RAJESH GUPTA,NEW DELHI V. ITO CIRCLE-28(1), NEW DELHI

ITA 4203/DEL/2025

AI Insights

The case involves Rajesh Gupta, who appealed against the Income Tax Officer's decision regarding the assessment of his income for the Assessment Year 2020-21. The primary issue was the incorrect addition of Rs. 73,23,634 to his business income, which arose from the sale of a property. Gupta had declared this amount under 'Capital Gains' after applying indexation but was contested by the CPC, which treated it as business income. The Tribunal's decision clarified the correct application of the Income Tax Act regarding the treatment of capital gains and business income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 787695 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2020-2021
• Appeal Filed On: 01-07-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR ARORA
• Assessee Lawyers: RAJIV MAGO
• Keywords: Business income; Capital asset; Cost of acquisition; Capital Gains; Rectification of order; Deduction for capital gain
• Section: 154; 2

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI Before Sh. Satbeer Singh Godara, Judicial Member & Sh. S. Rifaur Rahman, Accountant Member ITA No. 4202/Del/2025 : Asstt. Year: 2020-21 ITA No. 4203/Del/2025 : Asstt. Year: 2020-21 Rajesh Gupta, E-22, Geetanjali Enclave, New Delhi-110017 Vs Income Tax Officer, Circle-28(1), New Delhi (APPELLANT) (RESPONDENT) PAN No. AAEPG8970F Assessee by : Sh. Rajiv Mago, CA Revenue by : Sh. Ajay Kumar Arora, Sr. DR Date of Hearing: 12.11.2025 Date of Pronouncement: 20.11.2025 ORDER Per Satbeer Singh Godara, Judicial Member: These assessee’s twin appeals in ITA Nos. 4202 & 4203/Del/2025 for Assessment Year 2020-21, arise against the Addl./JCIT(A)-1, Vadodara’s DIN & order No. ITBA/APL/S/250/2025-26/1076473221(1) & 1076473415(1) both dated 27.05.2025, in proceedings u/s 143(1) & 154 of the Income Tax Act, 1961 (in short “the Act”), respectively. 2. Heard both the parties at length. Case files perused. 3. It transpires during the course of hearing that the assessee’s sole substantive grievance; be it against the CPC, Printed from counselvise.com ITA Nos. 4202 & 4203/Del/2025 Rajesh Gupta 2 Bangalore’s section 143(1) processing dated 24.12.2021 or it’s section 154 rectification order dated 26.12.2021, is an identical one wherein he seeks to reverse both the lower authorities’ action making business income addition of Rs.73,23,634/- as upheld in the lower appellate discussion reading as follows: “6. Decision 6.1 In ground No. 1, 2 & 3, the appellant has raised the issue of making addition of Rs.73,23,640/- in the returned income. 6.1.1 In this regard, the appellant submitted that he has been regularly filing his income tax returns for over 20 years as an individual. For the Assessment Year 2020-21, he filed his return declaring a total income of Rs.1,26,13,283, which included Long Term Capital Gains (LTCG) of Rs.1,14,60,732/- arising from the sale of a residential immovable property located in Alwar, Rajasthan. The appellant also claimed exemption under section 54EC of the Income Tax Act by investing Rs.50,00,000 in specified capital gain bonds. While processing the return, the Centralized Processing Centre (CPC) determined the appellant’s business income at Rs.73,89,158 as against the declared business income of Rs.65,524. The basis for this upward adjustment appears to be the treatment of the profit on sale of property. The appellant had reduced the book profit of Rs.2,56,49,800/- computed as the difference between the sale consideration of Rs.3,10,00,000 and the book value of Rs.53,50,200/- from business income, having rightly offered the transaction under the head \"Capital Gains\". The LTCG was computed in accordance with the provisions of the Income Tax Act, 1961, by applying indexation as per the Cost Inflation Index for Financial Year 2019-20. The indexed cost of acquisition was calculated at Rs.1,26,73,834, resulting in LTCG of Rs.1,83,26,166, which was reflected in the computation of income. Printed from counselvise.com ITA Nos. 4202 & 4203/Del/2025 Rajesh Gupta 3 However, CPC disallowed the reduction of Rs.2,56,49,800/- from business income and instead allowed only Rs.1,83,26,166/- the computed capital gain—thereby treating the balance of Rs.73,23,634/- as part of the appellant’s business income. This resulted in an artificial enhancement of income under the head “Profits and Gains from Business or Profession” by Rs.73,23,634/-. 