SANJAYSINH PRAVINSINH CHUDASAMA,BHAVNAGAR V. THE ITO, WARD-1(5), BHAVNAGAR

ITA 86/AHD/2025

AI Insights

The case involves Shri Sanjaysinh Pravinsinh Chudasama, who appealed against the order of the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, Delhi. The appeal was related to the assessment year 2011-12, where the assessee was accused of not filing a return of income for a substantial gain from a property transaction. The Assessing Officer had treated this gain as 'short-term capital gain' and added it to the assessee's income, characterizing it under 'business income' due to the nature of the transaction. The Tribunal found procedural lapses in the assessment and appellate processes, leading to the decision to remand the case back to the Assessing Officer for a fresh examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712897 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2011-2012
• Other Referred Cases: Indramani Bai vs. Addl. CIT (200 ITR 594), V.A. Jose vs. DCIT (89 taxmann.com 2)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.P. MAKWANA
• Assessee Lawyers: MOHIT BALANI
• Keywords: Set aside; Business income; Capital asset; Opportunity of being heard; Corroborative evidences; Capital Gains; Principle of natural justice
• Section: 147; 148; 144; 142(1); 271(1)(c)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE DR. BRR KUMAR, VICE PRESIDENT & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.86/Ahd/2025 (Assessment Year: 2011-12) Shri Sanjaysinh Pravinsinh Chudasama, Plot No. 119, Bank Colony, Chitra, Bhavnagar, Gujarat-364001 Vs. Income Tax Officer, Ward-1(5), Bhavnagar [PAN No.ALJPC5563A] (Appellant) .. (Respondent) Appellant by : Shri Mohit Balani, AR Respondent by: Shri B. P. Makwana, Sr. DR Date of Hearing 16.07.2025 Date of Pronouncement 28.07.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 28.10.2024 passed for A.Y. 2011-12. 2. At the outset, we observe that the appeal is time barred by 13 days. The delay of 13 days is condoned on due consideration of facts of assessee’s case and owing to causing no perceptible prejudice to other side. 3. The assessee has raised the following grounds of appeal: “1. Learned CIT(A) has erred in law and on facts of the case in confirming the action of learned AO in assuming the jurisdiction u/s 147 of the Act. Printed from counselvise.com ITA No. 86/Ahd/2025 Shri Sanjaysinh Pravinsinh Chudasama vs. ITO Asst.Year –2011-12 - 2– 2. Learned CIT(A) has erred in law and on facts of the case in confirming the action of learned AO in passing the order u/s 144 of the Act. 3. Learned CIT(A) has erred in law and on the facts in confirming the addition made by the AO towards short term capital gain amounting to Rs.26,02,000/-, holding it to be the adventure in the nature of trade. 4. Learned CIT(A) has erred in law and on the facts in changing the head of income without affording any opportunity to the Appellant. Under the facts of the case, the transaction in question was a sole transaction and thus CIT(A) ought not to have changed the head of income. 5. Learned CIT(A) has erred in law and on facts of the case in not appreciating that the land in question was an agriculture land within the meaning of S.2(14) of the Act, and thus outside the purview of S.45 of the Act. 6. Learned CIT(A) has erred in law and on the facts in confirming the action of AO in charging interest u/s.234A/B/C/D. 7. Learned CIT(A) has erred in law and on facts in confirming the action of AO in initiating penalty u/s.271(1)(b), u/s. 271(1)(c) and u/s. 271F of the Act which is wholly unsustainable in law and on facts of the case.” 4. The brief facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that the assessee had entered into a registered sale transaction of immovable property during the impugned assessment year, for a consideration of ₹30,92,000/-, but had not filed the return of income within the time prescribed under section 139(1) of the Act. Based on information from NMS and subsequent verification through the Sub-Registrar’s office, the Assessing Officer found that the assessee had purchased land on 25.08.2010 for a sum of ₹4,90,000/- and sold it on 18.11.2010 for a sum of ₹30,92,000/-, resulting in short-term capital gain of ₹26,02,000/-. However, despite issuance of notices under sections 148 and 142(1) of the Act, the assessee failed to respond and neither did he participate in the assessment proceedings. Since no return was filed and no explanation or supporting evidence was Printed from counselvise.com ITA No. 86/Ahd/2025 Shri Sanjaysinh Pravinsinh Chudasama vs. ITO Asst.Year –2011-12 - 3– submitted by the assessee to establish the nature and source of the transaction, the Assessing Officer proceeded to finalize the assessment ex parte under section 144 of the Act. The officer held that the gain from the property transaction remained unexplained and the Assessing Officer added a sum of ₹26,02,000/- as “short-term capital gain” to the income of assessee. The Assessing Officer also initiated penalty proceedings separately. 5. In appeal, Commissioner (Appeals) primarily looked into the nature of income earned by the assessee from the sale of a piece of land. The assessee contended that the land in question was agricultural, located under Mundi Gram Panchayat, approximately 36 kilometers away from the nearest municipality, Dhandhuka, and falling within a village with a population of less than 2,000. In support of this, the assessee submitted the sale deed and a confirmation letter from the Mundi Village Panchayat. However, upon examination of the facts, CIT(Appeals) was of the view that the assessee had purchased the land on 25.08.2010 for Rs. 4,90,000/- and sold it shortly thereafter on 18.11.2010 for Rs. 30,92,000/-, resulting in a substantial gain of approximately Rs. 26,00,000/- within a span of less than three months. The CIT(Appeals) observed that the quick resale and the significant profit which was earned by the assessee within such short span of time clearly indicated that the transaction was not undertaken with the intent of engaging in agricultural activities but rather with the purpose of resale for profit, thereby falling under the category of an \"adventure in the nature of trade.