Baraiya Galaji Kalaji Vs ITO (ITAT Ahmedabad)
Sale Price Is Not Capital Gain & Penalty Cannot Outlive Its Foundation: ITAT Restores ₹2.10-Crore Addition & ₹69.45-Lakh Penalty
Delay of 42 Days Condoned
The assessee filed separate appeals concerning the quantum addition & penalty u/s 271(1)(c). Both appeals were delayed by 42 days.
It was explained that the assessee was an agriculturist suffering from poor health & possessed limited knowledge of legal and taxation matters. The explanation was supported by an affidavit.
Considering the circumstances & larger interest of justice, the Tribunal held that the delay deserved to be condoned. Both appeals were accordingly admitted for adjudication on merits.
Property Sales Trigger Reassessment
The assessee was an individual engaged in agricultural activities. Information available with the Department indicated that he had sold immovable properties for an aggregate consideration of ₹2,10,18,000 during AY 2015-16.
Since no return of income had originally been filed, the AO formed the view that taxable capital gains arising from the property transactions had escaped assessment.
An order u/s 148A(d) was passed on 31.03.2022, followed by notice u/s 148. The assessee uploaded a return for AY 2015-16 on 28.04.2022 in response to the notice. However, as the return remained electronically unverified, the AO did not treat it as a valid return or compliance with the reassessment notice.
Further notices u/s 142(1) & a show-cause notice dated 13.02.2023 were issued, proposing to treat the entire sale consideration as short-term capital gain. In the absence of an effective response & supporting documents, reassessment was completed ex parte u/s 147 r/w Sections 144 & 144B.
Entire Sale Consideration Taxed as STCG
The AO acknowledged that details regarding the dates & costs of acquisition were unavailable. Nevertheless, instead of independently verifying those particulars, he treated the entire sale consideration of ₹2,10,18,000 as short-term capital gain.
No deduction was allowed for the purchase cost, indexed cost, stamp duty or other expenses allegedly incurred in connection with the properties. The total income was therefore assessed at ₹2,10,18,000 as against nil income.
Penalty proceedings u/ss 271(1)(c), 271(1)(b) & 271F were also initiated.
The assessee’s appeal before the CIT(A)/NFAC was dismissed in limine because the request for condonation of delay was rejected. Consequently, the capital-gain addition was not adjudicated on merits.
Assessee Produces Property-Wise Particulars
Before the Tribunal, the assessee contended that the properties sold were agricultural lands & that the entire sale consideration could never constitute taxable capital gain.
Property-wise details relating to the sale consideration, dates of purchase, purchase consideration & expenses were furnished. According to the assessee, after allowing the cost of acquisition, related expenditure & indexation wherever applicable, the transactions had actually resulted in long-term and short-term capital losses, rather than taxable gains of ₹2.10 crore.
The assessee sought restoration of the matter to the AO so that the sale deeds, purchase deeds & computation of capital gains or losses could be properly verified.
The Revenue argued that adequate opportunities had been provided during reassessment proceedings & that the assessee’s non-compliance justified completion of assessment u/s 144.
Gross Consideration Cannot Be Equated with Capital Gain
The Tribunal found that the primary dispute concerned the correct determination of capital gains arising from the property sales.
The assessment order itself admitted that the precise capital gain could not be quantified because the dates & costs of acquisition were not available. Despite this admitted deficiency, the AO proceeded to tax the gross sale consideration as short-term capital gain without allowing any acquisition cost.
The ITAT held that such a determination required reconsideration. The gross consideration received on the transfer of a capital asset cannot, by itself, be equated with taxable capital gain without applying the computation mechanism prescribed under the Act.
The property-wise particulars subsequently produced by the assessee required factual verification. Since these documents were not examined by the AO due to the ex parte assessment, the Tribunal considered fresh adjudication necessary.
Accordingly, the assessment order was set aside & the quantum matter was restored to the AO for de novo assessment. The AO was directed to examine the purchase and sale deeds, acquisition costs, relevant expenses & other supporting documents after granting a reasonable opportunity of hearing.
The assessee was also directed to cooperate fully & furnish the requisite documents within the time allowed. All contentions were expressly left open.
₹69.45-Lakh Penalty Also Restored
During penalty proceedings, the assessee had not responded to notices u/s 274 r/w Section 271(1)(c). Based entirely upon the addition of ₹2,10,18,000, the AO levied a penalty of ₹69,45,743, invoking Section 271(1)(c) read with Explanation 1.
