Flawed CIT(A) order ignoring assessment grounds and new

Flawed CIT(A) order ignoring assessment grounds and new agricultural land evidence warrants de novo remand.

Issue

Whether an appellate order passed under Section 250—based on the incorrect factual premise that the appeal arose from a Section 154 rectification order rather than the original assessment order—is sustainable when new evidence regarding rural agricultural land status is submitted.

Facts

Taxation of Property: For Assessment Year 2014-15, the Assessing Officer (AO) brought the transaction to tax under Section 56 as “Income from Other Sources.”
First Appellate Error: The Commissioner of Income Tax (Appeals) [CIT(A)] passed an order under Section 250 under the wrong assumption that the appeal was against a Section 154 rectification order, failing to adjudicate the grounds challenging the original assessment order.
Refusal to Rectify: Despite subsequently acknowledging these factual errors, the CIT(A) declined to rectify his own order under Section 154.
Additional Evidence: The assessee submitted fresh evidence, including Google Maps data, to demonstrate that the land was rural agricultural land situated beyond the prescribed municipal limits under Section 2(14)(iii) and therefore excluded from being a capital asset/taxable asset.

Decision

Orders Set Aside: Both the defective appellate order passed under Section 250 and the subsequent order denying rectification under Section 154 were set aside due to non-adjudication of the core grounds.
Matter Remanded: The case was remanded to the Assessing Officer for fresh, de novo adjudication to evaluate the additional evidence regarding the agricultural nature and location of the land.

Key Takeaways

Failure to Adjudicate Assessment Grounds: An appellate order that misconstrues the underlying assessment proceeding and fails to address the substantive grounds of appeal cannot stand in law.
Admissibility of Digital Distance Evidence: Satellite mapping and Google Maps data can serve as relevant secondary evidence to establish the distance of land from municipal limits under Section 2(14)(iii).
Duty to Rectify Clear Errors: Appellate authorities cannot refuse to rectify obvious factual errors under Section 154 when they fail to adjudicate the actual assessment order appealed against.

IN THE ITAT SURAT BENCH

Income-tax Officer

Jennis Pankajbhai Shah^*

Ms. Suchitra Kamble, Judicial Member
and B.M. Biyani, Accountant Member

IT Appeal Nos. 180, 192 & 458 (Srt.) of 2026
[Assessment years and 2014-15]

JULY 7, 2026

Sapnesh Sheth, C.A. and Chitrang Vaiwala, CA for the Appellant. Ashish Kumar, Sr. D.R. for the Respondent.

ORDER

B.M. Biyani, Accountant Member. – The captioned first two (2) appeals, being ITA 180/SRT/2026 and ITA 192/SRT/2026 are the cross-appeals filed by revenue and assessee respectively, against the very same rectification-order dated 23.04.2025 passed by learned Commissioner of Income-tax (Appeal)-NFAC, Delhi [“Ld. CIT(A)”] u/s 154 r.w.s. 250 of the Income-tax Act, 1961 [“the Act”]. Further, the third appeal being ITA 458/SRT/2026 is the appeal filed by assessee against the original order dated 16.08.2023 passed by learned Ld. CIT(A) u/s 250 of the Act. All these appeals are related to the Assessment-Year 2014-15. Since these appeals relate to same assessee, same assessmentyear and require consolidated adjudication, they were heard together at the request of parties and are being disposed of by this consolidated order.

