KETAN N. SHAH (HUF) ,VAPI vs. THE INCOME TAX OFFICER, WARD-5, VAPI

“1. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in enhancing addition made by Assessing Officer by considering Long Term Capital Gain of Rs.1,98,97,695/- on account of sale of unlisted equity shares held for more than 12 months as Short-Term Capital Gain.

It is therefore prayed that the above addition/disallowance made by the assessing officer and confirmed by CIT (Appeals) may please be deleted.

Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”

Brief facts of the case are that assessee is a Hindu Undivided Family (HUF), filed its Return of Income for A.Y. 2013-14 through its Karta, Dr. Ketan N.Shah. The assessee while filing Return of Income for assessment year under consideration disclosed its source of income from house property, business income, capital gain and interest income. The Return of Income was selected for scrutiny. The assessment was completed under section 143(3) on 25.03.2016. The learned Assessing Officer(AO) while making assessment, noted that assessee has sold shares of Khusa Healthcare Private Limited (KHCPL) for a consideration of Rs.2,13,53,696/-. The assessee declared Long Term Capital Gain(LTCG) of Rs.1,96,08,953/-, out of which the assessee paid LTCG tax of Rs.2,32,967/- and claimed deduction on rest of the amount i.e. Rs.1,93,75,986/-. The assessee further claimed that it has invested Rs.1.76 crore in capital gain account with Bank of Baroda and remaining Rs.35 lakhs was invested in purchase of residential property with M/s. Samanvay 2 Ketan N. Shah (HUF) Vs. ITO, A.Y.2013-14 Park (builder), on which the assessee claimed deduction under section 54F of the Act.

The AO in order to ascertain the claim of assessee under section 54F of the Act, issued notice under section 133(6) to the M/s. Samanvay Park (builder) on 12.02.2016. In response to the notice of the AO, the partner of Samanvay Park, vide its reply dated 17.02.2016 stated that assessee had booked flat no.301 to 308 and 401 to 408 in a “C” building of Samanvay Park Project, Vapi and paid Rs.14 lakhs on 27.08.2012 and Rs.21 lakhs on 28.08.2012 and furnished the copy of the receipt. It was also stated that construction in block “C” building, wherein the assessee booked the flats were gradually postponed were not constructed till date. On receipt of reply, the AO again issued show cause notice to the assessee vide notice dated 15.03.2016 as to why deduction claimed under section 54F of the Act should not be disallowed. The assessee filed its reply dated 15.03.2016. The contents of reply of assessee is extracted by AO in para 5 of assessment order. In the reply, the assessee in sum and substance stated that assessee has a big joint family and require a big house to accommodate its family. The two or more residential houses purchased can be classified as a single residential house and allowablefor exemption under section 54F of the Act. The assessee also explained that the language used in this section i.e., the words “a residential house” can contain more than one residential unit and can be considered “a residential house”. The assessee also relied on various case laws.

The contention of assessee was not accepted by AO. The AO disallowed the deduction under section 54F of the Act by taking view that Karta of assessee is one of the partners in the project undertaken by Samanvay Park. The assessee failed to prove that it has rightly claimed the deduction under section 54F of the Act. Neither the assessee nor builder produced any evidence to substantiate that either the assessee or the builder try to get the approval of competent authorities to make the Pent House by converting eight (08) units of a flats in one residential house.

On the basis of aforesaid contention of assessee wherein the assessee accepted that on sale of share of KHCPL, the capital gain would be Short Term Capital Gain, the Ld. CIT(A) made enhancement and the assessee was held not be entitled for deduction under section 54F. Resultantly, the deposit of Rs.1.76 crore in capital gain account and deduction under section 54F of the Act of Rs.35 lakhs were treated invalid. Further aggrieved the assessee has filed present appeal before us.

