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Income Tax Appellate Tribunal, JAIPUR BENCH ’SMC’, JAIPUR
Before: SHRI SHRI VIJAY PAL RAOvk;dj vihy la-@ITA No. 96/JP/2017
This appeal by the assessee is against the order dated 06.09.2016 of ld. CIT (Appeals), Kota for the assessment year 2008-09. The assessee has raised the following grounds of appeal :-
“ 1. That on the facts and in the circumstances of the case, the lower authorities grossly erred in making an addition of Rs. 30,670/- on account of commission received when no such commission was received by the assessee.
2. That on the facts and in the circumstances of the case, the ld. Lower authorities grossly erred in not giving the benefit of deduction u/s 54 of the Income Tax Act for investment done by the assessee on account of purchase of residential land and construction done thereon and erred in calculating Long Term Capital Gain at Rs. 17,18,348/-.
3. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.”
Ground No. 1 is regarding an addition of Rs. 30,670/- on account of commission received.
The assessee is an Individual and proprietor of M/s. Cap-A-Pie Beauty Parlour, Mohali (Punjab). The assessee filed her return of income on 2nd September, 2008 declaring total income of Rs. 1,56,693/-. The same was processed under section 143(1) of the IT Act. Subsequently the AO reopened the assessment by issuing notice under section 148 on 06.01.2010 to assess the long term capital gain arising from sale of property. The proceedings under section 147/148 were dropped by the AO on 09.03.2010 when the assessee explained in reply to the said notice that the assessee has invested the sale proceeds in purchase of residential plot and construction of house and consequently claimed deduction under section 54 of the IT Act. The AO was satisfied with the said explanation and consequently dropped the proceedings under section 147/148 of the IT Act. Whereafter, the Commissioner of Income Tax invoked the provisions of section 263 and observed that the proceedings dropped by the AO are erroneous and prejudicial to the interests of the revenue as after issuing notice under section 148 the AO ought to have completed the assessment instead of dropping the proceedings when there was no illegality in the notice issued under section 148. Thus the ld. CIT vide order dated 7th March, 2012 directed the AO to re-issue the notice under section 148 and complete the reassessment proceedings. Consequently the AO again initiated the proceedings under section 147/148 and passed the assessment order under section 143(3) read with section 263 of the IT Act. In the return of income filed in response to the notice under section 148 the assessee reduced the income by a sum of Rs. 30,670/- on account of commission received. The assessee explained before the AO that since the said amount was offered to tax for the assessment year 2007-08, therefore, it is subjected to double taxation as offered to tax for the year under consideration inadvertently. Therefore, the assessee contended that to rectify the said mistake the assessee has reduced the returned income by Rs. 30,670/- as the said income on account of commission was neither accrued nor received for the year under consideration and it was already offered to tax in the preceding assessment year.
The AO added the said amount to the total income of the assessee while passing the impugned assessment order. The assessee raised this issue before the ld. CIT (A) but could not succeed. The ld. CIT (A) has held that the assessee had voluntarily filed original return of income and offered this amount to tax then the said amount cannot be reduced in the return of income filed in response to notice under section 148.
Before us, the ld. Counsel for the assessee has submitted that the AO has not disputed the fact that the said amount of Rs. 30,670/- on account of commission received was already offered to tax for the assessment year 2007-08. He has referred to the return of income filed by the assessee for the assessment year 2007- 08 and submitted that the income declared by the assessee includes the said amount of Rs. 30,670/-. The ld. Counsel then submitted that inadvertently the assessee again offered the said amount to tax for the year under consideration while filing the return under section 139(1) of the Act. Therefore, this is an inadvertent mistake to offer the said income to tax which was not liable to tax for the year under consideration. The ld. Counsel thus contended that though the proceedings under section 147/148 are for the benefit of the revenue and not for the benefit of assessee, however, when there is no real income of Rs. 30,670/- for the year under consideration and it is only due to inadvertent mistake of the assessee the same was offered to tax then the assessee has rectified the said mistake in the return of income filed in response to notice under section 148 of the Act. In support of his contention, he has relied upon the decision of Hon’ble Supreme Court in case of Goetze India Ltd vs. CIT, 284 ITR 323 (SC) as well as decision in case of NTPC vs. CIT, 229 ITR 383 (SC) and submitted that even if the AO has no jurisdiction to accept the claim of the assessee, there is no bar for the appellate authority to entertain the claim. Thus the ld. Counsel has submitted that the AO is duty bound to assess the correct income to tax and shall not take the advantage of any mistake committed by the assessee in offering wrong income to tax.
On the other hand, the ld. D/R has submitted that the assessee has declared this income in the return of income filed under section 139 and, therefore, except the revised return of income, the assessee is not allowed to reduce the returned income while filing the return in response to notice under section 148 of the Act.
She has relied upon the orders of the authorities below.
