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Judgment
Per Satbeer Singh Godara, Judicial Member:
These assessee’s twin appeals in ITA Nos. 4202 & 4203/Del/2025 for Assessment Year 2020-21, arise against the Addl./JCIT(A)-1, Vadodara’s DIN & order No. ITBA/APL/S/250/2025-26/1076473221(1) & 1076473415(1) both dated 27.05.2025, in proceedings u/s 143(1) & 154 of the Income Tax Act, 1961 (in short “the Act”), respectively.
Heard both the parties at length. Case files perused.
It transpires during the course of hearing that the assessee’s so le substantive gr ievance; be it against the CPC, Bangalore’s section 143(1) processing dated 24.12.2021 or it’s section 154 rectification order dated 26.12.2021, is an identical one wherein he seeks to reverse both the lower authorities’ actio n making business income additio n of Rs.7 3,23,634 /- as uphe ld in the lower appellate discussion reading as follows:
“6. Decision
6.1In ground No. 1, 2 & 3, the appellant has raised the issue o f mak ing addition of Rs.73,23,640/- in the returned income.
6.1.1In this regar d, the appellant submitted that he has been regularly filing his income tax returns for o ver 20 years as an individual. For the Assessment Year 2020-21 , he filed his re turn declar ing a total income o f Rs.1,26,13,283, which included Lo ng Term Capital Gains (LTCG) of Rs.1,14,60,732/- arising from the sale of a residential immovable pro perty located in Alwar, Rajasthan. The appellant also claimed exemptio n under section 54EC o f the Income Tax Act by inve sting Rs.50,00,000 in specifie d capital gain bonds. While processing the re turn, the Centralized Proce ssing Centre (CPC) dete rmined the appe llant’s business income at Rs.73,89,158 as against the declared business income of Rs.65,524.
The basis for this upward adjustment appears to be the treatment o f the profit o n sale o f property. The appellant had reduce d the book profit o f Rs.2,56,49,800/- computed as the difference between the sale consider atio n of Rs.3,10,00,000 and the book value of Rs.53,50,200/-from bus iness income, having rightly offere d the transactio n under the head " Capital Gains". The LTCG was computed in accor dance with the provisions of the Inco me Tax Act, 1961, by applying indexation as per the Cost Inflation Inde x fo r Financial Year 2019-20. The inde xed cost o f acquisition was calculated at Rs.1,26,73,834, resulting in LTCG of Rs.1,83,26,166, which was re flecte d in the computation of income. However, CPC disallowed the re duction of Rs.2,56,49,800/- from business income and instead allo wed o nly Rs.1,83,26,166/- the computed capital gain—the reby tre ating the balance of Rs.73,23,634/ - as par t of the appellant’s business income. This resulte d in an artificial enhancement of income under the head “Pro fits and Gains from Business or Profession” by Rs.73,23,634/-.
6.1.2Contentio n of the appellant is not found genuine. Upon examination of the facts of the case, it is observed that the appellant has so ld a prope rty fo r a sale conside ration of R s.3,10,00,000/-, wit h the or iginal cost of acquisition recorded in the boo ks at Rs .53,50,200/-. While computing the Profit Be fore Tax (PBT), the appe llant conside red the entire differential amount of Rs.2,56,49,800/- as capital gains and simultane ously claimed a de duction of the same, citing that it had already been offe red as capital gain unde r sectio n 45 of the Income Tax Act, 1961. Ho weve r, for the purpose of computing Lo ng T erm Capital Gains (LTCG) , the appellant correctly applie d inde xation to the cost of acquisition, resulting in an indexe d cost o f Rs.1,26,73,834/-, and conseque ntly, LT CG of Rs.1,83,26,166/- was offe red-under the head "C apital Gains".
The Centralized Processing Centre ( CPC) , while processing the return under section 143(1) , allowed the capital gain deductio n only to the extent o f Rs.1,83,26,166/- , as per the computation under the capital gains head, and tre ated the remaining Rs.73,23,634/- (i.e ., the e xcess deduction claimed under PBT computatio n) as business income, thereby adding it back to the to tal income.