We have heard the submission of ld. Authorised Representative (AR) of the assessee and the ld. Senior Departmental Representative (DR) of the Revenue and perused the orders of the lower Authorities carefully. Ground No’s.1 to 3 relates to enhancement by way of treatment of capital gain as Short Term Capital Gain in place of Long Term Capital Gain. The AR of the assessee submits that assessee sold shares of KHCPL for a total consideration of Rs.2.13 crores and declared LTCG of Rs.1.98 crore. The assessee held those shares for more than 12 months. The assessee claimed exemption of Rs.1.76 crore by investing/depositing the amount in capital gain account with Bank of Baroda. The assessee further claimed exemption under section 54F on investment of Rs.35 lakhs for booking of residential house. Initially, the AO disallowed exemption under section 54F of the Act of Rs.35 lakhs by taking view that assessee has invested the amount in multiple units and the builder has not completed the Ketan N. Shah (HUF) Vs. ITO, A.Y.2013-14 construction of property within three (03) years. The ld.CIT(A) the enhanced the assessment by holding that shares of unlisted company were sold by the assessee. The holding period of the shares were not for more than 36 months, therefore, none of the exemption claimed assessee would be allowable.

The AR of the assessee submitted that during the first appellate proceedings, the AR, who represented the assessee made an admission inadvertently and under mistake of law. The said AR of the assessee admitted that assessee earned Short Term Capital Gain(STCG) only. The admission was made on bonafide misconception of Law. The bonafide misconception of Law is not binding on the assessee. In support of his submission, the learned AR for assessee relied upon the decision of Hon'ble Supreme Court in the case of Central Counsel for Research in Ayurveda & Siddha Vs. K. Santa Kumari reported by [2001] GLHEL-SC 4576 and Hon'ble Madras High Court in DCIT Vs. K.S.Suresh [2009] 319 ITR 1 (Madras).

The ld.AR of the assessee further submits that as per first proviso to section 2(42A) as applicable for the year under consideration the qualifying period of holding of share were only 12 months. The ld.CIT(A) decided the issue by considering general provision of STCG without reference to specific provision prescribed in first proviso to section 2(42A). The AR of the assessee also furnished a comparison of amended provisions of section 2(42A) in tabular form as amended by Finance Act Ketan N. Shah (HUF) Vs. ITO, A.Y.2013-14

On Ground No.4, which relates to exemption under section 54 of the Act, the learned AR for assessee submits that the assessee furnished the confirmation and receipt of the payment with builder and agreement to Ketan N. Shah (HUF) Vs. ITO, A.Y.2013-14 sale the assessee also furnished documents to substantiate that a multiple unit booked by assessee. The assessee requested for conversion of all units booked by it for converting into one unit for the requirement of big joint family. To buttress his submissions he relied on the decisions of Ahmedabad Tribunal in Mohammadanif Sultanali Pradhan Vs. DCIT in dated 06.01.2020, Suhas Vasantrao Joshi Vs DCIT ITA No. 1750/Ahd/2016 and Bangalore Tribunal in TAV Gupta Vs ITO [2018] 93 taxmann.com249 (Bangalore -Trib) and decision of Karnataka High Court in CIT Vs. Shri D. Ananda Basappa [reported in 180 Taxman 4]. The Ld. AR for the assessee finally prayed that ld. CIT(A) on account of wrong presumption of law issued enhancement notice and treated the LTCG as STCG on the concession/admission by AR of the assessee. The admission on the basis of misconception of law or the concession made by counsel is not binding on the assessee, when the assessee is entitled for benefits of LTCG as well as deduction under section 54F.

On the other hand, the DR for the Revenue submits that the Representative of the assessee voluntarily accepted that it was a bonafide mistake on the part of the assessee to claim LTCG. The assessee offered the capital gain as STCG in place of LTCG, which was accepted by ld. CIT(A) resultantly, the LTCG was treated as STCG and accordingly deduction on account of deposit in capital gain account and under section 54F automatically have gone. The assessee at this stage should not be allowed to resile from his stand. The ld. DR prayed for dismissal of the appeal. 8 Ketan N. Shah (HUF) Vs. ITO, A.Y.2013-14

We have considered the rival submission of the parties and perused the material available on record. There is no dispute that assessee in the return of income claimed LTCG on sale of certain shares of KHCPL as noted above. The assessee deposited part of capital gain under capital gain scheme in the Bank of Baroda and part of the LTCG was invested for purchase of residential house. Initially, the AO disallowed exemption under section 54F of the Act by taking view that Karta of assessee is one of the partners in the project undertaken by Samanvay Park. And that the assessee failed to prove that it has rightly claimed the deduction under section 54F of the Act has neither the assessee nor builder produced any evidence to substantiate that either the assessee or the builder try to get the approval of competent authorities to make the pent house by converting eight (08) units of a flats in one residential house.

