Exemption to be allowed even if not claimed in Income Tax return : HYDERABAD ITAT

ORDER

D. Manmohan, Vice President – This appeal by the assessee is directed against the order passed by CIT (A)-7, Hyderabad and it pertains to A.Y. 2010-2011. Following grounds were urged before us:

2. The assessee, an individual by status, admitted total income of Rs. 1,60,942/- and agricultural income of Rs. 1,20,000/- for the previous year relevant to the assessment year 2010-11 and the same was processed accordingly. Later on, it was selected for scrutiny under CASS and a notice was issued u/s 143(2) of the Act. As per the AIR data, the A.O. noticed that the assessee made transaction of sale of property of Rs. 51,91,000/-. Therefore, the A.O. called upon the assessee to furnish the details of sale of property and reasons for not admitting the capital gains thereon. It may be noticed here that the assessee has neither admitted capital gains on sale of property nor claimed exemption under any of the provisions of Income Tax Act, 1961.

3. In response thereto, the assessee furnished the information called for and stated that the assessee is entitled to exemption u/s 54F of the Act on the capital gains since his share of sale consideration of the property was utilised for construction of a residential property at Ibrahimpatnam. Having considered the stand of the assessee, A.O. accepted the income returned. In other words, the utilisation of the sale consideration for construction of residential property was accepted by the Assessing Officer.

4. The Revisional Authority examined the assessment record and noticed that the assessee has neither claimed any exemption in the return of income nor declared the same in his return of income and the assessee cannot presume that the exemption would automatically be allowable to him. In the absence of disclosure of capital gains in the return of income, the assessee is not entitled to get any deduction u/s 54F for investment in new residential house. He also observed that the A.O. has not verified as to whether the sale proceeds have actually been utilised for construction of house property and whether all the conditions laid down u/s 54F have been fulfilled or not. Though the assessee furnished the details by stating that the sale proceeds were utilised in construction of house building, which is also supported by a valuation report dated 24.09.2012, the Revisional Authority was of the opinion that the A.O. proceeded to complete the assessment without proper examination of the facts, thereby resulting in an assessment which is erroneous and prejudicial to the interestd of Revenue. Accordingly, he concluded that the assessment made in a hurried manner, without applying mind, is erroneous since the A.O. has not verified whether the sale proceeds have actually been utilised for construction of house property and whether all the conditions laid down u/s 54F have been fulfilled or not. The assessment order was accordingly set-aside with a direction to verify the facts and re-deo the assessment as per law.

5. Consequent to the directions of the Revisional Authority, the Assessing Officer passed an order u/s 143(3) r.w.s 263 of the Act wherein the A.O. observed that the assessee neither declared the transaction of sale of property nor made any claim of deduction u/s 54F of the Act in the return of income and, in the absence of any claim the assessee is not entitled to get any deduction u/s 54F of the Act hence, the capital gains is added to the income of the assessee as ‘undisclosed income’ under the head long term capital gains.

6. Aggrieved, assessee challenged the order passed by Assessing Officer by contending that a claim u/s 54F was not made in the return of income on account of genuine impression of the assessee that since he has invested the sale proceeds for construction of a residential house, the sale proceeds are not liable to be taxed for capital gains; but the fact remains that the Assessing Officer, during the course of assessment proceedings, examined all the details and accepted the claim of the assessee and thus it cannot now be denied merely on the ground that the assessee has not made a specific claim in the return of income. He also submitted that the Assessing Officer must have been relying on the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 to negative the claim u/s 54F of the Act overlooking the fact that the Supreme Court clearly laid down that this application of law is restricted to the Assessing Officer and does not apply to any claim made before the Appellate Authority. He also relied upon a Circular issued by the CBDT (No.14-XZ (35) dated 11-04-1955) to submit that Officers and Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duty to assist a taxpayer which in the long run benefit the Department that would inspire confidence in the minds of public.

7. Ld. CIT(A), however, was of the opinion that the Revisional Authority has given a categorical finding in para 6.6 that the assessee is not entitled to get any deduction u/s 54F for investment in new residential house and since the assessee has not appealed against the said order, it achieved finality and hence the same matter cannot be considered at this stage. He therefore rejected the claim of the assessee. Further aggrieved, assessee is in appeal before us.

