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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Per Pramod Kumar, Vice President :
These cross appeals are directed against the order dated 30th November 1. 2015, passed by the CIT(A) in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2012-13.
Grievances raised by the parties, which are interconnected and which we will take up together, are as follows:-
ITA Nos. 461 & 512/Ahd/2016 ITO Vs. Natwarbhai J Patel-cross Assessment Year : 2012-13 Page 2 of 11 Grounds of appeal:- ITA No. 461/Ahd/2016 – by Department
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deductions u/s 54B of Income tax Act, 1961 to the assessee without appreciating the facts on record that all the conditions are not fulfilled by the assessee to be eligible for claiming deductions u/s 54B of Income-tax Act, 1961.
ITA No. 512/Ahd/2016 – by assessee
The learned Commissioner of Income Tax (Appeals) - 5, Vadodara ["the CIT(A)"] erred in fact and in law in confirming the action of Income Tax Officer, Ward 1(2)(4), Baroda ["the AO"] in adopting the sale value of the property at Rs. 2,75,14,000 for the purpose of computation of capital gain. 2. The learned District Valuation Officer ("DVO") erred in fact and in law in valuing the land at Rs. 2,75,14,000 instead of Rs. 2,64,00,000.
The learned CIT (A) erred in fact and in law in confirming the action of the AO of computing sale consideration of land at Rs. 1,37,57,000 (being 50% of Rs.2,75,14,000) instead of Rs.1,00,00,000 and thereby increasing the amount of capital gains chargeable to tax in the hands of the Appellant.
The learned CIT(A) erred in fact and in law in confirming the action of the AO holding that the entire sale consideration has been received by the Appellant despite the fact that an amount of Rs. 64,00,000 was received by confirming parties and therefore the said amount cannot be taxed in the hands of the Appellant. 5. In the alternative, the AO may be directed to grant deduction of an amount of Rs.64,00,000 being expenses incurred wholly and exclusively for the purpose of transfer u/s. 48(i) of the Act while computing the capital gains chargeable to tax.
The learned CIT(A) erred in fact and in law in confirming the action of AO in charging interest u/s. 234A of the Act.
The learned CIT(A) erred in fact and in law in confirming the action of AO in charging interest u/s. 234B of the Act.
The learned CIT(A) erred in fact and in law in confirming the action of AO in initiating penalty proceeding u/s 271(1)(c) of the Income Tax Act, 1961 (the Act).
To adjudicate on this appeal, a few material facts need to be taken note of. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has, alongwith a co-owner, sold agricultural land on 30.03.2012. The sale deed showed the sale consideration at Rs.2,64,00,000/-, but the stamp
ITA Nos. 461 & 512/Ahd/2016 ITO Vs. Natwarbhai J Patel-cross Assessment Year : 2012-13 Page 3 of 11 duty valuation authority had assessed its value at Rs.3,15,68,600/- for the purpose of computing stamp duty. When the assessee was asked about his taking into account the capital gains on this sales, the assessee pointed out that he did not have any capital gains tax liability in respect of the aforesaid transaction. The computation of capital gains was shown as follows:-
Sale Value of the property (50% share) : Rs.1,00,00,000/- Less : (Cost of acquisition etc) Indexed Cost of Acquisition : Rs.37,13,898/- Balance : Rs.62,86,102/-
Less: Investment in purchase of Agricultural Land u/s 54B of the IT Act : Rs.62,86,102/-
Capital Gain : Nil
It was further explained that the purchaser had paid Rs.64,00,000/- to the confirming parties, i.e. Smit Sharmishthaben Ratilal Shah (Rs.40,00,000) and Shri Vrijeshbhai V. Patel (Rs.24,00,000) and as such the net consideration received was only Rs.2,00,00,000/-. The assessee’s share thus came to only Rs.1,00,00,000/-. So far as qualifying investments under section 54B are concerned, the assessee submitted copies of agreements to purchase agricultural land at Rs.25,55,125/- and Rs.40,24,600/-. As regards the assessee being confronted with stamp duty valuation of Rs.3,15,68,600/-, the assessee did not dispute the same but requested that the matter be referred to the Departmental Valuation Officer. The value of land, as per DVO’s report, turned out to Rs.2,75,14,000/-. It was in this backdrop that the Assessing Officer adopted the sale consideration (being 50% of the total sale consideration) at Rs.1,37,57,000/- - as against Rs.1,00,00,000/- disclosed by the assessee. After allowing deduction for indexed cost of acquisition at Rs.37,13,898/-, as was claimed by the assessee, the Assessing Officer computed capital gains at Rs.1,00,43,102/-. The exemption under section 54B was declined. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without complete success. As regards the action of the Assessing Officer in adopting the value of the property as per the DVO’s report, the CIT(A) upheld the same. However, as regards the claim of exemption under section 54B even though the assessee had only entered into an agreement of purchasing the land, the CIT(A) upheld the claim of the assessee by observing as follows:-
“6.3 I have considered the facts and the circumstances of the case, the observations of the Assessing Officer, the submissions of the assessee, material available on the records and relevant judicial pronouncements on the subject. The issue is directly covered by the decision of Hon'ble ITAT, Ahmedabad in the case of Ashok Kapasiawala vs ITO (2015) TaxCorp (A.T.) 43358 (ITAT-AHWIEDABAD) in ITA No. 2692/Ahd/2014, where Hon'ble ITAT has held as under on the issue- "6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the case-Jaw relied upon by the Id. Counsel for the
ITA Nos. 461 & 512/Ahd/2016 ITO Vs. Natwarbhai J Patel-cross Assessment Year : 2012-13 Page 4 of 11 assessee. The only question which needs to be decided is whether the assessee is entitled for deduct/on u/s. 54F of the Act under the facts and circumstances of the present case. Before adverting to the rival contentions, it would be appropriate for the sake of clarify to reproduce the relevant provisions of section 54F of the Act.
