ITAT Criticises AO’s Inaction as Remand Reports & Upholds Section 54 Denial

Surbhi Khandelwal Vs DCIT (ITAT Delhi)

ITAT criticizes recurring departmental indifference in responding to remand proceedings and sustains disallowance of deduction claimed under Section 54

Facts:

• A search action u/s 132 was conducted on 10.11.2017 at the premise of Shri Rajeshwar Singh Yadav and Group of cases. During the search, a locker No. 315 with State Bank of India, Agra, belonging to the assessee, a salaried employee in M/s Infineon Technologies India Pvt. Ltd., was found and seized. The assessee had filed its Return of Income on 29.04.2019 declaring income of Rs. 28,74,220/-.
• During the course of assessment proceedings, the ld. AO noted that the assessee was a co-owner of Flat No. A-202 on 2nd Floor, in Block-A of the building Krishna Apra Saphire, at Indirapuram, Ghaziabad. This flat was shown to have been purchased on 12.11.2010 for Rs. 33,63,390/- plus stamp duty of Rs. 2,97,000/- and sold in May, 2017 for Rs. 38 lakhs. The ld. AO noted that considering Circle rate of Indirapuram, Ghaziabad, being Rs. 69,800 per sq. mt., the acquisition cost would be Rs. 95,31,608/-. Accordingly, applying provisions of section 50C, he re-worked the Long-Term Capital Gains at Rs. 35,69,776/- and added an amount of Rs. 17,84,888/- being 50% share of assessee. This Long-Term Capital Gains was as against Rs. 1,07,967/- disclosed by the assessee.
• The assessee contested the matter before the ld. First Appellate Authority, in December 2019, making a request for admission of additional evidences under Rule 46A. Before the ld. First Appellate Authority, the assessee also submitted that by an inadvertent omission, it had failed to claim deduction u/s 54 in its return and that the same be allowed to it.
• The ld. CIT(A) through his e-mail dated 11.08.2025 requested the AO for submission of a remand report, inter alia, asking the AO as to how the value under section 50C was determined and necessary evidences thereof. In view of the nil response from the ld. AO, the ld. CIT(A) also approached the supervisory officer of the AO being Additional CIT, Central Range, Meerut through his email dated 24.09.2025 requesting for intervention and earliest submission of remand report. As there was no response from the assessing authorities, the ld. CIT(A), as evident from pages 13 and 14 of the order, remitted the issue back to the ld. AO to reverify the stamp value of the property under consideration and calculate the value of capital gains in accordance with law.
• As regards the issue of claim of deduction u/s 54, the ld. CIT(A), while considering the decision of the Hon’ble Supreme Court in the case of Goetze India, dismissed the claim of the assessee holding that claims not made through a revised return cannot be allowed.
• Aggrieved by the aforesaid findings of the ld. CIT(A), the assessee preferred the present appeal before the Tribunal challenging the action of the ld. CIT(A) in remitting the issue relating to computation of Long-Term Capital Gains u/s 50C to the Assessing Officer for re-verification and recomputation, and the rejection of the assessee’s claim for deduction under section 54 of the Act.

Issues:

• Whether the CIT(A) was justified in remitting the issue of computation of Long-Term Capital Gain under Section 50C back to the AO.
• Whether the CIT(A) was justified in rejecting the assessee’s claim for deduction under Section 54F which was not claimed in the return of income.

Observations:

• The Tribunal observed that the ld. CIT(A) had denied the claim by placing reliance upon the decision of the Hon’ble Apex Court in the case of Goetze India. The CIT(A) had premised that to claim the impugned benefit, the appellant assessee ought to have made the same in its Return of Income or at least during the course of assessment proceedings. Since the same was not done, therefore, in view of the decision in Goetze India, the assessee was not entitled to make the claim. The Tribunal thereafter observed that “the question that thus emerges is whether Hon’ble Apex Court’s decision in the case of Goetze India would be applicable or not” and proceeded to examine the ratio laid down therein.
• The Tribunal observed that “a plain reading of the above shows” that though their Lordships have mandated that claims of the assessee cannot be entertained by the ld. AO otherwise than through a return of income, original or revised, they have excluded consideration of such claims made before the Tribunal. Thus, “a Tribunal would be well within its rights to consider entertaining such claims.”
• The Tribunal thereafter examined whether the ruling in Goetze India would come to the rescue of the assessee and observed that the same was “incidentally of no benefit to the appellant”. According to the Tribunal, the decision was “clearly distinguished”. It was further observed that in the present case “it is an admitted fact on record that no claim qua deduction u/s 54 was made by the assessee neither in its Return of Income nor during the assessment proceedings.” The Tribunal, therefore, held that “the decision of Hon’ble Apex Court in the case of Goetze is thus purely distinguished” and concluded that “there is no case for any interference to the order of the ld. CIT(A) at this stage.” Accordingly, all grounds on this issue were dismissed.
• While dealing with the issue relating to determination of Long-Term Capital Gains under section 50C, the Tribunal observed that “it is an undisputed fact on records that the ld. AO had not responded to the request of ld. CIT(A) to submit a remand report.”
• The Tribunal further noted that before the ld. CIT(A), “the assessee has adduced evidences to suggest that the conclusion drawn by ld. AO were not based upon true facts on records.” It therefore observed that “the assessee not being adequately and appropriately heard by ld. AO is totally made out.”
• The Tribunal recorded that “strictly in accordance to the provisions of Rule-46A on admission of additional evidences, the ld. CIT(A) made an attempt to get views of ld. AO, however all his requests fell on deaf ears.” Consequently, the CIT(A) was left with only the option of either accepting the assessee’s submissions or getting the evidences verified before the Assessing Officer.
• The Tribunal observed that the CIT(A)’s choice of the second option “cannot be faulted” because “an Assessing Officer posse the first right to examine a matter qua determination of tax.” It was further observed that an Assessing Officer is “the fulcrum of assessment proceedings” and “possess the first right and responsibilities to examine facts of a case before arriving at his decision qua determination of taxable income.”
• Accordingly, the Tribunal held that it did “not find any infirmity in the decision of the ld. CIT(A) to have set-aside the matter to ld. AO for re-adjudication” and confirmed the order of the CIT(A).
• The Tribunal observed that before parting it would like to “delve upon an important issue concerning appellate functioning at the First Appellate Authority level.”
• Referring to pages 8 to 14 of the CIT(A)’s order, the Tribunal observed that those pages “vividly contains the unfortunate helplessness of the ld. CIT(A) in his inabilities to obtain a remand report from the ld. AO.” The Tribunal recorded that despite repeated requests made on 11.08.2025, 09.09.2025 and through the jurisdictional Addl. CIT on 24.09.2025, there was no response.
• The Tribunal remarked that “it is intriguing and thoroughly incomprehensible as to why and how all these authorities miserably failed in discharge of their duties.” It further observed that the present case was a “classical case” where the First Appellate Authority chose to give the AO an opportunity to defend his order, but there was no response from the AO.
• The Tribunal observed that it had been compelled to consider the issue because “the issue of non-submission of remand report from the ld. AO to the ld. First Appellate Authority is not an exception but is becoming a rule.”
• The Tribunal further observed that “the obdurate recalcitrance is on the increase for reasons better known to the assessing officers.” Reference was made to other appeals where the CIT(A) had waited for years for a remand report before deciding the matter.
• The Tribunal observed that Rule 46A “is an important provision on the statute which gives department a chance to present its case and rather acts like a fetter on the unbridled powers of the ld. First Appellate Authority.” However, it was emphasised that the same “cannot be taken by the department as a luxury.”
• The Tribunal categorically observed that “once a request for remand report is made, it becomes the duty of the ld. AO to comply with the request.” It further noted that the AO acquires “twin roles of a representative of the department mandated to protect Revenue’s interest as well as an officer of the court who is required to assist the court in discharge of its judicial functions.”
• The Tribunal observed that the department “needs to do an introspection as to why such cases are frequently happening and are in fact on the rise.” It expressed its conviction that such instances of “obdurate non-submission of remand report” were not limited to Chennai and Delhi Benches alone and may be taking place elsewhere as well.
• The Tribunal observed that it would be appropriate for the department to “conduct a detailed enquiry into the matter, get to root of the problem and try to put in place a fool proof mechanism to avoid recurrences.”
• As regards the present case, the Tribunal recommended that the department should “identify the delinquent authority and take action as deemed appropriate with a view to create a strong deterrence.” The Tribunal also requested the ld. DR to convey its views to the Chairman, CBDT, “being the apex governing body to urgently intervene in the matter and take necessary action so that there is miscarriage of justice.” In the result, the appeal of the assessee is dismissed.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax(Appeals)-3, Noida, [hereinafter referred to as ‘ld. CIT(A)] dated 06.10.2025 arising out of assessment order dated 19.12.2019 passed under section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2018-19. The word ‘Act’ herein this order would mean Income Tax Act, 1961.

