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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri Malav P. Sheth Shri Milind Chavan
Date of Hearing : 31.01.2023 Date of Pronouncement : 17.04.2023 O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 09.09.2022 for the A.Y.2009-10.
ITA.NO. 2820/MUM/2022 (A.Y: 2009-10) Dilip Divakaran kanath 2. Brief facts of the case are, assessee filed its return of income on 18.01.2010 declaring total income of ₹.3,31,080/-. The case was selected for scrutiny under CASS and notices u/s. 143(2) and 142(1) of Income- tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for.
During the assessment proceedings, Assessing Officer observed that assessee has declared income from capital gains of ₹.3,29,300/-, income from rent of ₹.2,22,000/- and income from other sources of ₹.31,626/- being interest from Bank. Further, Assessing Officer briefly narrated the background of the case that during A.Y. 2009-10, the assessee and his wife, Mrs. Likhiya Dilip Kanath, jointly purchased a property in Chandivali in the year 2005 in the ratio of 50:50 for ₹.22,50,000 plus registration. Subsequently, they sold the said property in A.Y.2009-10 for a consideration of ₹.59,00,000/- and computed long term capital gain of ₹.32,65,191/-. Therefore, the Capital Gain arising out of it was to be availed by both the parties in 50:50 share. However, the assessee's wife claimed the entire Long Term Capital Gain in her hand and claimed deduction u/s. 54 of ₹.32,65,191/-. However, while finalizing the assessment proceedings for A.Y. 2009-10 in the case of assessee’s wife,
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ITA.NO. 2820/MUM/2022 (A.Y: 2009-10) Dilip Divakaran kanath the erstwhile Assessing Officer has allowed 50% deduction i.e., to the extent of ₹.16,32,595/-.
While finalizing the assessment proceedings for A.Y. 2009-10, the erstwhile Assessing Officer of assessee's wife took 50% of capital gain in the hands of the assessee from sale of residential premises and added the same to the total income of the assessee without allowing deduction u/s.54 of the Act for investment made in new residential property, by stating that the assessee's share in the said property is 50% and balance 50% belongs to assessee's husband. Subsequently in assessee’s wife appeal CIT(A) allowed 50% of the capital gain as deduction u/s. 54 of the Act for investment in purchase of new residential flats in the hands of the assessee's wife. However, the Department has filed an appeal before the ITAT against the order of CIT(A) and that appeal is pending in the case of assessee's wife.
Considering the fact in the case of assessee’s wife, the assessee was issued notice u/s. 142(1) of the Act to justify with supporting evidences as to why 50% of the long term capital gain of ₹.16,32,595/- should not be taxed in his hands as assessee has not offered any income from long
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ITA.NO. 2820/MUM/2022 (A.Y: 2009-10) Dilip Divakaran kanath term capital gain in his return for the A.Y. 2009-10. In response, Ld. AR of the assessee submitted as under: -
“7.3. The assessee's representative vide letter dated 30.11.2016, submitted the explanations as under :- i. The assessee had always stated that Capital gains was chargeable in the hands of his wife Mrs. Likhiya Dilip Kanath ii. The flat as Chandivali was purchased in the joint name of husband and wife in the year 2005 and the entire gain on sale of Chandivali Flat during the A.Y. 2009-10 is being offered in wife's return of income, she being the real owner. iii. Similarly, the wife has claimed deduction in respect of new residential house purchased by her in the joint name with Mr. Dilip Kanath, being flat No. 503A and 503B in Eternia CHS Ltd. Since, she is the real owner and name of the husband was entered only for name sake/for the sake of convenience. iv. This stand is consistent in all their returns and assessment years subsequent to this period. v. Mrs. Kikhiya Dilip Kanath wife of Shri Dilip Kanath had gone on appeal against this order of the assessment officer for the A.Y. 2009-10 and in his order the Hon CIT (A) on page 6 of his appellate order held that the appellant is the owner of property sold as well as new residential house purchased but on page 7 of his appellate order directed the assessing officer to give deduction of Rs. 34,29,500/ only (Le. 50% of total investment in view residential house) out of the LTCG of Rs. 25,82,993/ computed by the Assessing Officer. vi. Since, the finding of the CIT(A) order is not conclusive and is causing unnecessary hardship to both the assessee and his wife we have put forth an appeal against the order of CITIA) in front of the Hon'ble Income Tax Appellate Tribunal 'A' Bench Mumbai on 22nd September, 2016 to provide a conclusive finding about the 100% ownership of the appellant in respect of the old as well as new residential premises. vii. This was raised more so because CIT(A) has held that the appellant is 100% owner of the new as well as old residential property but gave contrary directions to the Assessing Officer. viii. The Tribunal Bench has given a positive feedback to our stand and we are confident of getting the same in our favour hence at this Page No. | 4
ITA.NO. 2820/MUM/2022 (A.Y: 2009-10) Dilip Divakaran kanath stage drawing up conclusions to close the hearing would not be appropriate and we request that we wait till the order copy is received at our end. ix. In the above circumstance, the assessee prays that there is no cause for reopening this assessment and passing an order till the Tribunal passes its order. It would not cause prejudice to the Revenue but it will enable to advance the intent of the Act of arriving at correct income and tax liability of the assessee.”