2. The background facts leading to these appeals are such that the assessee individual filed return of AY 2014-15 declaring a total income of Rs. 1,98,220/- and agricultural income of Rs. 6,00,627/-. The case of assessee was selected for scrutiny and the AO issued notices u/s 143(2)/142(1) to which the assessee made submissions. During proceeding, the AO observed that the assessee (alongwith other co-owner) purchased an immovable property at Moje Nani Bhatlav, Sub-district Bardoli, District-Surat, for Rs. 21,00,000/- whereas the valuation done by Stamps Authority was Rs. 61,24,490/-. Accordingly, the AO show-caused assessee as to why 50% of difference of Rs. 40,24,490/- [Rs. 61,24,490 (-) Rs. 21,00,000], amounting to Rs. 20,12,245/- be not taxed as income u/s 56(2)(viib) of the Act. In response, the assessee filed a reply claiming that the subject immovable property was a “rural agricultural land” and hence excluded from the definition of “capital asset” u/s 2(14)(iii), therefore the provision of section 56(2)(viib) does not have application. However, the AO made addition of Rs. 20,12,245/- as income u/s 56(2)(viib) and completed assessment u/s 143(3) vide order dated 09.12.2016. Aggrieved, the assessee carried matter in appeal before Ld. CIT(A). However, the Ld. CIT(A) passed order dated 16.08.2023 u/s 250 disposing assessee’s appeal taking wrong facts into account (as discussed in later part of this order). Therefore, the assessee filed a rectification-application dated 10.01.2024 u/s 154 to Ld. CIT(A). The Ld. CIT(A), however, rejected assessee’s application vide order dated 23.04.2025 u/s 154 r.w.s. 250 observing and holding thus:

“On perusal of the case, it is seen that the facts and grounds of appeals which have been adjudicated upon are different from these appearing in form No. 35 as well as the assessment order appealed against u/s 143(3) of the Act. The contents and substance of the order u/s 250 of the Act bears no correlation to the facts of the case and issue involved in the case of the assessee.

However, presently there is no facility on the ITBA portal to withdraw the order u/s 250 of the act and to restore the appeal. Hence, the rectification application is rejected as reframing of a new order is neither possible nor within the scope of section 154 of the Act. The only legal remedy available is for the Hon’ble ITAT to set-aside the order to the CIT(A) for re-adjudication. The department and appellant are directed to file second appeals before the Hon’ble ITAT to enable this process.”

Now, the revenue and assessee, both parties, have filed appeals ITA 180/SRT/2026 and ITA 192/SRT/2026 against the aforesaid order dated 23.04.2025 passed by Ld. CIT(A). Additionally, the assessee has also filed appeal ITA 458/SRT/2026 against original order dated 16.08.2023 passed by Ld. CIT(A). Accordingly, these three appeals have come before this Tribunal.

3. We have heard learned Representatives of both sides and carefully perused the case record including the orders of lower-authorities.

4. There is a delay of 229 days in revenue’s ITA 180/SRT/2026. The revenue has filed a condonation-application stating that the delay had occurred due to internal administrative reason. There is also a delay of 231 days in assessee’s ITA 192/SRT/2026. The assessee has filed a condonation-application stating that in the order dated 23.04.2025 (reproduced in earlier Para), the Ld. CIT(A) has observed “The department and appellant are directed to file second appeals before the Hon’ble ITAT to enable this process”. Therefore, after reading this conclusion of Ld. CIT(A), the assessee got an understanding that the revenue shall be filing appeal to ITAT and he (i.e. the assessee) would be joining as defendant only. However, when no appeal was filed by revenue for a considerable period (which is manifest from the fact that there is a delay of 229 days in revenue’s appeal), the assessee ultimately filed present appeal before ITAT, hence there is delay of 231 days in assessee’s appeal. Yet there is also a delay of 876 days in assessee’s ITA 458/SRT/2026. The assessee has filed a condonationapplication stating that the delay had occurred for the reason that the assessee did not feel necessity of filing appeal against original order dated 16.08.2023 passed by Ld. CIT(A) as the assessee pursued alternative remedy of filing rectification-application to CIT(A) u/s 154. However, finding no relief from CIT(A), the assessee ultimately decided to file this appeal as per advice of counsel. Hence, there is a delay. The reasons cited by respective appellants were deliberated and the respective respondents do not have any objection if the delays are condoned. Accordingly, the filing delays in all these appeals are condoned; the appeals are admitted and proceeded for meritorious adjudication.

