Thirupathi Rao Naineni Vs ITO (ITAT Hyderabad)
The Income Tax Appellate Tribunal (ITAT), Hyderabad bench, has remanded a case involving assessee Thirupathi Rao Naineni back to the Commissioner of Income Tax (Appeals) [CIT(A)] for fresh consideration of a substantial long-term capital gains disallowance. The assessee had challenged the sustained addition of Rs. 4,73,23,952/- related to the sale of immovable properties during Assessment Year 2017-18.
The dispute originated from the assessee’s failure to file a return of income for AY 2017-18. The Income Tax Department initiated reassessment proceedings under section 147 of the Income Tax Act, 1961, following information from the Assistant Commissioner of Income Tax, Central Circle-1, Hyderabad. This information indicated that Mr. Naineni, along with three other co-owners, had sold two immovable properties for stated considerations of Rs. 5,94,00,000/- and Rs. 5,89,50,000/-. However, the fair market value determined for stamp duty purposes for these properties was significantly higher, at Rs. 9,90,00,000/- and Rs. 9,82,00,000/-, respectively.
Based on this information, the department calculated the appellant’s share of the sale consideration at Rs. 4,93,00,000/-, representing a one-fourth ownership. The non-disclosure of the capital gains arising from these transactions and the non-payment of the corresponding tax prompted the reopening of the assessment.
A notice under section 148 of the Act was issued on April 19, 2021. The department noted that this notice was issued within the extended time limits permitted by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, and relevant notifications issued by the Central Board of Direct Taxes (CBDT), specifically Notification No. 20 dated March 31, 2021, and Notification No. 38 dated April 27, 2021.
In response to the section 148 notice, the assessee filed a return of income on May 18, 2021, declaring a total income of Rs. 3,58,310/- for AY 2017-18. Subsequently, in adherence to the procedure laid down by the Hon’ble Supreme Court of India in the case of Union of India & Ors. vs. Ashish Agarwal, the initial section 148 notice was treated as a show cause notice under section 148A. Following the prescribed procedure under section 148A, an order was passed, and a fresh notice under section 148 was issued on July 28, 2022, for the purpose of conducting reassessment under section 147 read with section 144B.
During the reassessment proceedings before the Assessing Officer (AO), the assessee contended that he was not the actual owner of the properties sold and had not received any part of the sale consideration. He claimed to have merely acted as a General Power of Attorney (GPA) holder. However, the AO found that the appellant failed to provide sufficient evidence to substantiate this claim. Consequently, the AO proceeded to tax the appellant’s determined share of the capital gains, amounting to Rs. 4,73,23,952/-, as long-term capital gain.
Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). However, the assessee reportedly failed to comply with the notices issued by the CIT(A) seeking further information and evidence to support the grounds of appeal. Citing this non-compliance, the CIT(A) dismissed the appeal, upholding the AO’s disallowance.
The assessee then brought the matter before the ITAT. Before the Tribunal, the learned counsel representing the assessee submitted that given a proper opportunity, the assessee would be able to present the necessary evidence and explanations before the CIT(A) to substantiate his claims. The counsel pleaded for another opportunity to be heard by the first appellate authority in the interest of justice.
Conversely, the learned Departmental Representative (DR) supported the orders of the lower authorities. The DR argued that the assessee had been provided with adequate opportunities by the CIT(A) but had failed to comply with the notices and furnish the required supporting evidence. The DR contended that in light of this non-compliance, the grounds raised by the assessee should be dismissed and the CIT(A)’s order should be sustained.
The ITAT, after considering the arguments from both sides and reviewing the orders of the AO and the CIT(A), acknowledged that the assessee had indeed failed to provide supporting evidence before the CIT(A) despite opportunities being granted. However, the Tribunal also took into account the principles of natural justice.
In a decision aimed at providing a fair hearing, the ITAT deemed it appropriate to restore the issue back to the file of the CIT(A). The Tribunal directed the CIT(A) to provide the assessee with one more opportunity to present all relevant details and supporting evidence. The ITAT explicitly instructed the assessee to comply with the CIT(A)’s directives and submit all required information without seeking undue adjournments.
The Tribunal’s order highlighted the assessee’s failure to appear and furnish details before the CIT(A) as a reason for the previous dismissal. To address this, the ITAT imposed a charge of Rs. 5,000/- on the assessee. The assessee was directed to pay this amount to the Telangana State Legal Aid Authorities at the Hon’ble Telangana High Court within one month from the date of the ITAT’s order and submit the payment slip to the Tribunal’s Registry.
Concluding its order, the ITAT allowed the assessee’s appeal for statistical purposes, signifying that the case is being sent back for re-adjudication at the CIT(A) level based on the directions provided. The order was pronounced in open court on February 4, 2025.
This case underscores the importance of assessee compliance during appellate proceedings and the judiciary’s role in ensuring adherence to the principles of natural justice while also maintaining procedural discipline. The reference to the Ashish Agarwal Supreme Court decision is pertinent as it relates to the validation and procedural steps required for reassessment notices issued under the changed legal framework effective from April 1, 2021. In Ashish Agarwal, the Supreme Court had intervened to address the large number of reassessment notices issued under the old law after the new law came into effect, directing them to be treated as show cause notices under the new section 148A, thereby providing assessees with an opportunity to be heard before a formal reassessment notice under section 148 is issued. This precedent was followed in the present case to regularise the reopening procedure.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