As per Section 45 read with Sectio n 48 of the Income Tax Act, 1961, the income arising from the transfer of a capital asset is taxable under the head Capital Gains, calculated as: Capital Gains = Full Value of Conside ration - Inde xed Cost of Acquisition - Expenses o n T ransfe r (if any).
In the present case, the capital gain has been correctly computed by the appe ll ant under the CG Sche dule using the indexed cost. However, the appe llant has further reduce d the book profit by Rs.2,56,49,800/-, tre ating the entire differe nce between the sale consideratio n and the histo rical book cost as deductible — an appr oach inconsiste nt w ith the pro vision of the Act. The CPC has correctly restricted the deduction to Rs.1,83,26,166/-being the actual Long-Term Capital Gain (LTCG) computed in accordance with the Act. The additio nal claim of Rs.73,23,634/- (i.e., the diffe rence between book cost and indexed cost) was not allowable as:
There is no provision unde r the Income Tax Act to allo w deductio n of no tio nal gains or book profit differences in computing to tal incom e.
Income under the head "Capital Gains" must be computed strictly as per Section 48, not base d on accounting e ntries or book values.
The appellant has al ready o ffered the capital gain under the CG S chedule; therefo re, a duplicate deductio n in P&L would result in double bene fit, which is impermissible unde r law.
In view of the abo ve analys is, the CPC's action in:
Disallo wing the e xcess deduction o f Rs.73,23,634/-, and
Re-computing the taxable income accordingly, is fully justified and in accor dance with the pro vi sions of the Income Tax Act, 1961.
Hence, the claim of the appellant fo r deductio n of Rs.2,56,49,800/- from business income is not allo wable , and the adjustment made under S ection 143(1) by the CPC is uphe ld.
These gro unds o f the appellant Dismissed.
7.In the result, appeal is “Dismissed”.
We have given our thoughtful consideration to the assessee’s and the Revenue’s vehement rival submissions reiterating the ir respective stands. We make it clear that there is no dispute between the parties qua the fact that the assessee had acquired the relevant capital asset for Rs.53,52,000/- which was sold in the relevant previous year for total sale price of Rs.3,10,00,000/- giving rise to capital gains of Rs.1,83,26,166/- after deducting indexe d cost of acquisition to the tune of Rs.1,26,73,834/-; respective ly.
Now comes the sole dispute between the par ties. A perusal of the case file reveals that the assessee inter alia had declared income from house property of Rs.12,23,1 81/-, interest received from partnership firms amo unting to Rs.65,524/-received from M/s Vimal Deep and share of profits of Rs.69 ,358/- alongwith the above long term capital gains and bank interest etc. of R s.48,846; respectively. There is again no quarrel between the parties about the assessee’s computation under capital gains head. The Revenue’s case in light of both the learned lower authorities respective findings is that the impugned sum represents difference betwe en the sale consideration and original cost of acquisition amounting to Rs.2,56,49,800/- which could be allowe d only to the extent of capital gains of Rs.1 ,83,26,166/- (supra). It is thus the difference between the assessee’s capital gains and Rs.2,56,49,800/- which stands added as the assessee’s business income.
We are of the considered view in this factual backdrop that given the fact that the assessee had fairly computed his long term capital gains, there is no justification in bo th the learned lower author ities respective findings treating the above difference of Rs.73,23,634/- as business income once again as no such jurisdiction of adding a new head of income lies with them in an instance of se ction 143(1) pr ocessing. We accor dingly find merit in the assessee’s instant sole substantive grievance to reverse the impugned business income addition amounting to Rs.73 ,23,634/- in very te rms. Or dered accor dingly.
This assessee’s lead appeal ITA No. 4202/Del/2025 is allowed and his latter case ITA No. 4203/Del/202 5 is dismissed as rendered infructuous in above terms. A copy o f this common order be place d in the respective case files.