8. Learned Counsel for the Assessee adverted our attention to the order passed by the Revisional Authority to submit that the Ld. CIT(A) wrongly mentioned about the finding in “para 6.6” of the order passed u/s 263 whereas the order of the Revisional Authority, on this aspect ends at para 6.1 and even otherwise the sub-paras in para 6 are limited to 6.3 and hence the conclusion of the CIT (A) with regard to categorical finding in para 6.6 is factually incorrect. It was further stated that para 6 and 6.1 are the findings of the Revisional Authority which have to be read in its proper context. Para 6.1 reads as under:

“6.1 Having taken up the case for scrutiny, it is the obligatory on the part of the A.O. to examine all issues and complete the assessment. Only through AIR data, it was come to light that the assessee had made transaction of sale of property of Rs. 25,00,188/-. The assessee neither declared the same in the return of income nor made any deduction u/s 54F in the return of income. It was only during the assessment proceedings, when confronted with the AIR information, that the assessee claimed that the sale proceeds were utilised for construction of a house. In order to claim any exemption, the assessee should disclose the transaction in the return of income and should not presume that the exemption is automatically allowable to him. In the instant case, the assessee neither disclosed the capital gains nor makes any claim u/s 54F. Therefore, the assessee is not entitled to get any deduction u/s 54F for investment in the new residential house. Further, the A.O. had not verified whether the sale proceeds have actually been utilized for construction of house property and whether all the conditions laid down u/s 54F have been fulfilled or not. The circumstances would show that A.O. had made the assessment in a hurried manner, without applying his mind and such assessment order by virtue of this became an erroneous one.”

9. If the conclusion of the Revisional Authority is limited to the legal issue that the assessee having neither disclosed capital gains nor made any claim u/s 54F, the A.O. cannot allow deduction u/s 54F of the Act, there was no further need to the Commissioner to set-aside the mater with a direction to the A.O. to verify whether all the conditions laid down u/s 54F have been fulfilled or not. In otherwords, the direction of the Commissioner to the A.O. to verify as to whether sale proceeds have actually been utilised for construction of house property pre-supposes that the Assessing Officer has to examine the issue independently on merits even though there was no such claim, in the return of income. The reasoning given by the Commissioner i.e., “in the instant case, assessee neither disclosed any capital gains nor made any claim u/s 54F, the assessee the assessee is not entitled to get any deduction u/s 54F for investment in the new residential house”, is only to indicate that the Assessing Officer might not have applied his mind from that angle but the very next line indicates that the Assessing Officer was never directed to disallow the claim of deduction u/s 54F on that ground but he was directed to verify as to whether the sale proceeds have actually been utilised for construction of house property and whether all the conditions laid down u/s 54F have been fulfilled or not. Learned Counsel for the Assessee also submitted that A.O. as well as CIT (A) wrongly inferred the direction of the Revisional Authority and did not entertain the claim of the assessee, which is against the spirit of Circular issued by the CBDT (supra) as well as the decisions of various High Courts and the ITAT. In the written submissions filed by the assessee, it was stated that in fact the Assessing Officer has originally verified / examined all the details and noticed that the assessee is entitled to exemption u/s 54F but the Revisional Authority having set-aside the matter he ought to have reconsidered the matter afresh rather than considering at this stage that the assessee having not made any claim earlier, he is not entitled to claim exemption during the course of assessment proceedings which again is against the spirit of judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd (supra). In fact the Hon’ble Bombay High Court in the case of CIT v. Pruthvi Brokers & Shareholders [2012] 349 ITR 336 (Bom.) observed that the Hon’ble Supreme Court has not laid down as a matter of law that there is a bar for the A.O. in entertaining the claim for deduction or otherwise than by filing a revised return. At any rate, as per the decision of Hon’ble Delhi High Court in the case of CIT v. Jai Parabolic Springs Ltd. [2008]306 ITR 42 (Delhi), the Tribunal has power to allow deduction to assessee to which he was otherwise entitled even though no such claim was made in the return of income. He also relied upon several decisions, more particularly the decision of the Apex Court in the case of CIT v. J.H. Gotla [1985] 156 ITR 323 at page 339 wherein it was held that if strict literal construction leads to an absurd result, which is not subserved by the object of the legislation and if another construction is possible apart from strict literal construction then that construction is to be preferred to the strict literal construction.

