Addition u/s 43CA r.w.s. 56(2) on Flat Sale Requires Merits-Based Review: ITAT sets aside Non-Prosecution Dismissal [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai examined the validity of additions made under Section 43CA read with Section 56(2)(vii)(b) of the Income Tax Act, 1961, relating to flat sales below market value, and directed that such claims must be reconsidered where evidence of prior-year agreements and advance payments exists.

The Tribunal also held that an appeal cannot be dismissed by the Commissioner of Income Tax (Appeals) [CIT(A)] merely for non-prosecution and must be adjudicated on merits.

The appellant in this case, Mangalam Developers, challenged the assessment for the Assessment Year 2014-15, where the Assessing Officer (AO) made an addition of ₹46,24,350 on account of flats allegedly sold below stamp duty valuation. While the assessee filed an appeal before the CIT(A), the appellate authority dismissed the case in limine, citing repeated non-appearance despite notices.

The appellant contended before the Tribunal that the addition made by the AO ignored the exception under Section 43CA(3), since the flat sale agreements had been executed in earlier years when the market value was lower, and advances were received through banking channels. Therefore argued that the transactions were covered by the exception under Section 43CA(3) of the Income Tax Act.

It further submitted that dismissal of its case without examining merits was contrary to law and in violation of the principles of natural justice.

Representing the Revenue Authorities, Pankaj Kumar, Commissioner of Income Tax-Departmental Representative, argued that the addition was justified but acknowledged that the case could be remanded for full adjudication but conceded that the matter could be remanded to ensure adjudication on merits and to allow the assessee a fair opportunity.

The division bench of Amit Shukla, Judicial Member, and Arun Khodpia, Accountant Member, ruled that the CIT(A) has no power to dismiss an appeal for want of prosecution. The bench emphasized that under Section 250 and Section 251 of the Income Tax Act, 1961, the appellate authority is statutorily bound to decide appeals on merits, irrespective of the assessee’s appearance.

The Tribunal relied on the Bombay High Court’s ruling in CIT v. Premkumar Arjundas Luthra (HUF) (2017) 297 CTR 614 (Bom), reiterated that dismissal for non-prosecution is impermissible.

On the addition under Section 43CA, the Tribunal observed that prior-year flat sale agreements supported by advance payments may fall within the exception under Section 43CA(3). It noted the assessee’s claim of insufficient opportunity, thereby raising a substantial issue requiring reconsideration.

Accordingly, the ITAT set aside the order of dismissal and remanded the matter to the CIT(A) for de novo adjudication on merits, with directions to provide the assessee one final opportunity to present its case and supporting documents.

The appeal was allowed for statistical purposes.

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