6.1 A combined reading of section 54F (1) and 54F(4) of the Act, it is evident that the assessee would be entitled for exemption / deduction u/s. 54FR of the Act in the event he purchases new asset within one year from the date of transfer of original asset or the amount is utilized before the date of furnishing the return u/s. 139 of the Act. In a case it is not utilized for the purpose of aforesaid and the period aforementioned section 54F(4) mandates the assessee to deposit such amount before due date of filing of return u/s. 139(1) of the Act Therefore, there is no ambiguity in the provision so far deposit of the unutilized amount is concerned, it has to be deposited in a specified capital gain account before the due date of filing of return u/d. 193(1) of the Act. The question which is required to be examined whether the assessee has utilized the amount before the time limit prescribed for such purpose or if not whether the amount was deposited in the manner prescribed u/s.54F(4) in the present case, the undisputed facts are that the original asset was transferred on and the new asset was purchased on 05.10.2009. The assessee had not fried income-tax return u/s. 139(1) so that matter u/s. 139 of the Act. It was only in response to notice u/s. 148 of the act dated 27.03.2012 the assessee fifed return on 30.04.2012. The contention of the assessee is that the amount was utilized before due date of fifing of return. As per assessee, the period as prescribed under section 54F(4) for deposit in the capital gain account should be reckoned from the due date of fifing of return u/s. 139(4) of the Act. In support of this contention, Id. Counsel for the assessee relied on the judgment of Hon'ble Punjab & Haryana High Court rendered in the case of CIT vs. Jagtar Singh Chawla and judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. K. Ramachandra Rao. The Hon'ble High Court of Punjab & Haryana held as under;-
"In the case of Fathima Bai vs. ITA No. 435 of 2004 it was held that the extended due date u/s. 139(4) would be 31.03.1990. The assessee did not fife the return within the extended due date. However, the assessee had utilized the entire capital gains by purchase of a house property within the stipulated period of section 54(2) i.e. before the extended due date for return u/s.139. The assessee technically may have defaulted in not filing the return u/s. 139(4). But, however, utilized the capital gains for purchase of property before the extended due date u/s. 139(4). The contention of the revenue that the deposit in the scheme should have been made before the initial due date and not the extended due date was held to be an untenable contention, in the present case, the assessee had proved the payment of substantial amount of sale consideration for purchase of a residential property on
ITA Nos. 461 & 512/Ahd/2016 ITO Vs. Natwarbhai J Patel-cross Assessment Year : 2012-13 Page 5 of 11 or before 31.03.2008, that was within extended period of limitation of filing of return. Only a sum of 24 lacs was paid out of total safe consideration on 23.04.2008, though possess/on was delivered to the assessee on execution of the power of attorney on 30.3.2008. Since the assessee, he acquired a residential house before the end of the next FY in which safe had taken place, therefore, the assessee is not liable to pay any capital gain. Such was the view taken by the ITAT. In view of the above, no merit was found in the appeal.”
6.2 The Hon'ble Karnataka High Court in the case of CIT vs. K. Ramachandra Rao (supra) answered the question in favour of assessee i.e. when the assessee had invested the entire sale consideration in construction of a residential house within the three years from the date of transfer. Could he be denied exemption under section 54 F on the ground that he did not deposit the said amount in capital gain account-scheme before the due date prescribed u/s. 139(1) of the Act. The Hon'ble High Court of Karnataka High Court held as under:
"As it clear from Sub-section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in section 54F(1), if the assessee wants the benefit of Section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words if he want of claim exemption from payment of Income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct."