10. On the other hand, Learned Departmental Representative submitted that the finding of the Revisional Authority that “A.O. ought not to have considered the claim u/s 54F, in the absence of any claim”, is an independent finding and conclusion, which was carried out by the Assessing Officer in the order passed u/s 143(3) r.w.s 263 and hence the assessee cannot be said to be aggrieved by the order passed by the Assessing Officer and if there is any grievance against the order of the Revisional Authority, an appeal should have been filed against such order rather than the consequential order passed by the Assessing Officer.

11. We have carefully considered the rival submissions and perused the record. We have also carefully perused the order passed by the Revisional Authority. There are fallacies in the said order which can easily be highlighted and considered, if an appeal is filed against the order directly before the Tribunal but we restrain ourselves at this stage since we are only concerned with the limited issue as to whether the Assessing Officer while giving effect to the said order has properly understood the direction given by the Revisional Authority. Finding of the Revisional Authority is that since the assessee having neither disclosed the capital gains nor made any claim u/s 54F of the Act, the assessee is not entitled to get any deduction u/s 54F of the Act. Presumably, this statement is based on the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra). Even if it is assumed that the assessee cannot make any new claim at later stage but the fact remains that the assessee has not even disclosed capital gains and in the absence of offering the capital gains to tax, the Assessing Officer should have strictly confined to the return filed and would not have made any addition and if once he takes the issue of capital gains for the first time, the claim of the assessee regarding deduction u/s 54F of the Act should also be considered and in fact the Assessing Officer has fairly considered the same in the original assessment and completed the assessment without making any addition. Presumably because of this the Revisional Authority did not give much stress to this aspect but limited his direction by stating that the A.O should re-consider the matter in accordance with law. The limited direction reads as under:

“…….Further, the A.O. had not verified whether the sale proceeds have actually been utilized for construction of house property and whether all the conditions laid down u/s 54F have been fulfilled or not. The circumstances would show that A.O. had made the assessment in a hurried manner, without applying his mind and such assessment order by virtue of this became an erroneous one.”

11.1 In para 7 also it was categorically stated as under:—

“Accordingly, the assessment order of the A.O. for the A.Y. 2010-11 is set-aside with a direction to verify the facts as per the directions given above and re-do the assessment, as per law, after providing reasonable opportunity to the assessee.”

12. Thus we noticed a categorical direction of the Commissioner, to verify the facts and to re-do the assessment as per law, and in such an event it is a duty of the Assessing Officer to consider the issue afresh. Be that as it may, the Assessing Officer having now concluded that the assessee having neither disclosed the capital gains in the return of income nor claimed any deduction u/s 54F of the Act, the assessee is not entitled to get any deduction u/s 54F, in the same way he should not have added the capital gains to the income of the assessee since there was no disclosure of the same in the return of income. At any rate, the first appellate authority ought to have considered the issue on merits since the decision of the Supreme Court in the case of Goetze (India) Ltd. (supra) would not debar the first appellate authority to consider the fresh claim, if any, so as to arrive at the correct taxable income. Hon’ble Madras High Court, in the case of CIT v. Indian Express (Madurai) (P.) Ltd. [1983]140 ITR 705 at page 722, observed that unlike a law suit in civil appeals, in tax litigation, it cannot be treated as a “lis” between two rival parties but the job of the Assessing Officer is to arrive at the correct taxable income. Therefore, merely on account of fact that the assessee has not claimed exemption, the same could not have been denied. We therefore set-aside the orders passed by the A.O. and direct the A.O. to allow the claim of deduction u/s 54F of the Act.

13. In the result, appeal filed by the assessee is allowed.

Other Income Tax Judgments