6.1.2 Contention of the appellant is not found genuine. Upon examination of the facts of the case, it is observed that the appellant has sold a property for a sale consideration of Rs.3,10,00,000/-, with the original cost of acquisition recorded in the books at Rs.53,50,200/-. While computing the Profit Before Tax (PBT), the appellant considered the entire differential amount of Rs.2,56,49,800/- as capital gains and simultaneously claimed a deduction of the same, citing that it had already been offered as capital gain under section 45 of the Income Tax Act, 1961. However, for the purpose of computing Long Term Capital Gains (LTCG), the appellant correctly applied indexation to the cost of acquisition, resulting in an indexed cost of Rs.1,26,73,834/-, and consequently, LTCG of Rs.1,83,26,166/- was offered- under the head \"Capital Gains\". The Centralized Processing Centre (CPC), while processing the return under section 143(1), allowed the capital gain deduction only to the extent of Rs.1,83,26,166/-, as per the computation under the capital gains head, and treated the remaining Rs.73,23,634/- (i.e., the excess deduction claimed under PBT computation) as business income, thereby adding it back to the total income. As per Section 45 read with Section 48 of the Income Tax Act, 1961, the income arising from the transfer of a capital asset is taxable under the head Capital Gains, calculated as: Capital Gains = Full Value of Consideration - Indexed Cost of Acquisition - Expenses on Transfer (if any). In the present case, the capital gain has been correctly computed by the appellant under the CG Schedule using the indexed cost. However, the appellant has further reduced the book profit by Rs.2,56,49,800/-, treating the entire difference between the sale consideration and the historical book cost as deductible — an approach Printed from counselvise.com ITA Nos. 4202 & 4203/Del/2025 Rajesh Gupta 4 inconsistent with the provision of the Act. The CPC has correctly restricted the deduction to Rs.1,83,26,166/- being the actual Long-Term Capital Gain (LTCG) computed in accordance with the Act. The additional claim of Rs.73,23,634/- (i.e., the difference between book cost and indexed cost) was not allowable as:  There is no provision under the Income Tax Act to allow deduction of notional gains or book profit differences in computing total income.  Income under the head \"Capital Gains\" must be computed strictly as per Section 48, not based on accounting entries or book values.  The appellant has already offered the capital gain under the CG Schedule; therefore, a duplicate deduction in P&L would result in double benefit, which is impermissible under law. In view of the above analysis, the CPC's action in:  Disallowing the excess deduction of Rs.73,23,634/-, and   Re-computing the taxable income accordingly, is fully justified and in accordance with the provisions of the Income Tax Act, 1961. Hence, the claim of the appellant for deduction of Rs.2,56,49,800/- from business income is not allowable, and the adjustment made under Section 143(1) by the CPC is upheld. These grounds of the appellant Dismissed. 7. In the result, appeal is “Dismissed”. 4. We have given our thoughtful consideration to the assessee’s and the Revenue’s vehement rival submissions reiterating their respective stands. We make it clear that there is no dispute between the parties qua the fact that the assessee had acquired the relevant capital asset for Rs.53,52,000/- which Printed from counselvise.com ITA Nos. 4202 & 4203/Del/2025 Rajesh Gupta 5 was sold in the relevant previous year for total sale price of Rs.3,10,00,000/- giving rise to capital gains of Rs.1,83,26,166/- after deducting indexed cost of acquisition to the tune of Rs.1,26,73,834/-; respectively. 5. Now comes the sole dispute between the parties. A perusal of the case file reveals that the assessee inter alia had declared income from house property of Rs.12,23,181/-, interest received from partnership firms amounting to Rs.65,524/- received from M/s Vimal Deep and share of profits of Rs.69,358/- alongwith the above long term capital gains and bank interest etc. of Rs.48,846; respectively. There is again no quarrel between the parties about the assessee’s computation under capital gains head. The Revenue’s case in light of both the learned lower authorities respective findings is that the impugned sum represents difference between the sale consideration and original cost of acquisition amounting to Rs.2,56,49,800/- which could be allowed only to the extent of capital gains of Rs.1,83,26,166/- (supra). It is thus the difference between the assessee’s capital gains and Rs.2,56,49,800/- which stands added as the assessee’s business income. Printed from counselvise.com ITA Nos. 4202 & 4203/Del/2025 Rajesh Gupta 6 6. We are of the considered view in this factual backdrop that given the fact that the assessee had fairly computed his long term capital gains, there is no justification in both the learned lower authorities respective findings treating the above difference of Rs.73,23,634/- as business income once again as no such jurisdiction of adding a new head of income lies with them in an instance of section 143(1) processing. We accordingly find merit in the assessee’s instant sole substantive grievance to reverse the impugned business income addition amounting to Rs.73,23,634/- in very terms. Ordered accordingly. 7. This assessee’s lead appeal ITA No. 4202/Del/2025 is allowed and his latter case ITA No. 4203/Del/2025 is dismissed as rendered infructuous in above terms. A copy of this common order be placed in the respective case files. Order Pronounced in the Open Court on 20/11/2025. Sd/- Sd/- (S. Rifaur Rahman) (Satbeer Singh Godara) Accountant Member Judicial Member Dated: 20/11/2025 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR Printed from counselvise.com "