2. The only issue raised by the assessee through its grounds of appeal is regarding the action of Ld. CIT(A) in remitting back the issue to the ld. AO for re-calculation of long term capital gains u/s 50C and rejection of assessee’s plea for admission of its claim of deduction u/s 54F of the Act.

3. Heard the Ld DR . The appellant assessee was called absent . Material on records perused.

4. The ld. Counsel took us through the brief factual matrix of the case. A search action u/s 132 was conducted on 10.11.2017 at the premise of Shri Rajeshwar Singh Yadav and Group of cases. During the search, a locker no.315 with State Bank of India, Agra, belonging to the assessee, a salaried employee in M/s Infineon Technologies India Pvt. Ltd. was found and seized. The assessee had filed its Return of Income on 29.04.2019 declaring income of Rs.28,74,220/-. During the course of assessment proceedings, the ld. AO noted that the assessee was a co-owner of Flat No.A202 on 2^ndFloor, in Block-A of the building Krishna Apra Saphire, at Indirapuram, Ghaziabad. This flat was shown to have been purchased on 12.11.2010 for Rs.33,63,390/- plus stamp duty of Rs.2,97,000/- and sold in May, 2017 for Rs.38 lakhs. The ld. AO noted that considering Circle rate of Indirapuram, Ghaziabad, being 69,800 per mt., the acquisition cost would be Rs.95,31,608/-. Accordingly, applying provisions of section 50C, he re-worked the Long Term Capital Gains at Rs.35,69,776/- and added an amount of Rs.17,84,888/- being 50% share of assessee. This Long Term Capital Gains was as against Rs.1,07,967/- disclosed by the assessee.

5. The assessee contested the matter before the ld. First Appellate Authority, in December 2019, making a request for admission of additional evidences under Rule 46A. Before the ld. First Appellate Authority, the assessee also submitted that by an inadvertent omission, it had failed to claim deduction u/s 54 in its return and that the same be allowed to it. The ld. CIT(A) through his e-mail dated 11.08.2025 requested the AO for submission of a remand report, inter alia, asking the AO as to how the value under section 50C was determined and necessary evidences thereof. In view of the nil response from the ld. AO, the ld. CIT(A) also approached the supervisory officer of the AO being Additional CIT, Central Range, Meerut through his email dated 24.09.2025 requesting for intervention and earliest submission of remand report. As there was no response from the assessing authorities, the ld. CIT(A), as evident from page-13 and 14 of the order, remitted the issue back to the ld. AO to reverify the stamp value of the property under consideration and calculate the value of capital gains in accordance with law. The ld. CIT(A) in the last para of his order observed as under:-

“….Despite, numerous correspondences with the Assessing Officers at Ghaziabad and Agra, in the last more than two months, no response has been received with respect to the issue under consideration as to how the AO has arrived at the stamp value of the property at Rs. 95,31,608/-. In absence of any response from the AO , it is directed that the AO who has the physical assessment record in his/her custody shall verify the stamp value of the property under consideration and accordingly calculate the value of the capital gains as per law….”

6. As regards the issue of claim of deduction u/s 54, the ld. CIT(A), while considering Hon’ble Apex Court decision in the case of Goetze India, etc., dismissed the claim of the assessee holding that the claims if not made through revised return cannot be allowed.

7. The ld. DR invited our attention to para-6 of the AO’s order submitting that the AO has clearly recorded the facts while making the impugned addition. It was argued that in view of the fact that the ld. CIT(A) has merely remitted the file to the AO for reconsideration, no injustice has been caused to the assessee and that the assessee has all the right to defend its case.

