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