Having considered the rival submissions as well as the relevant material on record, it is noted that so far as the double taxation of the said income of Rs. 30,670/- is concerned, there is no dispute that the assessee had already offered the said income to tax for the assessment year 2007-08. However, since the assessee has offered this income to tax in the return of income filed under section 139(1), then even if there is a mistake on the part of the assessee to offer this income to tax, the said mistake can be rectified either by filing the revised return of income or by filing a rectification application under section 154 of the Act. The facts remain that the said income has been taxed twice due to inadvertent mistake of the assessee. Instead of taking the remedial action under section 139(5) or under section 154 of the IT Act, the assessee attempted to rectify the said mistake by reducing the returned income in the return filed in response to notice under section 148 of the Act. Legally and technically the said action of the assessee is not permissible due to the reason that the reassessment proceedings are not for the benefit of the assessee but the same are for the benefit of revenue as held by the Hon’ble Supreme Court in case of CIT vs. Sun Engineering Works Pvt. Ltd., 198 ITR 297 (SC). However, once this fact of inadvertent mistake to offer the said income to tax was brought to the notice of the AO, the AO was under obligation to take the necessary steps under section 154 to correct the said mistake in the return of income filed under section 139(1) of the Act. Since it is not a claim of deduction made by the assessee in the return of income filed in response to notice under section 148, therefore, it would not amount to claim any benefit in the said return which was not claimed in the return of income filed under section 139(1) of the Act but it is only a rectification of a bonafide mistake and, therefore, the AO was required to assess only the correct income for the year under consideration and not to take the advantage of the mistake committed by the assessee. Hence in view of the fact that the income of Rs. 30,670/- on account of commission received from the Insurance Company was already offered to tax for the assessment year 2007-08, the same cannot be taxed for the year under consideration. Accordingly to that extent the assessment order is required to be rectified under section 154 and the amount of Rs. 30,670/- shall be deleted from the total income of the assessee. The AO is directed accordingly.
Ground No. 2 is regarding rejecting the claim of deduction under section 54 of the IT Act.
The assessee has sold a residential house at Kota during the year under consideration and also claimed to have purchased a plot of land at Mohali (Punjab) for a consideration of Rs. 10,00,000/- and stamp duty of Rs. 70,000/- total amounting to Rs. 10,70,000/-. The assessee also claimed that she has constructed a house on the said land through a builder and incurred the expenditure on construction of the house of Rs. 7,50,000/-. The AO has denied the claim on the ground that the assessee has failed to establish that the house was constructed within the stipulated time period provided under section 54 of the Act. The AO has also doubted the source of the fund for construction of the house. The assessee challenged the action of the AO before the ld. CIT (A) but could not succeed.
Before us, the ld. Counsel for the assessee has submitted that the assessee produced the sale deed by which the assessee has purchased the residential plot of land at Mohali as well as an agreement entered into with the Developer who has constructed the house. The assessee has also produced the Valuation Report in support of the cost of construction. Therefore, the assessee has established the claim of construction of house within the period stipulated under section 54 of the Act. The ld. Counsel has also referred the return of income and the computation of income filed under section 139(1) of the Act and submitted that the assessee has given all these details of purchase of plot of land and construction of house at the time of filing of original return of income. Therefore, the denial of the claim by the AO by doubting the construction of the house without conducting any enquiry is not justified. He has also referred to the Balance Sheet and submitted that the assessee has also shown these investments as well as the capital account of the assessee wherein the surplus is shown. Thus the claim of deduction under section 54 of the Act is justified.
On the other hand, the ld. D/R has submitted that the AO as well as the ld. CIT (A) has pointed out the fact that there is no independent documentation to prove that the construction was completed within a short period of 50 days. The affidavit filed by the assessee cannot be accepted as proof of construction of house.
She has relied upon the orders of the authorities below.
I have considered the rival submissions as well as the relevant material on record. At the outset, it is noted that the AO has not disputed the purchase of residential plot by the assessee at Mohali vide sale deed dated 4th February, 2008.
The AO as well as the ld. CIT (A) has doubted the claim of construction of house by the assessee on the said residential plot. The claim was denied mainly on two reasons that the assessee has claimed to have constructed a house within a short period of 2 months through a contractor and secondly the assessee has failed to explain the source of cost of construction. The AO has pointed out that there is no withdrawal of cash from the bank account of the assessee to establish that the assessee has incurred the said amount of Rs. 7,50,000/- for construction of the house. In the course of argument, the ld. Counsel for the assessee has pointed out that the assessee has withdrawn the cash of Rs. 7,00,000/- on 30th January, 2008 and further an amount of Rs. 1,00,000/- on 2nd February, 2008. He has referred to the bank account of the assessee with Punjab National Bank, Jalandhar. From the details of the bank account, it is clear that there is an withdrawal by the assessee of Rs. 8,00,000/- on two days and, therefore, the said amount of Rs. 8,00,000/- withdrawn by the assessee from her bank account clearly explained the cost of construction of house incurred by the assessee. Thus the said ground of the AO is contrary to the record and fact that the assessee has duly withdrawn the cash from the bank to meet the construction expenditure. Further, it is to be noted that the assessee is required to complete the construction of the house within a period of three years after the date of sale. Therefore, even if it is presumed that the assessee’s house construction could not be completed within a short span of two months and it took more than that time, once the construction could have been completed within three years from the date of sale of existing asset, the claim of the assessee is eligible. The AO has not conducted any enquiry to dispute the claim of existence of the residential house. Once the house was actually constructed after purchasing of the plot of land, then the construction is possible only after the said purchase vide sale deed dated 4th February, 2008. Hence once the assessee has brought on record the evidence to show that the house was in existence and the plot of land was purchased vide registered sale deed, then in the absence of contrary material to disprove the said fact, the claim of the assessee cannot be denied merely on suspicion and conjectures. The funds for construction of the house were also explained by the assessee through her bank account and, therefore, the said objection of the AO is also contrary to the facts emerging from record.
Accordingly when there was sufficient time with the assessee to complete the construction then the claim of the assessee that the house was constructed within a short period cannot be a reason for denial of the claim under section 54 of the Act.
Accordingly the orders of the authorities below are quashed and the claim of the assessee under section 54 of the Act is allowed.
In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 17/09/2019.