6.3 In the present case, the assessee purchased new asset on 05.10.2009 and had transferred the original asset on 8.01.2008. As per Section 54F (1) of the Act, the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place. As per the judgment of Hon'ble Karnataka High Court, the provisions of section 54F(4) would not be attracted in the event if the assessee has purchased or constructed the residential house within the period prescribed under section 54(1) of the Act. In the case in hand, there is no dispute with regard to the fact that the assessee had purchased within two years [the period prescribed u/s. 54[F(1)] a new asset on 05.10.2009 from the date of transfer of the original asset The Revenue has not cited or placed on record any contrary Judgment by the Hon'ble Jurisdictional High Court
ITA Nos. 461 & 512/Ahd/2016 ITO Vs. Natwarbhai J Patel-cross Assessment Year : 2012-13 Page 6 of 11 or Hon'ble Supreme Court. Therefore, respectfully following the ratio laid down by the Hon'ble Karnataka High Court in the case of CIT vs. K. Ramachandra Rao (supra), we hereby set aside the impugned order and direct the AO to re-compute the assessed income after granting the benefit of section 54F of the Act to the assessee.”
The case of the assessee is essentially similar to the case of Ashok Kapasiawala (supra) decided by Hon'ble ITAT, Ahmedabad. Respectfully following the order of Hon'ble jurisdictional ITAT in the case of Ashok Kapasiawala (supra), the Assessing Officer is directed to allow the benefits of section 54B and 54F of the Act to the assessee while computing the Assessed Total Income of the assessee. The assessee succeeds on this ground of appeal.”
None of the parties is satisfied. While the assessee is aggrieved of the CIT(A)’s upholding the action of the Assessing Officer with respect to gross sale consideration as per DVO’s report, and thus declining deductions in respect of payouts to the consenting parties, the Assessing Officer was aggrieved of the exemption under section 54B being allowed to the assessee even though only an agreement to purchase was entered into. Both the parties are in appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
One of the points that the learned counsel has taken before us is that since the valuation made by the DVO is within tolerance band of 15%, no cognizance should be taken of the DVO’s report. This plea, however, does not meet our approval. In the case of Heilgers Development & Construction Co Ltd vs. DCIT [(2013) 32 taxmann.com 147 (Kolkata)], a co-ordinate bench, speaking through one of us (i.e. the Vice-President), has observed as follows:-
“7. When a provision for tolerance band is not prescribed in the statute, it cannot be open to us to read the same into the statutory provisions of section 50 C- no matter howsoever desirable such a provision be, even if that be so. What the provisions of section 50C clearly require is that when stated sales consideration is less than stamp duty valuation for the purposes of transfer, the stamp duty value will be subject to the safeguards built in the provision itself, taken as the sales consideration for the purposes of computing capital gains. Casus omissus, which broadly refers to the principle that a matter which has not been provided in the statue but should have been there, cannot be supplied by us, as, to do so will be clearly beyond the call and scope of our duty which is only to interpret the law is it exists. Hon'ble Supreme Court, in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 at has observed : "We have given anxious thought to the persuasive arguments...., (which) if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity. But the language of sections is clear and unambiguous. There is no scope for importing into the statute the words which are not there. Such interpretation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the
ITA Nos. 461 & 512/Ahd/2016 ITO Vs. Natwarbhai J Patel-cross Assessment Year : 2012-13 Page 7 of 11 defect can be remedied only by legislation and not by judicial interpretation. To us, there appears no justification to depart from normal rule of construction according to which the intention of legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt J. in, Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 (KB) at page 71, that: "...in a taxing Act one has to look at merely what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. "Once it is shown that the case of the assessee comes within the letter of law, he must be taxed, however, great the hardship may appear to the judicial mind to be". 8. In any case, this Tribunal is itself a creature of the Income Tax Act and it cannot, therefore, be open to the Tribunal to deal with the question of correctness or otherwise of the provisions of the Income-tax Act. In Gautam's case (supra), Hon'ble Supreme Court were in writ jurisdiction examining the validity of the provisions of Income-tax Act and, therefore, their powers of dealing with the provisions of the Income-tax Act were altogether different in scope and character. The observations made by Their Lordships in Gautam's case, therefore, have no bearing on our decision on this issue. With regard to the observations made in Sampath Iyengar's commentary, suffice to say that while this book was written in 1941 and last edited by the original authors several decades ago the provisions of section 50C are of rather recent origin and whatever comments have been made on the said section are essentially by a gentleman incharge of revising this classical commentary on income tax. With respect, we are not persuaded by his thoughts on this subject. 