The Tribunal observed that both the alleged concealment & tax sought to be evaded were computed solely with reference to the quantum addition. Since that addition had been set aside for fresh adjudication, the related penalty could not presently survive as a concluded levy.
The penalty order was therefore also set aside & restored to the AO. The question of penalty must be reconsidered only after completion of the consequential quantum proceedings.
Both appeals were thus allowed for statistical purposes.
Author’s Comments
The ruling reinforces the elementary but frequently overlooked distinction between sale consideration & taxable capital gain. Even in an ex parte assessment, the AO cannot disregard the statutory computation provisions & mechanically tax the gross receipts from a property transfer.
However, the ITAT has not accepted the assessee’s claim of capital loss or deleted the penalty permanently. The assessee must now establish the acquisition dates, purchase costs, nature of the lands, allowable expenditure & eligibility for indexation.
The penalty has merely returned with the quantum proceedings because when the capital-gain computation goes back to the drawing board, its penalty cannot remain framed on the wall.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, AHMEDABAD
The captioned two appeals have been filed by the same assessee against the separate orders passed by the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 29.01.2026 u/s. 250 of the Income Tax Act, 1961 for A.Y. 2015-16.
Condonation of delay
2. As per the note of the Registry there is a delay of 42 days in filing the both appeals. A separate application for condonation of delay has been filed. The Ld. Counsel for the assessee has submitted that the assessee was suffering from poor health condition and lack of proper knowledge and understanding of the legal and taxation matters. Considering the explanation furnished, the supporting affidavit, and in the larger interest of justice, we are of the view that the delay deserves to be condoned. Accordingly, the delay of 42 days in filing the both appeals are hereby condoned. The appeal is admitted for adjudication on merits.
First we take up quantum appeal in relation to ITA No. 2332/Ahd/2026 for A.Y. 2015-16
3. The assessee has raised the following grounds of appeal:
“1. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred both in law and on facts in rejecting the application for condonation of delay and consequently dismissing the appeal in limine without adjudicating the case on merits.
2. The learned CIT(A) has failed to appreciate that the appellant is an agriculturist and uneducated individual having limited knowledge of legal and technical compliances relating to income tax proceedings and e-filing procedures, and therefore the delay caused in filing the appeal was due to genuine and bona fide reasons.
3. The learned CIT(A) ought to have appreciated that substantial justice should prevail over technical considerations and the delay deserved to be condoned in the interest of justice.
4. The learned Assessing Officer has erred both in law and on facts in passing the assessment order u/s 147 r.w.s. 144 read with section 144B of the Income Tax Act, 1961 without properly appreciating the facts, evidence and surrounding circumstances of the case.
5. The learned Assessing Officer has grossly erred in treating the entire sale consideration of Rs.2,10,18,000/- as Short Term Capital Gain without granting deduction towards cost of acquisition, indexed cost, stamp duty and other related expenses incurred in respect of the immovable properties sold during the year.
6. The learned Assessing Officer has failed to appreciate that the appellant had actually incurred Long Term Capital Loss and Short-Term Capital Loss on sale of agricultural lands and therefore no taxable capital gain had arisen during the year under consideration.
7. The learned Assessing Officer has erred in framing the assessment merely on the basis of AIR/Insight information without conducting proper inquiry and without granting effective and meaningful opportunity of being heard to the appellant.
8. The learned authorities below have erred in initiating consequential penalty proceedings u/s 271(1)(c), 271(1)(b) and 271F of the Income Tax Act, 1961.”
4. The assessee is an individual and is engaged in agricultural activities. As per the information available on record, the assessee was reported to have sold immovable property for an aggregate consideration of Rs.2,10,18,000/-. On the basis of the said information, the Assessing Officer observed that the assessee had earned taxable capital gains which had escaped assessment, primarily on the ground that no return of income had been filed by the assessee for A.Y. 2015-16.
5. Accordingly, proceedings under section 147 of the Income Tax Act, 1961 were initiated by the Jurisdictional Assessing Officer. Prior thereto, an order under section 148A(d) of the Act was passed on 31.03.2022. The Assessing Officer observed that the assessee had sold an immovable property valued at Rs.2,10,18,000/-. The Assessing Officer observed that since the assessee had not filed a return of income, the aforesaid sale consideration represented income chargeable to tax which had escaped assessment accordingly, the Assessing Officer treated the case as a fit case for issuance of notice under section 148 of the Act.
