Facts of the Case

For AY 2012-13, the assessee originally filed a return declaring income of ₹16,00,650. Information was later received regarding sale of property at Greater Noida for ₹7,40,47,000. Reassessment proceedings were initiated under section 147, and the assessee filed a revised return declaring income of ₹1,81,45,080, including long-term capital gains (LTCG) of ₹1,65,44,423 along with payment of additional tax.

The Assessing Officer completed assessment under section 143(3) read with section 147, determining total income at ₹4,69,44,900 by making an addition of ₹2,87,99,824 on account of alleged undisclosed LTCG.

For AY 2017-18, the assessee declared income of ₹26,17,560 including LTCG. The assessment under section 143(3) resulted in total income of ₹83,21,910 after addition of ₹57,04,354 as under-reported LTCG. Appeals before the NFAC for both years were dismissed ex-parte.

Issues Involved

  1. Whether development and land-leveling expenses are allowable while computing long-term capital gains.
  2. Whether additions for under-reported LTCG are sustainable without considering evidence of expenditure.
  3. Whether appellate authorities can dismiss appeals ex-parte without adjudicating substantive issues.

Petitioner’s Arguments

The assessee contended that substantial development costs, including land leveling incurred between FY 2007-08 and FY 2010-11, were not allowed while computing capital gains. It was argued that such expenses enhanced the value of the property and were supported by bank withdrawals and statements.

The assessee further submitted that replies and supporting documents had been furnished but were not properly considered. The capital gain declared was already significant relative to the sale consideration, indicating that the claim was bona fide.

Respondent’s Arguments

The Revenue relied on the orders of the lower authorities, noting non-compliance by the assessee during appellate proceedings. However, the Departmental Representative did not object to restoration of the appeals for fresh adjudication.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the appeals before the NFAC had been dismissed ex-parte due to non-compliance. Considering the substantial additions and the nature of issues involved, the Tribunal held that the assessee deserved one more opportunity to present his case.

In the interest of substantial justice, both appeals were restored to the file of the NFAC with directions to adjudicate them on merits after granting adequate opportunity of hearing. The assessee was cautioned to fully comply with notices during the set-aside proceedings, failing which the NFAC would be free to decide the appeals based on available material.

Important Clarification

The Tribunal did not adjudicate the merits of the capital gains additions but emphasized that dismissal of appeals without examining substantive grounds—especially where large tax liabilities are involved—violates principles of natural justice. Proper adjudication requires consideration of evidence relating to cost of improvement and development expenses.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771066703_SHRIABHAYNARAYANPANDEYPRAYAGRAJVS.ACITCIR11ALLAHABAD.pdf

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