\" To support this conclusion, CIT(Appeals) relied on Printed from counselvise.com ITA No. 86/Ahd/2025 Shri Sanjaysinh Pravinsinh Chudasama vs. ITO Asst.Year –2011-12 - 4– the Supreme Court's decision in the case of Indramani Bai vs. Addl. CIT (200 ITR 594), which held that quick resale of land with profit initiated trading motive. Similarly, Kerala High Court’s in V.A. Jose vs. DCIT (89 taxmann.com 2) held that resale of land with enhancements to increase saleability and realization of huge profits pointed to a business transaction rather than a capital gain. Thus, in view of the nature of transaction, short time period between purchase and sale and high profitability of the transaction, CIT(Appeals) held that the assessee's conduct was indicative of a business activity rather than a capital investment. Accordingly, the income derived from the sale of the land was held to be taxable under the head \"Income from Business\" and not as \"Capital Gains.\" Therefore, the order of the Assessing Officer was upheld, and the grounds raised by the assessee were dismissed. 6. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the Counsel for the assessee submitted that the land sold was rural agricultural land situated over 36 kilometers from the nearest municipality, as certified by the Gram Panchayat, and thus did not fall within the definition of a \"capital asset\" under Section 2(14)(iii) of the Income Tax Act. It was contended that the original addition was wrongly made under Section 45 of the Act without verifying whether the transaction was even taxable, and that the CIT(A) further erred by recharacterizing the transaction as \"business income\" without conducting any independent inquiry or issuing a notice of enhancement under Section 251(2) of the Act, thereby violating Printed from counselvise.com ITA No. 86/Ahd/2025 Shri Sanjaysinh Pravinsinh Chudasama vs. ITO Asst.Year –2011-12 - 5– principles of natural justice and settled legal precedents. The Counsel for the assessee submitted that no development or commercial activity was carried out on the land, the sale was due to financial distress and not for profit, the transaction was a one-time isolated event with no prior or subsequent land dealings, and the land was always treated as a passive investment. It was further argued that the best judgment assessment under Section 144 of the Act was passed without granting any opportunity of hearing. In response, the Ld. DR placed reliance on the observations made by the CIT(Appeals) in the appellate order. 7. We have heard the rival contentions and perused the material on record. The assessee is in appeal against the order of the Commissioner of Income Tax (Appeals), whereby the addition of ₹26,02,000/- was sustained by characterising the transaction as “business income”. It is the case of the assessee that the land sold was rural agricultural land located more than 36 kilometers away from the municipal limits of Dhandhuka, as certified by the Gram Panchayat, and thus did not fall within the ambit of \"capital asset\" under Section 2(14)(iii) of the Income Tax Act. The assessee submitted that the Assessing Officer mechanically invoked Section 45 without verifying whether the land constituted a capital asset, and passed the assessment order ex parte under Section 144 of the Act, without affording any opportunity of hearing or calling for relevant documentary evidence. Further, the Counsel for the assessee submitted that the Commissioner (Appeals), while disposing of the appeal, did not issue any notice of hearing to the assessee and proceeded to recharacterize Printed from counselvise.com ITA No. 86/Ahd/2025 Shri Sanjaysinh Pravinsinh Chudasama vs. ITO Asst.Year –2011-12 - 6– the transaction under the head \"business income\" without conducting any independent inquiry or verification, and without issuing a notice of enhancement under Section 251(2) of the Act. Furthermore, the assessee has submitted that the transaction was an isolated sale made under financial stress, with no development activity, no prior or subsequent land transactions, and no intention to undertake business, has not been adequately examined either by the Assessing Officer or the Commissioner (Appeals). 8. In view of these arguments, we find merit in the plea of the assessee that opportunity of hearing should be given to the assessee in the interests of justice. The assessment order was framed ex parte and further Commissioner (Appeals) too, did not issue any notice of hearing or carry out independent verification of facts before recharacterizing the nature of the transaction as “business income”. We are therefore of the considered opinion that the matter needs to be reconsidered afresh by the Assessing Officer after affording proper opportunity to the assessee and by conducting a thorough examination of all relevant facts and legal contentions, including the nature and location of the land, the assessee’s intention at the time of purchase, and whether the land falls within the definition of \"capital asset\" under Section 2(14)(iii) of the Act. Accordingly, matter is directed to be set aside to the file of the Assessing Officer for de novo adjudication in accordance with law, after providing reasonable opportunity of being heard to the assessee. The assessee is also Printed from counselvise.com ITA No. 86/Ahd/2025 Shri Sanjaysinh Pravinsinh Chudasama vs. ITO Asst.Year –2011-12 - 7– directed to cooperate in the fresh proceedings and furnish all necessary evidence as may be required. 8. In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 28/07/2025 Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 28/07/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 28.07.2025 (Hon’ble Member dictated on his dragon software) 2. Date on which the typed draft is placed before the Dictating Member 28.07.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 28.07.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 28.07.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 28.07.2025 7. Date on which the file goes to the Bench Clerk 28.07.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… Printed from counselvise.com "