Enhancement Made To Taxpayer's Income Without Following Procedures As Per Sec 154, Calls For Re-Adjudication: Bangalore ITAT

The ITAT explained that as per Section 154(3), an Amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee or the collector or the deductor shall not be made under this section unless the authority concerned has given notice to the assessee of this intention so to do and has allowed the assessee a reasonable opportunity of being heard.

The Bench of the ITAT comprising of Narender Kumar Choudhry (Judicial Member) and Laxmi Prasad Sahu (Accountant Member) observed that “the AO has passed a vague order u/s. 154 without discussing any of the issue and without following the provisions of section 154(3). While passing the OGE u/s. 154 r.w.s. 143(3), the addition made under the head capital gain during the assessment proceedings u/s. 143(3) has been considered under the head income from other sources. Therefore, there is enhancement of income of the assessee.” (Para 8)

As per the brief facts of the case, the Assessee's return was selected for scrutiny, wherein AO noted that the assessee has claimed sale of agricultural land and claimed agricultural income as exempt. The AO noticed that the land is non-agricultural residential property and agricultural land was converted as per the endorsement order of conversion by the Special Deputy Commissioner. Accordingly, the claim of exempt income on sale of non-agricultural land was prima facie incorrect. He also made enquiry regarding distance of the property and found that the land sold by the assessee comes under the definition of capital asset and made addition to the income of the assessee. The assessee has shown Rs.59,91,250 as exempt income on sale of non-agricultural residential purpose land and claimed cost of improvement of Rs.8,00,000. However, evidence for cost of improvement was not produced by the assessee and in the sale deed also there was no mention of any improvement. The show cause notice was issued to the assessee. As there was no reply to the show cause notice, the AO treated the total amount of Rs.67,91,250 (59,91,250 + 8,00,000) as income from long term capital gain and brought to tax.

The AO further noted that the assessee had reported agricultural income of Rs.1,75,000 however assessee could not produce any evidence regarding sale proceeds in the nature of agricultural products and land holding details was also not produced. There was no proof of agricultural activity carried out by the assessee. Therefore, the amount of Rs.1,75,000 was treated as unexplained money u/s. 69A.

The Bench noted that the assessee has sold agriculture land (capital asset) at Rs. 67,91,250 out of which Rs.8,00,000 has been claimed as cost of improvement and rest amount of Rs.59,91,250 has been claimed as exempt income.

The Bench observed that during the assessment proceedings, the AO noted that sale of land is a capital asset and income should be offered as long-term capital gain. Accordingly, the AO treated the entire receipt without giving any cost of improvement as long-term capital gain.

The Bench further noted that for want of agricultural income, Rs.1,75,000 was added as unexplained money u/s. 69A.

Therefore, on finding scope of reconsideration, ITAT allowed the assessee's appeal for statistical purposes.

At the same time, the ITAT also directed the assessee to produce necessary details and not seek unnecessary adjournment for early disposal of the case.

Counsel for Appellant/Taxpayer: Sreehari Kutsa

Counsel for Respondent/Department: Subramanian S.

Case Title: Manjunath Obaiah verses The Assistant Commissioner of Income Tax

Case Number: ITA No.730/Bang/2023

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