ITAT Remands ₹21.24 Lakh Addition for Misclassification of Real Estate Income
The Income Tax Appellate Tribunal (ITAT), Nagpur Bench, has remanded a ₹21.24 lakh addition to the Assessing Officer (AO) for fresh adjudication. The case involves the misclassification of real estate income as long-term capital gains under Section 50C. The reassessment was initiated based on discrepancies between the sale price and stamp duty valuation.
ItatReal EstateLongterm Capital GainsReassessmentIncome Tax ActReal EstateNov 14, 2025
The assessee, Sima Ravisingh Kachhawah, filed an appeal challenging the reassessment order under Sections 147 read with 144 and 144B of the Income Tax Act, 1961, for Assessment Year 2018–19. The reassessment was initiated based on information obtained from the Insight Portal under the category High Risk CRIU/VRU. This information indicated that the assessee had sold immovable property for ₹6 lakh, whereas the stamp duty valuation of the property was ₹23 lakh.
The AO treated the sale as a transfer of a capital asset and computed long-term capital gains (LTCG) under Section 50C, resulting in an addition of ₹21.24 lakh. Additionally, the AO disallowed a deduction of ₹75,600 claimed under Section 80C.
The assessee contended that the transactions were part of her regular real estate business involving the purchase, development, and sale of plots. She claimed business income under the presumptive taxation provisions of Section 44AD and maintained that the sales consideration recorded in the books represented actual receipts over time.
The assessee submitted that the AO’s addition was arbitrary and based solely on the stamp duty valuation without conducting any independent verification or inquiry. Aggrieved by the AO’s order, the assessee approached the CIT(A), which dismissed the appeal due to non-compliance with hearing notices, effectively treating the matter ex parte. The CIT(A) did not examine the merits of the case or consider the documentation submitted by the assessee supporting the business nature of her real estate transactions.
On appeal before the Tribunal, the assessee argued that the CIT(A) had erred by ignoring relevant submissions and that the reassessment itself was flawed. The bench of Pavan Kumar Gadale observed that non-compliance with notices could have reasonable explanations and should not deprive the assessee of the right to be heard. The Tribunal held that the CIT(A) erred in dismissing the appeal without adjudicating the grounds raised, including the classification of income and the disallowance under Section 80C.
Considering the facts, submissions, and material on record, ITAT set aside the CIT(A) order and remanded the matter to the AO for fresh adjudication on merits. The Tribunal directed that the assessee should be provided an adequate opportunity to substantiate her claims regarding the business nature of income under Section 44AD and the deductions claimed under Section 80C.
Frequently Asked Questions
What is the main issue in the case of Sima Ravisingh Kachhawah?
The main issue is the misclassification of income from real estate plotting business as long-term capital gains under Section 50C, leading to an addition of ₹21.24 lakh.
Why did the CIT(A) dismiss the appeal?
The CIT(A) dismissed the appeal due to non-compliance with hearing notices, treating the matter ex parte without examining the merits of the case.
What did the ITAT bench observe about the CIT(A)'s decision?
The ITAT bench observed that non-compliance with notices could have reasonable explanations and should not deprive the assessee of the right to be heard.
What did the ITAT direct the AO to do?
The ITAT directed the AO to provide the assessee an adequate opportunity to substantiate her claims regarding the business nature of income under Section 44AD and the deductions claimed under Section 80C.
What is the significance of the stamp duty valuation in this case?
The stamp duty valuation was used by the AO to compute long-term capital gains, resulting in an addition of ₹21.24 lakh, despite the assessee's claims of actual receipts over time.
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