MRS.SHANTHAMANI (REPRESENTING LATE MR.M.RAMALINGAM),COIMBATORE vs. ITO, NON CORP WARD 2(2), COIMBATORE

This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-2, Coimbatore, dated 03.12.2018 and pertains to assessment year 2009-10.

The assessee has raised the following grounds of appeal: “The Appellant respectfully submits that the order of the learned Assessing Officer ('AO')and learned Commissioner of Income Tax (Appeals) ('CIT(A)') in so far as it related to the additions made is concerned against the provisions of law and contrary to facts and circumstances of the case, based on the following grounds: Ground no. 1 - Erroneous non-issuance of refund of taxes paid on income which is not assessable to tax in the hands of Late Mr. M Raralingam The learned CIT(A) ought to have upheld the claim of the Appellant for refund as CIT(A) -2 in his order dated 30.09.2016 in has clearly held that there is no question of determining income and tax payable in the order giving effect to order passed by Hon'ble Income Tax Appellate Tribunal ('ITAT'), Chennai dated 13.11.2015 quashing the original assessment u/s. 143(3) read with Section 147, in the facts and circumstances of the case and in law. The Learned CIT(A) ought to have held that the AO was not right in not granting the refund of taxes paid by the appellant, after the assessment was quashed, by the Hon'ble ITAT 'A' Bench, Chennai vide its order in ITA No. 2229/Mds/2014 dated 21.08.2015 and reconfirmed the same, by Hon'ble ITAT 'D' Bench, vide its order in ITA No. 494/Mds/2014 dated 13.11.2015, in the facts a circumstances of the case and in law. The learned CIT(A) ought to have held that the Hon'ble ITAT, Chennai, having found that the capital asset transferred, did not belong to the appellant, in his individual capacity, the return filed by the appellant, was invalid in Law, as there is no question of determining income and tax payable, in the facts and circumstances of the case and in law. The learned CIT(A) has erred in holding that the return filed by the appellant was pursuant to notice issued u/s. 147 of the Act and it was valid even while no income was found to have escaped assessment by Hon'ble ITAT, Chennai, in the facts ft circumstances of the case and in {aw. The learned CIT(A) failed to appreciate that when there was no income from capital gains having accrued to the appellant, as an :-3-: ITA. No:286/Chny/2019 individual, the return filed in his capacity as individual, admitting the said income, would not be a valid return, and in such circumstances, the provisions of self-assessment u/s. 140A are not attracted, as rightly contended by the appellant before him, in the facts and circumstances of the case and in law. The learned CIT(A) ought to have held that the AO did not have any direction whatsoever, in terms of proviso (b) to section 240 of the Act, as there cannot be an estoppel against the statute as held by the Bombay High Court, in the case of Nirmala L Mehta (269 ITR 11 ), in the facts and circumstances of the case and in law. For these and other· additional grounds of appeal that may be adduced at the time of hearing, the order of the CIT(A) is opposed to law and unsustainable in the facts and circumstances of the case. Prayer The appellant prays to consider the submissions favorably and seeks your leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground mentioned herein above at or before the time of hearing. AU the aforesaid grounds of appeal are independent, in the alternative and-without prejudice to on another.”

The Ld. Counsel for the assessee, submitted that when the AO has assessed impugned capital gains derived from sale of agricultural land in the hands of HUF, as per the directions of the Tribunal, then he ought to have refunded entire amount :-6-: ITA. No:286/Chny/2019 of tax paid by the assessee or adjusted against taxes payable by the HUF.

The Ld. DR, on the other hand referring to provisions of section 240(b) of the Act, submitted that as per said provisions, refund if any of amount on annulled assessment can be issued, over and above the tax paid by the appellant on returned income. Therefore, there is no error in the action of the AO in withholding tax paid by the assessee. However, he fairly agreed that, since the AO has assessed income in the hands of HUF, a direction may be given to adjust refund due to the assessee against payment in the hands of HUF.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee has sold an agricultural land and claimed that said land is outside the scope of capital asset as defined u/s. 2(14) of the Act and is not liable to capital gain tax. The AO has reopened the assessment u/s. 147 of the Act, and in response to 148 notice the assessee has declared capital gains arising out of sale of land in the individual capacity. The :-7-: ITA. No:286/Chny/2019 tribunal while deciding the issue has held that capital gains computed by the AO on land sold by the appellant is owned by HUF, but not the assessee. Therefore, annulled the assessment order passed by the AO and given a liberty to the Assessing Officer to proceed in accordance with law, on HUF to assess the capital gains, if any arising out of sale of land if limitation prescribed u/s. 151 of the Act permits. The AO passed consequential order giving effect to tribunal order and reduced income assessed to nil. However, withhold tax paid by the assessee in terms of provisions of section 240(b) of the Act. Further, the AO reopened the assessment of HUF and assessed capital gain derived from sale of agricultural land. According to the AO, as per provisions of section 240(b) of the Act , where by an order, the assessment is annulled, a refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee.

We find that the AO grossly erred in invoking the provisions of section 240(b) of the Act, because if at all the tribunal held that capital gain derived from sale of impugned :-8-: ITA. No:286/Chny/2019 land is assessable in the hands of the assessee, but for some reason annulled the assessment, then the AO is right in invoking provisions of section 240(b) of the Act. But fact remains that since the tribunal has held that impugned land is not hold by the appellant, and held by HUF, and capital gain if any, is assessable in the hands of the HUF and also the AO assessed the capital gains arising out of sale of agricultural land in the hands of HUF, in our considered view, he cannot invoke provisions of section 240(b) of the Act and withhold tax paid by the assessee, because the entire income arising out of land is assessed in the hands of HUF and consequent tax paid by the assessee on said income needs to be refunded. Therefore, we direct the AO to issue refund due to the assessee on tax paid in respect of capital gains arising out of sale of agricultural land. We further, direct the AO to adjust refund due to the assessee against payment created in the hands of HUF because income pertains to land has been assessed in the hands of HUF only. We made it clear that we have not examined taxability of income in light of provisions of section 2(14) of the Act in the hands of the HUF and the AO :-9-: ITA. No:286/Chny/2019 cannot construed that the Tribunal has decided the issue on taxability of capital gains in the hands of HUF for any purpose.