ITAT Ahmedabad Clarifies: Sale Consideration Is Not Synonymous with Capital Gain; Quantum & Penalty Proceedings Remanded

1. Background and Procedural History

The decision in Baraiya Galaji Kalaji Vs ITO (ITAT Ahmedabad) concerns two connected appeals – one against a reassessment completed under Section 147 and another against a penalty levied under Section 271(1)(c) – for the Assessment Year 2015-16. Both appeals arose from separate orders passed by the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi under Section 250 of the **Income Tax Act 1961`.

1.1 Delay of 42 Days in Filing Appeals and Its Condonation

  • The assessee filed two separate appeals before the Tribunal, both belated by 42 days.
  • An application seeking condonation of delay was filed, supported by an affidavit.
  • The assessee explained that he was an agriculturist, uneducated, in poor health, and lacked understanding of legal and income-tax procedures, which led to the delay.
  • After considering these facts and the overarching requirement of substantial justice, the Tribunal held that the reasons were bona fide.
  • The delay of 42 days in both appeals was condoned, and the appeals were admitted for adjudication on merits.

The Tribunal first dealt with the quantum appeal and thereafter with the penalty appeal.

2. Facts Leading to Reassessment under Section 147

2.1 Information on Property Sales & Non-Filing of Return

  • The assessee, an individual engaged in agricultural activities, had reportedly sold immovable properties for an aggregate consideration of ₹2,10,18,000 during AY 2015-16.
  • No return of income had been filed for this year.
  • Relying on information (including data from the Sub-Registrar/AIR/Insight), the Assessing Officer (AO) formed the belief that taxable capital gains had escaped assessment.

2.2 Initiation of Reassessment: Section 148A(d) and Section 148

  1. The AO passed an order under Section 148A(d) on 31.03.2022, noting that:
    • The assessee had sold immovable property valued at ₹2,10,18,000.
    • Since no return was filed, the AO treated this amount as income chargeable to tax which had escaped assessment.
  2. Based on this satisfaction, the AO issued a notice under Section 148.

2.3 Return Filed but Not Electronically Verified

  • In response to the Section 148 notice, the assessee uploaded a return for AY 2015-16 on 28.04.2022.
  • This return, however, remained electronically unverified.
  • The AO treated the unverified return as invalid and as no compliance for reassessment purposes.

2.4 Non-Compliance with Notices and Ex Parte Assessment

  • Subsequently, the AO issued various communications and notices, including:
    • Notices under Section 142(1); and
    • A show-cause notice dated 13.02.2023, proposing to treat the entire amount of ₹2,10,18,000 as Short Term Capital Gain (STCG) and to complete assessment under Section 144.
  • According to the assessment order, no effective response or supporting documents were filed by the assessee in the reassessment proceedings.
  • Consequently, the AO completed the reassessment ex parte under Section 147 read with Sections 144 and 144B.

3. Assessment Order: Entire Gross Sale Value Taxed as STCG

3.1 Treatment of ₹2,10,18,000 as Short Term Capital Gain

  • The AO acknowledged that:

    • The date of acquisition of the properties,
    • The cost of acquisition, and
    • Other allowable expenses (such as stamp duty or incidental transfer costs)
      were not available on record.

  • Despite this admitted lack of basic inputs required to compute capital gains, the AO:

    • Treated the entire sale consideration of ₹2,10,18,000 as Short Term Capital Gain; and
    • Did not grant any deduction for cost of acquisition, indexed cost, or related expenses.

  • The assessee’s total income was assessed at ₹2,10,18,000 as against nil.

3.2 Consequential Penalty Proceedings Initiated

Alongside the assessment, the AO initiated:

  • Penalty under Section 271(1)(c) – for alleged concealment of income / furnishing of inaccurate particulars;
  • Penalty under Section 271(1)(b) – for alleged non-compliance with statutory notices; and
  • Penalty under Section 271F – for failure to furnish the return of income.