Rs.28 Lakh Addition under Business Income Unwarranted: ITAT allows Appeal as CIT(A) misses Capital Gain Rectification [Read Order]

The Income Tax Appellate Tribunal Bench at Ahmedabad, has held that the addition of ₹28,03,587 to business income in the case of Yogesh Himatlal Thakker was unwarranted, allowing his appeal and finding that the Commissioner of Income Tax (Appeals) erred in failing to notice a rectification already carried out by the Central Processing Centre (CPC).

The bench, comprising Dr. B.R.R. Kumar (Vice-President) and Shri Siddhartha Nautiyal (Judicial Member), delivered its order on February 11, 2025, in ITA No. 1362/Ahd/2024, relating to the assessment year 2020-21.

Mr. Thakker had filed his return of income on January 25, 2021, declaring a total income of ₹1,03,87,440, which included a long-term capital gain of ₹53,01,700 arising from the sale of immovable property. His profit and loss account had properly reduced this gain from business income and included it under the head “capital gains,” with the indexed cost of acquisition yielding a taxable long-term capital gain of ₹24,98,113 under section 48 of the Income Tax Act. However, the CPC, while processing the return under section 143(1), had added back the difference of ₹28,03,587 being the excess of the book-profit figure over the indexed gain to the business income, and had also incorrectly added ₹2,46,925 twice and ₹3,350 under Section 36 of the Income Tax Act.

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Subsequently, the assessee sought rectification of the CPC’s intimation issued on December 16, 2021. The CPC rectified its order on June 21, 2022, recalculating the refund due to the assessee at ₹37,12,170, thereby undoing the inadvertent addition relating to capital gains. Despite this rectification, the assessee’s appeal before the Commissioner (Appeals), filed on January 27, 2022, culminated in an order dated May 15, 2024, in which the CIT(A) confirmed the ₹28,03,587 addition. The CIT(A) held that the appellant had failed during a Webex hearing to substantiate that the amount had already been offered as capital gain, without acknowledging the rectification by the CPC.

The ITAT observed that two fundamental lapses had occurred: the assessee did not bring the rectification to the CIT(A)’s attention, and the CIT(A) overlooked facts evident on the record. Given that the rectification had already been executed by the CPC, the ITAT concluded that the CIT(A)’s order was rendered infructuous.

The bench noted that since no substantive dispute remained beyond the rectified arithmetic, the appeal deserved to be allowed without further deliberation.

By treating the CIT(A)’s order as ineffectual on this point, the Tribunal allowed the appeal, effectively validating the assessee’s treatment of the capital gain and securing his entitlement to the full refund computed by the CPC post-rectification.

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