9. As for the question of, what has been described as, unambiguous scheme of the Income-tax Act and the need of a purposive interpretation in accordance with the said scheme, no doubt there was indeed a school of thought, propounded by a person no less than Lord Denning in the case of Seaford Court Estates Ltd. v. Asher (2 AER 155 @164 ), wherein it was observed that, "...when a defect appears, a judge cannot simply fold his hands and blame the draftsmanship, He must set out to work on the constructive task of finding the intention of parliament., and then must supplement the written word so as to give 'force and life' to the intent of the legislature...", but this school of thought has been rejected by the subsequent English decision as also by decisions from our own Supreme Court. In this regard, we can do no better than to quote the following observations made by this very bench of the Tribunal over a decade ago, in the case of Tata Tea Ltd. v. CIT [2003] 87 ITD 356/129 Taxman 25 (Kol.)(Mag.) wherein speaking through one of us (i.e. the Accountant Member), the Tribunal had observed as follows : ...It has been recognized by the Hon'ble Supreme Court, in the case of Petron Engineering Construction (P.) Ltd. v. CBDT AIR 1989 SC 501 that in respect to a matter provision of which may have been desirable but has not been really provided by the legislature, the omission can not be called a defect of the nature which can be cured or supplied by recourse to the mode of construction advocated by Lord Denning in Seaford Court Estates Ltd. case (supra).
ITA Nos. 461 & 512/Ahd/2016 ITO Vs. Natwarbhai J Patel-cross Assessment Year : 2012-13 Page 8 of 11 9. As for the Lord Denning's observations in the Seaford Court Estates Ltd. (supra), which have been heavily relied upon by the learned counsel, we wish to make same observations. The House of Lords itself, in a later judgment in the matter of Magor & St Mellons Rural District v. Newport Corpn. [1951] 2 All. ER 839, did not approve the proposition advanced by Lord Denning. It is interesting to note the articulate expressions of Lord Simonds, supporting the majority view and at page 841 of All England Report Volume 2 (1951), unequivocally and categorically rejecting Lord Denning's theory on the relevance of intent of Legislature: "My Lords, the criticism which 1 venture to make of the judgment of learned lord justice (Denning LJ) is not directed at the conclusion he has reached. It is after all a trite saying that on questions of construction different minds may come to different conclusions.... But it is on the approach of lord justice to which is a question of construction and nothing else. I think it desirable to make some comment, for, at a time when so large a proportion of the cases that are brought before the Courts depend on the construction of modern statutes, it would not be right for this House to pass unnoticed the propositions that the learned lord justice lays down 'for the guidance of himself and presumably others... ...The part which is played in judicial interpretation of a statute by reference to the circumstances of its passing is too well known to need restatement...The duty of the Court in to interpret the words that the Legislature has used. Those words may be ambiguous, but, even if they are, power and duty of the Court to venture outside them on a voyage of discovery are strictly limited; see, for instance, Assam Railways & Trading Co. Ltd. v. Inland Revenue Commissioners (2) and particularly the observations of Lord Wright [1935] AC 458... What the Legislature has not written, the court must write, and fill in the gaps. This proposition, which restates in a new form the view expressed by the lord justice in the earlier case of Seaford Court Estates Ltd. v. Asher (to which lord justice himself refers) cannot be supported. ... It appears to me to be naked usurpation of Legislative function in the thin guise of interpretation and it is less justifiable when it is guesswork with what material the Legislature would, if it had to discover the gap, have filled it in. If a gap is disclosed, the remedy lies in on amending Act..." Lord Denning 's aggressive definition of the power of the Courts, so far as question of casus omissus is concerned, was severely criticized by Lord Simonds and other law lords in the above case. Lord Morton observed that "These heroics are out of place" and pointed of Lord Tucker "Your Lordships would be acting in a legislative rather than judicial capacity of the view put forward by Denning LJ were to prevail" (at page 850). As observed in Cross: Statutory Interpretation (2nd Edition, at page 45), the current tendency among English judges would appear to incline away from the Denning approach. These views are also echoed by Hon'ble Supreme Court of India from time to time. In the case of State of Kerala v. Mathai Verghese AIR 1937 SC 33, Hon'ble Supreme Court has taken a view that the court cannot reframe the legislation for the very good reason that it has no power to