8. As regards, the decision of ld. CIT(A) in not accepting the claim of the assessee made under section 54 before the ld. First Appellate Authority is concerned we have noted that the Ld. CIT(A) has denied the claim by placing reliance upon the decision of Hon’ble Apex Court in the case of Goetz India. He has premised that to claim the impugned benefit, the appellant assessee ought to have made the same in its Return of Income or at least during the course of assessment proceedings. Since, the same was not done therefore in view of decision in the case of Goetze India (supra), the assessee was not entitled to make the claim. The question that thus emerges is whether Hon’ble Apex Court’s decision in the case of Goetze India would be applicable or not. At this stage it is necessary to examine the ratio laid down by their Lordships in the case of Goetze India Supra reproduced herein below:-

“…. The question raised in this appeal relates to whether the appellant assesse could make a claim for deduction other than by filing a revised return. The assessment year in question was 1995-96. The return was filed on 30-11-1995, by the appellant for the assessment year in question. On 12-1-1998, the appellants ought to claim a deduction by way of a letter before the assessing officer. The deduction was disallowed by the assessing officer on the ground that there was no provision under the Income Tax Act to make amendment in the return of income by modifying an application at the assessment stage without revising the return.

3. This appellant’s appeal before the Commissioner (Appeals) was allowed. However, the order of the further appeal of the department before the Income Tax Appellate Tribunal was allowed. The appellant has approached this court and has submitted that the Tribunal was wrong in upholding the assessing officer’s order. He has relied upon the decision of this court in National Thermal Power Company Ltd. v.  CIT(1998) 229 ITR 383, to contend that it was open to the assessee to raise the points of law even before the Appellate Tribunal.

4. The decision in question is that the power of the Tribunal under section 254 of the Income Tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Tribunal under section 254 of the Income Tax Act, 1961. There shall be no order as to costs…”.

9. A plain reading of the above shows that no doubt their Lordship have mandated that claims of the assesse cannot be entertained by the Ld. AO, which are made otherwise then through a return of income – original or revised, however they have excluded consideration of such claims made before the tribunal. Thus, a tribunal would be well within its rights to consider entertaining such claims. The question that emerges is whether the ruling in Goetze India (supra) would be coming to the rescue of the appellant assessee. We have noted that the same incidentally of no benefit to the appellant. The decision of Goetze India is clearly distinguished. In the impugned case, their lordships have held that a claim of any exemption etc not made by the assessee through its Return of Income – original or revised, but made during assessment proceedings, can be made before a Tribunal. The decision thus is that a claim which was not made in the Return of Income can be made, if claimed, before the Tribunal provide the same was made during pendency of some assessment proceedings. It is an admitted facts on record that no claim qua deduction u/s 54 was made by the assessee neither in its Return of Income nor during the assessment proceedings. The decision of Hon’ble Apex Court in the case of Goetze is thus purely distinguished. We, therefore, are of the considered view that there is no case for any interference to the order of the ld. CIT(A) at this stage. All the grounds of appeal on the issue are therefore dismissed.

10. Coming to the issue of decision of Ld. CIT(A) in remitting the issue of the determination of Long Term Capital Gains particularly in the light of provisions of section 50C, we have noted from the discussion in preceding paragraphs that it is an undisputed fact on records that the ld. AO had not responded to the request of ld. CIT(A) to submit a remand report. Before the ld. CIT(A), the assessee has adduced evidences to suggest that the conclusion drawn by ld. AO were not based upon true facts on records. Thus, the assessee not being adequately and appropriately heard by ld. AO is totally made out. Strictly in accordance to the provisions of Rule-46A on admission of additional evidences, the Ld. CIT(A) made an attempt to get views of ld. AO, however all his requests fell on deaf ears. The ld. CIT(A) was left with only option of either accepting the assessee’s submissions or get evidences produced by the assessee verified before the Ld. AO. His choice of opting for the second option cannot be faulted in view of the fact that an Assessing Officer posse the first right to examine a matter qua determination of tax. The decision to remit it back to the Ld. AO was taken in view of the fact that an Assessing Officer is the fulcrum of assessment proceedings. He possess the first right and responsibilities to examine facts of a case before arriving at his decision qua determination of taxable income in a particular case. We have noted with respectful deference the decision of Hon’ble Apex Court in the case of TIN box 249 ITR 216 on the subject matter. In this background, we do not find any infirmity in the decision of the ld. CIT(A) to have set-aside the matter to ld. AO for re-adjudication. Accordingly, we confirm the order of the Ld. CIT(A) and dismiss all the grounds raised by the assessee on the issue of remission to the ld. AO for reconsideration.

