Mandakini Tirthraj Pannase Vs ITO (ITAT Nagpur )
CIT(A) Cannot Dismiss an Income-Tax Appeal for Non-Prosecution-Section 54F Claim for Two Flats Restored After Nine-Year Delay
Summary: The Nagpur SMC Bench of the Income Tax Appellate Tribunal has held that the CIT(A) cannot dismiss an income-tax appeal in limine merely because the assessee failed to appear or make proper compliance. Even in an ex parte proceeding, the CIT(A) is statutorily required to examine the grounds and dispose of the appeal on merits through a reasoned order. The Tribunal accordingly restored the assessee’s claim for exemption under Section 54F in respect of two flats situated on the same floor to the CIT(A) for fresh adjudication.
Facts of the case
The assessee was an individual who filed her return of income for Assessment Year 2014-15 on 7 August 2014, declaring total income of ₹2,31,630.
The return was selected for scrutiny under CASS. During the assessment proceedings, the Assessing Officer noticed that the assessee had sold a plot of land bearing Plot No. 18 at Mouza Bhamti on 4 February 2014 for ₹60 lakh.
The assessee computed long-term capital gains of ₹57,27,767 from the transaction.
The entire capital gain was invested in the purchase of two residential flats:
- Flat No. T-301 for ₹31,28,910; and
- Flat No. T-302 for ₹30,06,310.
Both flats were located on the same floor and were stated to be situated opposite each other. According to the assessee, the flats were occupied by her and her two sons as a residential arrangement for the family.
Restriction of Section 54F exemption
The Assessing Officer held that the exemption under Section 54F could be granted only in respect of one residential flat. He consequently allowed exemption in respect of Flat No. T-301 costing ₹31,28,910 and denied exemption for the second flat.
The long-term capital gain was consequently computed at ₹28,43,857.
The assessee challenged the restriction before the CIT(A). However, due to non-compliance with the appellate notices, the CIT(A) dismissed the appeal in limine without adjudicating the Section 54F controversy on merits.
Contention before the Tribunal
Before the Tribunal, the assessee fairly admitted that the CIT(A)’s order was ex parte because proper compliance had not been made during the appellate proceedings.
However, it was argued that the amendment made by the Finance (No. 2) Act, 2014, replacing the expression “a residential house” with “one residential house in India,” was prospective and applicable only from Assessment Year 2015-16.
The transaction in the present case fell in Assessment Year 2014-15. Therefore, the restrictive expression “one residential house” could not be retrospectively applied to the assessee’s claim.
The assessee further contended that the two flats were situated on the same floor, opposite each other, and were occupied by the assessee and her two sons. Accordingly, the two units together constituted a residential house for the family and should qualify for exemption under Section 54F.
The TaxGuru discussion of the 2014 amendment and Section 54/54F also addresses the issue of investment in one residential property.
Nine-year delay in disposal of the appeal
The Tribunal noticed that the assessee had instituted her first appeal on 17 January 2017, whereas the CIT(A) disposed of it only on 23 January 2026.
Thus, the appeal remained pending for almost nine years and was eventually dismissed without deciding the merits of the Section 54F claim.
The Tribunal considered it necessary that the substantive dispute should be properly examined rather than terminated merely for procedural non-compliance.
CIT(A) must decide the appeal on merits
The Tribunal relied upon the Bombay High Court’s judgment in PCIT v. Premkumar Arjundas Luthra (HUF) [2017] 297 CTR 614 (Bombay).
The Bombay High Court held that the powers and duties of the CIT(A) are governed by Section 250. Unlike certain other appellate proceedings, an income-tax appeal before the CIT(A) cannot simply be dismissed for want of prosecution.
Even if the assessee does not appear, the CIT(A) must consider the assessment order, grounds of appeal and material available on record and decide the controversy on merits. Section 250(6) requires the appellate order to state:
- the points for determination;
- the decision on each point; and
- the reasons supporting that decision.
Since the CIT(A) had not adjudicated the assessee’s claim on merits, the Tribunal restored all the issues to the CIT(A) for fresh determination.
The CIT(A) was directed to decide the appeal expeditiously after providing a reasonable opportunity of hearing. The assessee was also directed to remain vigilant and avoid unnecessary adjournments unless supported by reasonable cause.
The appeal was accordingly allowed for statistical purposes.
No final ruling on Section 54F eligibility
The Tribunal specifically refrained from deciding whether the assessee was entitled to exemption for both flats.
Therefore, the order should not be cited as a final authority that two flats necessarily qualify as one residential house. It is principally an order restoring the matter because the CIT(A) had failed to decide the appeal on merits.
The eligibility of both flats remains open for determination after examining their location, physical configuration, use and the law applicable to Assessment Year 2014-15.