After considering the submissions of the assessee Assessing Officer proceeded to make the addition in the hands of the assessee with the observation that assessee has not offered any income from long term capital gain in his return of income for the A.Y. 2009-10 and also assessee has not submitted any detail regarding new investment in any property out of the sale consideration received of ₹.16,32,595/-.
Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions. After considering the detailed submissions Ld.CIT(A) dismissed the grounds raised by the assessee with the following observations:
“6.26. It is pertinent to note that in the case of appellant's wife, the jurisdictional AO, had accordingly brought to tax only 50% of capital gains in respect of sale of joint property, and had also allowed deduction u/s.54 to the extent of 50% of investment in the two new flats purchased jointly, as directed by CIT(A). Against this order giving effect dated 27.04.2012, no further appeal has been filed by her. Even thereafter, the appellant did not offer his share of capital gains in his hands. When the AO called for details and issued show cause on 14.10.2016, then also the appellant insisted to claim that entire 100% of capital gains is to be assessed in the hands of his wife. When the issue had already reached a finality in his wife's case Page No. | 5
ITA.NO. 2820/MUM/2022 (A.Y: 2009-10) Dilip Divakaran kanath and only 50% has been brought to tax, this claim by the appellant is untenable on facts and in law. 6.27. Vide notice of hearing dated 02.09.2022, the appellant was specifically asked to furnish the details of appeals filed if any by appellant's spouse against the order giving effect to CIT(A)'s order dated 12.03.2012 wherein only 50% of Capital Gains as well as deduction u/s.54 was granted. However, till date, the appellant has not submitted any details. It is evident that no appeal was preferred against the issue of addition of 50% of capital gains in the hands of the wife based on the order of the CIT(A) in her case. 6.28. In view of the foregoing, the addition of remaining 50% of capital gains made in appellant's hands is therefore, found to be factually correct and legally tenable. Addition of Rs.16,32,585/- being 50% capital gains arising on sale of impugned property in the hands of the appellant is, therefore, fully confirmed. 6.29. On the issue of claim of deduction u/s.54, it may be noted that no inference can be drawn from the case of appellant's wife that 50% of deduction u/s.54 is allowable in appellant's hands also. Provisions of section 54 ought to be fulfilled by the appellant also in his individual capacity. There are certain restrictions on the applicability of section 54, one of them being that the capital gain ought to have been invested in the new asset within such time limits or that it should be deposited with the bank within such time. These facts were not produced before the AO by the appellant even after a specific show cause on capital gains was issued to him. Therefore, the claim of deduction under section 54 was not allowed by the AO. In the absence of any controverting facts on record, order of the AO does not warrant any interference on this issue.”
Aggrieved assessee is in appeal before us, raising following grounds in its appeal: -
“1) On the facts and circumstances of the case and in law, the NFAC erred in taxing 50% of the capital gains on sale of residential property amounting to Rs. 16,32,595/- when the same was fully offered for tax in the hands of the appellant's wife in her Income Tax returns 2) On the facts and circumstances of the case and in law, the NFAC erred in confirming Rs. 16,32,595/- as capital gains arising from the sale of residential property by the assessee who was the Page No. | 6
ITA.NO. 2820/MUM/2022 (A.Y: 2009-10) Dilip Divakaran kanath joint owner with his wife without giving effect of deduction u/s 54 of the Income Tax Act, 1961 for reinvestment in residential property. 3) On the facts and circumstances of the case and in law, the learned Assessing Officer erred in rejecting the directions provided by the CIT(A)/ITAT in the wife's case where it was explicitly mentioned that in case part proceeds for property sale is considered in the hands of the husband, then part deduction also must be provided to his benefit whereby the impact to revenue is neutral and this entire activity is just a mechanical exercise. 4) The appellant craves leave to add, to amend, alter, delete and or modify the above grounds of appeal on or before the final hearing and request to consider each of the above grounds without prejudice to one another.”