11. Before parting we would like to delve upon an important issue concerning appellate functioning at the First Appellate Authority level. Pages – 8 to 14 of the impugned order of Ld.CIT(A) vividly contains the unfortunate helplessness of the Ld.CIT(A) in his inabilities to obtain a remand report from the Ld.AO. In para 3.3, he observes that he had asked for a remand report vide his email dated 11.08.2025, 09.09.2025. Again he reiterated his request vide letter dated 24.09.2025 by writing to the Jurisdictional Addl.CIT, Central Range-Meerut. The hapless soul continued making requests without any response. It is intriguing and thoroughly in-comprehensible as to why and how all these authorities miserably failed in discharge of their duties. We have come across cases where the Revenue has contested orders of First appellate Authority for violation of principles of natural justice in as much as Rule 46A was not adhered and adequate opportunity of being heard was denied to the Ld.AO. The present case is classical case where the First Appellate Authority chose to give the Ld.AO an opportunity to defend his order and there was no response from the Ld.AO. Strangely the respective supervisory authorities also did not rise to the occasion of coming in support of a reasonably senior Revenue authority, i.e, CIT(A).

12. We have been compelled to consider this issue as we have noted that the issue of non-submission of remand report from the Ld.AO to the Ld. First Appellate Authority is not an exception but is becoming a rule. The obdurate recalcitrance is on the increase for reasons better known to the assessing officers. In another case heard by undersigned, being Revenue’s appeal in ITA No.1762/Chny/, the Ld. CIT(A) languished for seven long years waiting for submission of a remand report and ultimately passed orders over ruling AO’s views. Again, in ITA No.1332/Chny/2024, the ld. CIT(A) endlessly waited for submission of remand report before delivering his decision in absence thereof. Ironically, the Revenue had the cheek to contest the decision of the Ld. CIT(A) on the premise its principles of natural justice were violated and that the Appellate Authority ought to have waited for submission of remand report. There cannot be any dispute that Rule 46A is a important provision on the statute which gives department a chance to present its case and rather acts like a fretter on the unbridled powers of the Ld. First Appellate Authority. Thus it is a important duty cast upon the Appellate Authority. However, the same cannot be taken by the department as a luxury. Once a request for remand report is made, it becomes the duty of the Ld.AO to comply with the request. In such a situation the Ld.AO acquires twin roles of a representative of the department mandated to protect Revenue’s interest as well as an officer of the court who is required to assist the court in discharge of its judicial functions. Thus, the Ld. AO gets seized with responsibility towards Revenue as well as the CIT(A), the latter also part of Revenue only. Timely non-submission remand report has huge potential of adversely impacting the prospects of Revenue both in terms of loosing precious revenue as well as tarnishing its image of a professionally competent department.

13. We are, therefore, of the considered view that department needs to do an introspection as to why such cases are frequently happening and are in fact on the rise. We are convinced that such instances of obdurate non-submission of remand report by the Ld.AO would not be limited to Chennai and Delhi Benches along but must be taking place elsewhere also. It would be appropriate for the department to conduct a detailed enquiry into the matter, get to root of the problem and try to put in place a full proof mechanism to avoid recurrences. Such a measure will go a wrong way in restoring the image of the Revenue as an efficient organization. As regards the present case, we recommend that the department should try and identify the delinquent authority and take action as deemed appropriate with a view to create a strong deterrence. Identifying and acting against delinquent authority is necessary since as observed by late president Dr. A.P.J. Abdul Kalam a guilty must be punished since by non-punishment, on one hand the organization suffers at the hands of an unworthy employee and on the other it deprives the guilty an opportunity to mend one’s ways. We would like the Ld. DR to convey our views to the Chairman, Central Board of Direct Taxes being the apex governing body to urgently intervene in the matter and take necessary action so that there is miscarriage of justice.

14. In the result, the appeal of the assessee is dismissed.

Order pronounced in the open court on 10^th June, 2026.