Author’s comments
The assessee has a substantial arguable case because the transaction pertains to Assessment Year 2014-15. Before the amendment effective from Assessment Year 2015-16, Section 54F used the expression “a residential house.” Several judicial decisions interpreted this expression liberally, particularly where multiple units formed part of one residential arrangement.
The fact that the flats are situated on the same floor and opposite each other and are occupied by the assessee and her sons may support the contention that they constitute a single residential house in substance. However, the assessee should produce the purchase deeds, sanctioned plan, floor plan, possession documents, photographs, electricity records and evidence of common or integrated residential use.
The judgment is equally important on appellate procedure. Non-appearance by an assessee does not relieve the CIT(A) of the obligation to adjudicate. The appellate authority may proceed ex parte, but it must still pass a speaking order on merits.
The order also calls attention to the extraordinary delay of almost nine years. After such prolonged pendency, dismissal for non-prosecution without examining the merits would cause serious prejudice.
One minor inconsistency appears in the order: the flats are initially described as T-301 and T-302, but at another place one flat is referred to as T-310. This appears to be a typographical error and should be clarified from the purchase documents before the CIT(A).
The decisive proposition is that an ex parte appellate order is permissible, but an in limine dismissal for non-prosecution is not. The CIT(A) must decide every income-tax appeal on merits and record reasons as mandated by Section 250(6).
Cases Discussed
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, NAGPUR SMC BENCH
This appeal by the assessee is directed against the order of Ld. ADDL/JCIT (Appeals)-2, Surat (for short, “CIT(A)”) dated 23.01.2026 passed u/sec. 250 of the Income Tax Act, 1961 (for short, “Act”) which is arising out of assessment order dated 26.12.2016 passed u/sec. 143(3) of the Act by the ITO, Ward-1(4), Nagpur for the Assessment Year (A.Y.) 2014-15.
2. The grievance of the assessee is against denial of deduction 54F of the Act at Rs. 28,43,857/-.
3. At the outset, learned counsel for the assessee fairly admitted that impugned order is ex-parte, as the assessee failed to make proper compliance. He, however, submitted that the word ‘a residential house’ has been substituted with ‘one residential house’ by the Finance Act, 2014 is retrospective applicable only from A.Y. 2015-16 onwards whereas the transaction in question is falling under A.Y. 2014-15.
4. On the other hand, Ld.DR supported the order of Ld. Assessing Officer (AO).
5. I have heard the rival submissions and perused the material placed before me. I observe that assessee is an individual and income of Rs. 2,31,630/- declared in the return of income filed on 07.08.2014. Case selected for scrutiny through CASS and after validly serving notices u/sec. 143(2) & 142(1) of the Act, Ld. AO observed that assessee sold a piece and parcel of land bearing plot No.18 at Mouza, Bhamti on 04.02.2014 for a consideration of Rs. 60,00,000/- and realizing capital gain of Rs. 57,27,767/-. The assessee has invested the entire capital gain for purchase of flats T-301 for Rs.31,28,910/- and T-302 for Rs.30,06,310/-. Ld.AO, however, allowed the deduction u/sec. 54F of the Act only for one flat at Rs. 31,28,910/- and computed the long term capital gain at Rs. 28,43,857/-. Assessee challenged the order of Ld. AO before the Ld.CIT(A), but due to non-compliance, appeal was dismissed in limine.
6. Before this Tribunal, assessee contended that amendment made by the Finance Act, 2014 replacing the word ‘constructed a residential house’ with ‘constructed one residential house’ in India is not retrospective, but prospective in nature and also both the flats purchased by the assessee, being T-310 & T-302, are located in the same floor of the apartment, opposite to each other, occupied by the assessee and her two sons. I find that these contentions of the assessee have not been adjudicated by the Ld.CIT(A) on account of non-compliance. Admittedly, there is a huge delay in passing of the impugned order by the Ld.CIT(A) as the appeal was instituted on 17.01.2017, but the same has been disposed of on 23.01.2026 i.e. almost after 09 years. However, the adjudication of the issue on merits by the Ld.CIT(A) is necessary in the light of the judgment of Hon’ble Jurisdictional High Court in the case of PCIT vs. Premkumar Arjundas Luthra (HUF) Bombay) [2017] 297 CTR 614 (Bom.) wherein it has been held that Ld.CIT(A)/NFAC is obliged to dispose of the appeal on merits, even in an ex-parte order. I, therefore, without dwelling upon the merits of the case, deem it appropriate to restore all the issues raised in the instant appeal to the file of Ld. CIT(A) for necessary adjudication. Ld. CIT(A) is directed to adjudicate the issues expeditiously and decide the appeal afresh in accordance with law after providing reasonable opportunity of being heard to the assessee, as contemplated u/sec. 250(6) of the Act. Assessee is also directed to remain vigilant and not to take unnecessary adjournments unless otherwise required for reasonable cause. Effective grounds of appeal raised by the assessee are allowed for statistical purposes.
7. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on 10th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963