6. Pursuant to the aforesaid proceedings, notice under section 148 of the Act was issued to the assessee. It is pertinent to state that the assessee thereafter uploaded an Income Tax Return for A.Y. 2015-16 on 28.04.2022 in response to the notice under section 148. However, the said return remained electronically unverified and, therefore, the Assessing Officer did not treat the same as a valid return/compliance for the purpose of the reassessment proceedings. Thereafter, various notices and communications were issued to the assessee, including notices under section 142(1) of the Act and show-cause notice dated 13.02.2023 proposing to treat the entire amount of Rs.2,10,18,000/- as Short Term Capital Gain and to complete assessment under section 144 of the Act. However, no effective response or supporting documents were furnished by the assessee during the reassessment proceedings.
7. Accordingly, the Assessing Officer completed the reassessment under section 147 read with section 144 and section 144B of the Income-tax Act, 1961, determining the total income of the assessee at Rs.2,10,18,000/- as against nil income. The Assessing Officer held that even though the sale of the immovable property was reported by the Sub-Registrar, in the absence of details regarding the date and cost of acquisition and other permissible expenses, the entire sale consideration of Rs.2,10,18,000/- is treated as Short Term Capital Gain, without allowing any benefit towards the cost of acquisition.
8. Consequently, a substantial demand of tax and consequential interest was raised against the assessee. The Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Act alleging concealment of income, under section 271(1)(b) for alleged non-compliance with statutory notices, and under section 271F for non-furnishing of the return of income.
9. The assessee, being aggrieved by the aforesaid assessment order, preferred an appeal before the Ld. CIT (A). However, the Ld. CIT(A), without adjudicating the additions on merits, rejected the assessee’s request for condonation of delay and dismissed the appeal in limine.
10. The assessee being aggrieved by the appellate order preferred the present appeal before the Tribunal.
11. Before us, the Ld. Counsel for the assessee submitted that the assessee is an agriculturist and had sold agricultural lands during the year under consideration. It was submitted that the assessee had not deliberately suppressed any income and that the entire sale consideration could not have been treated as taxable capital gain. The learned counsel drew our attention to the property-wise details furnished before us and submitted that the assessee had acquired the properties for substantial consideration and that, after considering the cost of acquisition, stamp duty and other expenses and, wherever applicable, indexation, the actual capital gain was substantially lower than the amount adopted by the Assessing Officer. The learned counsel also submitted that the assessee had furnished the details of the properties before the appellate, and contended that the nature of the gain and the actual amount of taxable capital gain required proper examination and pleaded to restore the matter to the file of the Assessing Officer for fresh adjudication after verification of the relevant documents.
12. On the other hand, the Ld. DR relied upon the orders of the lower authorities and submitted that sufficient opportunities had been granted to the assessee during the assessment proceedings and that the assessee had failed to comply with the statutory notices. It was accordingly submitted that the Assessing Officer was justified in completing the assessment under section 144 of the Act and that the delay in filing the appeal had also rightly not been condoned by the learned CIT(A).
13. We have heard the rival submissions and perused the material available on record.
14. We find that the primary dispute before us is regarding the quantum of addition and proper determination of the capital gain arising from the sale of the properties. From the assessment order, it is evident that the addition of Rs.2,10,18,000/- has been made by treating the entire sale consideration as short-term capital gain. The Assessing Officer himself has observed that the exact amount of capital gain could not be quantified in the absence of details regarding the cost of acquisition and date of acquisition. Nevertheless, the entire sale consideration was brought to tax as short-term capital gain without allowing any benefit towards the cost of acquisition. In our considered view, such determination requires reconsideration because the gross sale consideration of an asset cannot, by itself, be equated with the taxable capital gain without examining the computation mechanism prescribed under the Act. We further find that the assessee has now furnished property-wise particulars showing the sale consideration, date of purchase, purchase consideration and expenses in respect of the agricultural lands and has furnished a computation of capital gain/loss. These aspects require factual verification and admittedly not been examined by the Assessing Officer because the assessment was completed ex parte on account of non-compliance by the assessee.