Aggrieved by the action of the AO, the assessee challenged the disallowance of 54F before ld. CIT(A). The ld.CIT(A) issued show cause notice for enhancement by taking view that assessee held share of unlisted company for a period of less than 36 months and that the capital gain earned by assessee on sale of such shares is STCG and not LTCG. We have noted that in reply to the show cause notice of enhancement, the Representative of the assessee admitted that due to bonafide mistake, the capital gain was treated as LTCG in place of STCG. On the admission on behalf of assessee, the ld. CIT(A) made enhancement and treated LTCG as STCG and accordingly deduction on account of deposits in capital gain Ketan N. Shah (HUF) Vs. ITO, A.Y.2013-14 account in Bank of Baroda and exemption under section 54F of the Act was also denied.

Before us, the Ld. AR of the assessee vehemently submitted that admission by the representative of assessee on misconception of law is not binding on the assessee. The assessee was clearly eligible for LTCG as per first proviso to section 2(42A) applicable for the A.Y. 2013-14. We are in agreement with the submissions of learned AR of the assessee that there cannot be any estoppel against the Law. The admission made under misconception of Law is not binding on the assessee.

We are also conscious of the fact that in normal course, a party who made a concession by making admission before statutory authority cannot be allowed to resile from it in appellate stage, however, under certain exceptional circumstances, when such admissions made on a wrong appreciation of law which had led to gross injustice, then in such cases, the appellate court can permit the party in appropriate cases to resile from a concession on such exceptional grounds. The established legal position, however, remains that there can never be a concession made at the instance of counsel on a wrong appreciation of law on the principle that there can never be an estoppel against the statute.

The Hon’ble Supreme Court in Central Council for Research in Ayurveda and Siddha v. Dr. K. Santhakumari (AIR 2001 SC 2306) held that an admission or concession by a counsel made inadvertently or under a mistaken impression of law will not only bind on his client, but also the Ketan N. Shah (HUF) Vs. ITO, A.Y.2013-14 same cannot enure to the benefit of the other party. Thus, we allow the plea of assessee to resile from his admission made before ld.CIT(A).

Now adverting to the other submissions of the learned AR of assessee that first proviso to section 2(42A) is applicable for A.Y.2013-14 and that the holding period of share of a company for 12 months was qualified for LTCG. We have noted that these aspects were not considered by ld.CIT (A) as the assessee in response to the show cause to enhancement accepted that LTCG was wrongly claimed by assessee.

Article 265 of the Constitution of India mandate that no tax can be levied without the authority of law. Keeping in view the submissions of learned AR for the assessee that first proviso of section 2(42A) as applicable for the year under consideration, the 12 months holding period was sufficient for claiming LTCG and that first appellate authority on the admission of AR of the assessee has wrongly treated the LTCG. We find convincing force in the submission of AR of the assessee that first proviso to section 2(42A) was applicable, though the ld.CIT(A) has not considered these provisions, as we have already accepted the contention of AR of the assessee that admission on behalf of assessee was made under bonafide misconception of Law, therefore, we set-aside the order of ld.CIT(A) and restore the matter to the file of ld.CIT(A) to consider the contention of assessee as raised before us, which we have recorded in earlier paras, and decide the issue afresh in accordance with law. Needless to order that before passing the order the ld CIT(A) shall grant opportunity of hearing to the assessee. The assessee is also directed to provide all the necessary 11 Ketan N. Shah (HUF) Vs. ITO, A.Y.2013-14