9. At the time of hearing, Ld. AR of the assessee submitted the facts on record that assessee and his wife purchased a joint property in A.Y.2005-06 and sold the same. Subsequently, in the return of income filed by the assessee’s wife has declared the total income and also claimed deduction u/s. 54 of the Act. However, in her assessment erstwhile Assessing Officer of the assessee’s wife has allowed only 50% of the claim made by assessee’s wife. However, in appeal Ld.CIT(A) has considered the submissions and decided the issue of claiming capital gain in the hands of the assessee’s wife. However, he has taken a contrary view of disallowing 50% of the claim made by the assessee u/s. 54 of the Act. In appeal ITAT has decided the issue in favour of the assessee and he brought to our notice Page No. 29 of the Paper Book in which the order of the ITAT is placed on record and he prayed that the income has already declared in the hands of the assessee’s wife and assessee’s wife has Page No. | 7
ITA.NO. 2820/MUM/2022 (A.Y: 2009-10) Dilip Divakaran kanath claimed the deduction u/s. 54 of the Act. Therefore, the Assessing Officer cannot initiate separate proceedings for the same set of income in the hands of the assessee also.
On the other hand, Ld.DR supported the findings of the lower authorities and he submitted that no doubt property was purchased in the joint name. However, assessee has not disclosed any capital gain in his return of income to claim deduction u/s. 54 of the Act assessee has to produce details of new property purchased in the name of the assessee otherwise the deduction u/s. 54 of the Act is not available to the assessee and he supported the findings of the lower authorities.
Considered the rival submissions and material placed on record, we observe from the record that the joint property purchased by the assessee along with his wife was sold and the whole income out of the same was declared by assessee’s wife and also investment of the sale consideration in the new property and claimed the deduction u/s. 54 of the Act by the assessee’s wife. However, the erstwhile Assessing Officer of the assessee’s wife has disallowed 50% of the deduction claimed by the assessee’s wife capital gain was u/s. 54 of the Act considering the fact that it is a joint property. However, in subsequent appellate proceedings
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ITA.NO. 2820/MUM/2022 (A.Y: 2009-10) Dilip Divakaran kanath the claim of assessee’s wife was granted by the Coordinate Bench and the relevant findings of the Coordinate Bench are given below.
“13. We have carefully considered the rival submissions. The whole controversy revolves around the manner in which the CIT(A) has disposed off the assessee’s Grounds before him. Notably, the assessee was aggrieved with the denial of deduction u/s 54F of the Act and the non-consideration of the entire Capital Gains in the hands of the assessee herself. In this context, we find that the findings of the CIT(A) is contained in para 3.3 of the order. While the CIT(A) clearly brings out, at the beginning of his findings, that the entire Capital Gains was liable to be considered in the hands of the assessee and so also the corresponding deduction u/s 54F of the Act, he thereafter makes a discussion in the penultimate portion, which we have reproduced above.
In our considered opinion, the discussion in the penultimate portion of the order does not distract from the initial findings of the CIT(A) that the entire Capital Gains was to be assessable in the hands of the assessee herself because the purport of the discussion in the penultimate portion of the order was merely to point out that the exercise carried out by the Assessing Officer was a tax-neutral exercise. Therefore, in our considered opinion, what emerges from the decision of the CIT(A) is that the Long Term Capital Gain is assessable in the hands of the assessee, and so also the corresponding deduction u/s 54F of the Act. Pertinently, the order of the CIT(A) has not been appealed against by the Revenue. So, however, for the present we are concerned with the additional Ground now sought to be raised by the assessee before us, which we have reproduced hereinabove. Pertinently, the additional Ground arises from an action taken in the hands of assessee’s husband, which is not the subject matter before us. Thus, we are not in a position to evaluate the validity of the action of the Assessing Officer in the case of assessee’s husband. Thus, we decline to adjudicate the additional Ground of appeal.”
Respectfully following the above said decision, the whole income earned by assessee’s wife has brought to tax and therefore separately same income cannot be brought to tax in the hands of the assessee. It is settled position of law that income cannot be taxed in the hands of two
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ITA.NO. 2820/MUM/2022 (A.Y: 2009-10) Dilip Divakaran kanath persons. Therefore, the proceedings initiated in the case of assessee is bad in law. Accordingly, the ground raised by the assessee is allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 17th April, 2023