2025 (3) TMI 590 - AT - Income Tax

CIT(A) must provide mandatory hearing before enhancing assessment under section 251(2) for section 54F deduction denial

The ITAT Mumbai held that the CIT(A) failed to provide mandatory reasonable opportunity of hearing before enhancing the assessment under section 251(2) ... Enhancement notice u/s 251(2) - LTCG - Denial of deduction u/s 54F on sale of gold, ornaments and silver utensils and deduction already allowed u/s 54F in the intimation on the sale of shop - HELD THAT:- Provisions of section 251(2) of the Act are mandatory in nature and CIT(A) was to provide reasonable opportunity of show cause before enhancing the assessment and in this regard found reliance on the decision of Rai Bahadur hardutroy Motialal Chamaria, [1967 (4) TMI 8 - SUPREME COURT] and the decision of Apeejay Shipping Limited [2023 (6) TMI 117 - ITAT KOLKATA] and also from the decision of Edelwiess Asset management Ld [2024 (1) TMI 650 - ITAT MUMBAI]. Although DR submitted that assessee had not appeared when the case was taken up and proper opportunities were granted by the revenue authority before making enhancement. Thus, sufficient opportunity should have been granted by Ld. CIT(A) before making enhancement and in the present case it has been specifically argued that no opportunity of hearing was provided by Ld. CIT(A). Therefore the interest of justice would be met in case the issue between the parties is decided on merits after providing fair opportunity of hearing to the assessee. ISSUES PRESENTED and CONSIDEREDThe primary issue addressed in this judgment is whether the denial of the capital gain exemption under section 54F of the Income Tax Act, 1961, on the sale of gold ornaments and silver utensils, and the disallowance of the deduction already allowed under section 54F on the sale of a shop, was justified. Additionally, the procedural fairness concerning the enhancement of the assessment without providing reasonable opportunity to the appellant was also considered.ISSUE-WISE DETAILED ANALYSISDenial of Capital Gain Exemption under Section 54F- Relevant legal framework and precedents: Section 54F of the Income Tax Act provides an exemption from capital gains tax if the proceeds from the sale of a long-term capital asset are reinvested in a residential property. The precedents cited, including the Supreme Court decision in Commissioner of Income Tax, Calcutta vs. Rai Bahadur Hardutroy Motilal Chamaria, emphasize the necessity for proper consideration of the subject matter of assessment and adherence to procedural fairness.- Court's interpretation and reasoning: The Tribunal noted that the appellant had claimed a capital gain exemption under section 54F for investments in a new residential flat. The denial of exemption for the sale of gold and silver was based on the failure to provide necessary documentation to substantiate the claim.- Key evidence and findings: The appellant had submitted various documents, including sales bills of gold ornaments and silver, and agreements related to the purchase and sale of assets. However, the Ld. CIT(A) dismissed the appeal due to the non-submission of certain required documents.- Application of law to facts: The Tribunal found that the procedural requirements under section 251(2) were not met, as the appellant was not given a reasonable opportunity to present their case before the enhancement of assessment.- Treatment of competing arguments: The appellant argued the lack of opportunity to respond to notices and the absence of an enhancement notice, while the department relied on the orders of the revenue authorities, asserting that sufficient opportunities were provided.- Conclusions: The Tribunal concluded that procedural fairness was not observed, and the appellant should have been given a fair opportunity to present their case.Procedural Fairness in Enhancement of Assessment- Relevant legal framework and precedents: The requirement under section 251(2) of the Income Tax Act mandates that reasonable opportunity must be given to the appellant before any enhancement of assessment is made.- Court's interpretation and reasoning: The Tribunal emphasized the mandatory nature of section 251(2) and the necessity for the CIT(A) to provide a reasonable opportunity for the appellant to show cause against the enhancement.- Key evidence and findings: The Tribunal noted that the appellant was not served an enhancement notice and was not given a chance to respond to the enhancement before the dismissal of the appeal.- Application of law to facts: The Tribunal determined that the CIT(A) failed to adhere to the procedural requirements, thereby violating the principles of natural justice.- Treatment of competing arguments: The Tribunal considered the appellant's argument about the lack of opportunity and the department's claim of providing sufficient opportunities.- Conclusions: The Tribunal decided that the matter should be remanded to the CIT(A) for a fresh decision on merits, ensuring procedural fairness and a fair opportunity for the appellant to present their case.SIGNIFICANT HOLDINGS- Preserve verbatim quotes of crucial legal reasoning: 'The provisions of section 251(2) of the Act are mandatory in nature and CIT(A) was to provide reasonable opportunity of show cause before enhancing the assessment.'- Core principles established: The Tribunal reinforced the principle that procedural fairness and adherence to statutory requirements are essential in tax assessments and enhancements.- Final determinations on each issue: The Tribunal restored the appeal to the file of the CIT(A) for a fresh decision on merits, with a directive to ensure a fair hearing and opportunity for the appellant to present their case.