when the assessee has not responded to the notice issued by the learned CIT(A). Thus, it is clear that the learned CIT(A) has not decided the grounds raised by the assessee on merits and dismissed the appeal for non-prosecution which is not in accordance with the provisions of sec.250(6) of the Act. Accordingly, in the facts and circumstances of the case and in the interest of justice, we allow the assessee one more opportunity to present his case before the learned CIT(A) by furnishing relevant record and details subject to cost of Rs.5000/- [Rs. Five Thousand Only] to be paid to ITAT Tax Bar Association, Hyderabad within a period of one month from the date of this order. Hence, impugned order of the learned CIT(A) is set aside, and the matter is remanded to the record of the learned CIT(A) for fresh adjudication
6. In the result, appeal of the Assessee is allowed for statistical purposes.
Order pronounced in the open court on 30.09.2026
