Case Law Details
Vasagar Vs ITO (ITAT Chennai)
Income Tax Appellate Tribunal (ITAT), Chennai Bench, has granted a taxpayer a fresh opportunity to substantiate a claim of Rs. 18,20,472 towards the cost of improvement, which was disallowed by the Assessing Officer (AO) and subsequently upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] on an ex-parte basis. The ITAT’s decision, pronounced on April 30, 2025, sets aside the orders of both the AO and the CIT(A) and remits the matter back to the AO for a fresh assessment.
The case pertains to the Assessment Year (AY) 2018-19, involving an appeal filed by the assessee, Vasagar, against the order of the CIT(A), NFAC, Delhi, dated December 26, 2024. The original assessment was framed by the AO under Section 147 read with Section 144B of the Income-tax Act, 1961, on March 25, 2023.
According to the details presented, the assessee had filed a return of income declaring a total income of Rs. 5,71,430. In this original return, the assessee reported a consideration of Rs. 23 lakhs from the sale of property and claimed a deduction of Rs. 18,20,472 towards the cost of improvement while computing Long Term Capital Gains.
The Assessing Officer, in an ex-parte assessment order passed under Section 147 of the Act, disallowed the entire claim for the cost of improvement. Consequently, the sum of Rs. 18,20,472 was added back to the long-term capital gain.
Upon appeal, the Learned CIT(A) also dismissed the appeal ex-parte. The primary reason cited by the CIT(A) for the dismissal was the assessee’s failure to submit any documentary evidence to support the claimed cost of improvement of Rs. 18,20,472.
During the hearing before the ITAT, no one appeared on behalf of the assessee. Despite the absence of the assessee’s representative, the ITAT proceeded with the hearing, aided by Mr. M.P. Guruprasad, Additional CIT and Learned Departmental Representative (Ld. D.R.).
The ITAT, after reviewing the facts, observed that both the AO and the CIT(A) had passed their respective orders without the assessee’s participation, leading to the ex-parte disallowance of the cost of improvement claim. The Tribunal expressed the opinion that in the interest of justice, the assessee should be granted another opportunity to present evidence and substantiate the claim before the AO.
Consequently, the ITAT decided to set aside both the assessment order passed by the AO and the appellate order issued by the CIT(A). The matter has been remitted to the file of the AO with a directive to decide the issue de novo, meaning afresh. The AO is also mandated to provide the assessee a proper opportunity of being heard, ensuring adherence to legal procedures.
In its order, the ITAT also issued a clear instruction to the assessee, directing them to appear before the AO on the scheduled date of hearing without fail. The appeal filed by the assessee was therefore allowed for statistical purposes, indicating that the core issue is not definitively resolved but rather sent back for re-evaluation.
Judicial Precedents and Principles:
While the order in Vasagar Vs ITO does not explicitly cite specific judicial precedents, the principle behind granting an additional opportunity to an assessee for substantiating a claim, especially when orders have been passed ex-parte, is well-established in tax jurisprudence. The fundamental principle of natural justice dictates that a party must be given a fair opportunity to present their case before an adverse order is passed against them.
This principle is enshrined in various judicial pronouncements that emphasize the importance of providing a reasonable opportunity of hearing to the assessee. For instance, courts and tribunals often refer to the maxim audi alteram partem (hear the other side). If an assessment or appellate order is passed ex-parte without proper notice or if the assessee could not attend for a valid reason, higher appellate bodies frequently remand the matter for re-adjudication after providing an opportunity to the assessee.
The power of the ITAT to set aside an order and restore the matter to the file of the lower authorities for fresh consideration is inherent in its appellate jurisdiction, especially when it identifies a breach of natural justice or a need for further factual investigation. This power is exercised to ensure that justice is not only done but also seen to be done, and that taxpayers are not unduly penalized due to procedural lapses or lack of opportunity to present their case.
The concept of “cost of improvement” under the Income-tax Act (specifically in the context of capital gains) allows for deductions of expenditure incurred on improving a capital asset, provided such expenditure enhances the value of the asset and is incurred after its acquisition. The burden of proof for claiming such deductions typically lies with the assessee, who must provide documentary evidence (like bills, receipts, bank statements) to substantiate the expenditure. The current ITAT order acknowledges this evidentiary requirement but gives the assessee a last chance to fulfill it.
This case highlights the procedural aspect of tax litigation, where adherence to principles of natural justice can lead to a reversal of lower authorities’ orders, even when the merits of the claim are yet to be fully established. The ITAT’s decision ensures that the assessee is not denied the benefit of a legitimate claim solely due to an ex-parte proceeding, provided they now actively participate in the re-assessment process.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
Aforesaid appeal filed by the assessee for Assessment Year (AY) 2018-19 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 26.12.2024 in the matter of assessment framed by the Assessing Officer [AO] u/s. 147 r.w.s 144B of the Income-tax Act,1961 (hereinafter “the Act”) dated 25.03.2023.
2. When the appeal was taken up for hearing, none appeared on behalf of the assessee. Accordingly, the hearing was proceeded with the able assistance of Ld. D.R, Mr. M.P. Guruprasad, Addl. CIT.
3. The assessee has filed return of income declaring total income of Rs. 5,71,430/-. The assessee in the return of income originally filled had shown consideration on sale of property at Rs. 23 Lakhs and claimed deduction of Rs.18,20,472/- towards the cost of improvement while computing Long Term Capital Gains. The A.O in the ex-parte assessment order passed u/s. 147 of the Act, has disallowed the claim of cost of improvement and added Rs.18,20,472/- to the long-term capital gain. On appeal, Ld. CIT(A) has dismissed the appeal ex-parte, stating that the assessee failed to submit any documentary evidence in support of the claimed cost of improvement of Rs.18,20,472/-.
4. We find that the A.O and Ld. CIT(A) have passed orders ex-parte by disallowing the claim of cost of improvement of Rs.18,20,472/-. We are of opinion that assessee should be given with another opportunity of hearing to substantiate his claim before the A.O in support of the claim of cost of improvement in the interest of justice. Accordingly, we set aside the orders passed by the A.O as well as Ld. CIT(A) and remit the matter to the file of A.O to decide the issue denovo, after affording the assessee due opportunity of being heard, in accordance with law. We also direct the assessee to appear before the A.O on the date of hearing without fail. In view of the above, the appeal filed by the assessee is allowed for statistical purposes only.
5. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 30th April, 2025.
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