5. Ld. AR for assessee at first carried us to the original order dated 16.08.2023 passed by Ld. CIT(A) to demonstrate that the Ld. CIT(A) has taken into account wrong fact that the appeal before him was against a rectification-order dated 10.04.2018 passed by AO u/s 154 whereas the correct fact, as discernible from first-para of order of Ld. CIT(A) itself, is that the assessee filed/instituted appeal before Ld. CIT(A) on 01.01.2017 against assessment-order dated 09.12.2016 passed by AO u/s 143(3). He submitted that in the later part of order, the Ld. CIT(A) has made adjudication on the maintainability of application u/s 154 filed by assessee to AO whereas there was no such application ever filed by assessee to AO u/s 154. Therefore, Ld. AR contended, the original order dated 16.08.2023 passed by Ld. CIT(A) is based on wrong facts and suffer from mistake. He submitted that although the assessee filed application u/s 154 to Ld. CIT(A) seeking rectification in order but the Ld. CIT(A) rejected assessee’s application stating that it is not within his scope and advised/directed the department (i.e. revenue) and assessee to file appeal to ITAT. Therefore, all three orders passed by Ld. CIT(A) being contested in present appeals, are liable to be set aside.

6. Ld. AR next submitted that the AO has made addition u/s 56(2)(viia) in respect of land purchased by assessee. However, the assessee has filed an evidence downloaded from Google Maps on Page 10 of Paper-Book to show the aerial distance/location of land sold by him according to which the subject land was beyond the prescribed distance of 8 kms. Therefore, the land sold by assessee was not a “capital asset” as defined in section 2(14)(iii) and consequently, the provision of section 56(2)(viib) shall not apply. Ld. AR submitted that there are judicial precedents holding that the provision of section 56(2)(viib) is not applicable to the transaction of purchase of a “rural agricultural land” not falling within the definition of “capital asset”. Therefore, the addition made by AO is not sustainable and must be deleted.

7. Per contra, Ld. DR for revenue made a strong submission that the claim of assessee requires an in-depth verification/examination by AO, therefore, it may be remanded to the file of AO for a de novo consideration after hearing assessee.

8. We have considered the rival submissions and carefully perused the material available on record. Upon examination of the original appellate order dated 16.08.2023, we find that the Ld. CIT(A) has proceeded on entirely incorrect factual premises. The said order records that the appeal before him arose from a rectification-order passed by the AO u/s 154 whereas the uncontroverted factual position emerging before us is that the assessee had filed appeal against assessment-order dated 09.12.2016 passed u/s 143(3) of the Act. The Ld. CIT(A) has proceeded to adjudicate the maintainability of an application u/s 154 allegedly filed before AO although admittedly no such application was filed by assessee to AO. Thus, the original order dated 16.08.2023 passed by Ld. CIT(A) is founded on incorrect facts and has been passed without adjudicating the actual grounds arising from the assessment-order under challenge. We further find that while disposing of the subsequent rectification-application filed by assessee, the Ld. CIT(A) has not disputed the factual position but merely declined to exercise rectification jurisdiction and advised the parties to approach the Tribunal as is clear from the order of CIT(A) re-produced in earlier para. In these circumstances, we are unable to sustain the impugned appellate order passed by Ld. CIT(A) which is vitiated at its very foundation by factual errors.

9. We further notice that, during the course of hearing before us, the assessee has also placed additional material being the evidence downloaded from Google Maps, to substantiate his claim that the subject land was a “rural agricultural land” situated beyond the prescribed distance and, therefore, outside the ambit of “capital asset” as defined u/s 2(14) of the Act. However, the assessee’s claim requires an in-depth examination/verification by AO and the Ld. DR has also fairly submitted that the matter may be restored to the file of the AO for appropriate adjudication after considering assessee’s submissions, we deem it proper, in the interest of justice, to set aside all earlier orders passed by lower-authorities and restore the matter to the file of the Ld. AO for a fresh adjudication. The AO shall invite and consider assessee’s submissions and conduct such enquiry as may be considered necessary, and thereafter make assessment afresh in accordance with law after affording reasonable opportunity of being heard to the assessee. We clarify that we have not expressed any opinion on the merits of the controversy and all issues are kept open for a fresh adjudication.

10. Resultantly, all three appeals are allowed for statistical purposes.