15. After going through the totality of the facts and circumstances of the case, we are of the considered view that the ends of justice would be met if the matter is restored to the file of the Assessing Officer for fresh adjudication. Accordingly, we set aside the impugned assessment order and restore the matter to the file of the Assessing Officer for de-novo assessment. The Assessing Officer shall examine the sale and purchase deeds of the properties, and other relevant documents. Needless to say, the Assessing Officer shall afford reasonable and effective opportunity of being heard to the assessee and shall consider the documents and explanations furnished by the assessee in accordance with law. The assessee is also directed to cooperate fully in the fresh assessment proceedings and furnish all requisite documents and explanations within the time allowed by the Assessing Officer. Accordingly, the assessment is set aside and restored to the file of the Assessing Officer for de-novo assessment in accordance with law. All rights and contentions of the assessee are left open.
16. In the result, the appeal of the assessee is allowed for statistical purposes.
Now we deal with the penalty proceedings in relation to ITA No. 2333/Ahd/2026
17. The assessee has raised the following grounds of appeal:
“1) The learned CIT(A), NFAC erred in law and on facts in rejecting the request for condonation of delay and dismissing the appeal in limine without adjudicating the appeal on merits.
2) The learned CIT(A), NFAC failed to appreciate that the delay was caused by sufficient and bona fide reasons and that the appellant ought to have been granted an opportunity on merits in the interest of substantial justice.
3) The impugned order is bad in law, arbitrary, and contrary to the principles of natural Justice, as the appeal has been thrown out on a technical ground without examining the legality of the penalty order.
4) The learned CIT(A), NFAC ought to have condoned the delay, especially when no prejudice would have been caused to the Revenue, whereas grave prejudice has been caused to the appellant by denial of hearing on merits.
5) The learned authorities below erred in confirming/initiating penalty u/s 271(1)(c) merely because an addition was made in ex parte assessment proceedings. Penalty cannot be sustained merely on account of non-response or estimated computation.
6) The learned authorities failed to appreciate that the addition of Rs.2,10,18,000/- was made without allowing any cost of acquisition and without proper determination of actual capital gain. In such circumstances, the penalty u/s 271(1)(c) is not leviable.
7) The learned Assessing Officer erred in levying penalty without there being any deliberate concealment of income or furnishing of inaccurate particulars by the appellant. The case, at the highest, involves a difference in estimation/computation and not a fit case for penalty.
8) The penalty order dated 26/09/2023 is unsustainable in law and on facts and deserves to be quashed in full.
9) Without prejudice to the above, the learned CIT(A), NFAC erred in not considering the appeal on merits and in not granting effective relief to the appellant.”
18. During the course of penalty proceedings, the assessee was provided opportunities to explain the circumstances leading to the addition made in the assessment order. However, the assessee did not furnish any explanation in response to the show-cause notices issued under section 274 read with section 271(1)(c) of the Act. On the basis of the addition made in the assessment order, it was held by the Assessing Officer that the case of the assessee attracted the provisions of section 271(1)(c) read with Explanation 1 thereto. Accordingly, penalty with reference to the income alleged to have been concealed was levied under section 271(1)(c) of the Act amounting to Rs.69,45,743/-.
20. We have carefully considered the rival submissions and facts of the case.
21. It is evident from the record that the penalty under section 271(1)(c) of the Act was initiated and subsequently levied solely with reference to the addition of Rs.2,10,18,000/- made in the assessment order. The alleged concealment of income and the tax sought to be evaded for the purpose of levy of penalty were also determined with reference to the said addition. However, the quantum addition has been set aside and the matter has been restored to the file of the Assessing Officer for fresh adjudication, in the preceding paragraph, the penalty proceedings under section 271(1)(c) of the Act are also required to be restored to the file of the Assessing Officer for fresh consideration.
22. Accordingly, the penalty of Rs.69,45,743/- imposed under section 271(1)(c) of the Act is hereby set aside and the matter is restored to the file of the Assessing Officer for fresh adjudication in accordance with law. The Assessing Officer shall examine the issue of penalty afresh after completion of the consequential quantum proceeding.
23. Accordingly, the appeal filed by the assessee is allowed for statistical purposes.
24. In the combined result, both the appeals filed by the assessee are allowed for statistical purposes.
This Order pronounced in Open Court on 03/09/2026