ITA Nos. 461 & 512/Ahd/2016 ITO Vs. Natwarbhai J Patel-cross Assessment Year : 2012-13 Page 9 of 11 legislate. In Jumma Masjid v. Kodiamaniandra AIR 1962 SC 847, at page 850 Hon'ble Supreme Court referred to, with approval, Lord Loreburn's observation, "We are not entitled to read words into an Act of Parliament unless clear reasons for it is to be found within the four corners of the Act itself." Vickers Sons & Maxim Ltd. v, Evans [1910] AC 444 HL, at page 445. Lord Simonds rejection of Denning's approach was cited, with approval, by Hon'ble Supreme Court in the case of Punjab Land & Development Corpn. v. Presiding Officer 1990 (3) SCR 111, at pages 153-54. We leave it at that." 10. We also do not find any merits in assessee's claim of undue hardships being caused to the taxpayers unless a tolerance band is read into the provisions of the section 50C and unless suitable adjustments are required to be made for long time gap between the date of agreement and actual sales. The safeguard built in section 50C does envisage a situation that whenever assessee claims that the fair market value of the property is less than the stamp duty valuation of the property, a reference can be made to the Departmental Valuation Officer and all these issues relating to valuation of the property - either on the issue of allowing a reasonable margin for market variations, or on the issue of making adjustments for agreements having been entered long ago, can be taken up, before the Departmental Valuation Officer and, therefore, subsequent appellate forums as well. The inherent flexibility in this course of action come to the rescue of the assessee particularly in the case of marginal differences but then instead the assessee decided to question very application of Section 50C something which we find to be devoid' of legally sustainable merits.”
Learned counsel’s reliance upon Hon’ble Supreme Court’s judgment in the case of CB Gautam Vs. Union of India [(1993) 199 ITR 530 (SC)] is of no avail either as section 50C was not even in existence at that point. The co-ordinate bench decisions, oblivious of direct binding precedents on the issue, cannot constitute binding judicial precedents either. In this view of the matter, we reject the plea of the assessee. Having held so, however, we may add that in case the assessee has any issues with the DVO’s valuation, he can raise the same before the CIT(A) as the matter is being remitted, for a different reason to be dealt with in the subsequent paragraph, anyway. As we do so, we may refer to the following observations in our order of even date in the case of Lovy Ranka vs. DCIT (ITA No.2107/Ahd/2017):-
“7. What essentially follows from the above provision is that in the event of the correctness of the DVO’s report is called into question in an appeal before the Commissioner (Appeals), the DVO is required to be given an opportunity of hearing. While the above provision refers to valuation under section 16A of the Wealth Tax Act, 1957, the provisions of Section 50 C of the Income Tax Act, 1961, specifically refer to the provisions of Section 16A of the Wealth Tax Act, 1957. Accordingly, a valuation under section 50C(2) is also covered by the requirements of Section 23A(6) which are, as specifically stated in Section 50C, applicable in the present context. The same is the position with respect to the proceedings before this Tribunal. While the correctness of the DVO report can indeed be challenged before us as well, as a corollary to the powers of the CIT(A) which comes up for examination before us, once again
ITA Nos. 461 & 512/Ahd/2016 ITO Vs. Natwarbhai J Patel-cross Assessment Year : 2012-13 Page 10 of 11 the rider is that the Valuation Officer is to be given an opportunity of hearing. This opportunity of hearing to the DVO is a mandatory requirement of law. That is the unambiguous scheme of the law.”
As regards the learned counsel’s plea that the amounts paid to consenting parties are to be allowed as deduction in computation of capital gains, we find that the CIT(A) has summarily rejected this plea but what was essentially required to be examined is whether such payments were necessary for earning the capital gains. That aspect of the matter has not been examined at all. On this point, therefore, we deem it fit and proper to remit the matter to the file of the CIT(A) for adjudication de novo. The assessee is at liberty to raise all the factual and legal issues before the CIT(A). We direct the CIT(A) to decide the matter by way of a speaking order, in accordance with the law and after giving a fair and reasonable opportunity of hearing to the assessee. Ordered, accordingly.
As regards the exemption under section 54B, we find there is no evidence of actual purchase of agricultural land, and all that is available on record are agreements to sell. When the very fact of purchase is not conclusively established, the exemption under section 54B cannot ordinarily be allowed. In any case, there is not even whisper of a discussion on this aspect of the matter in the order of the CIT(A). The judicial precedent relied upon by the CIT(A) does not deal with this aspect of the matter either. In view of these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to vacate the decision of the CIT(A) on this issue and remit the matter to his file for fresh adjudication. While deciding the matter afresh, the CIT(A) will also ascertain the facts about purchase of the land and the fate of the agreements to purchase. The CIT(A) will decide the matter afresh in accordance with the law, by way of a speaking order and after giving a fair and reasonable opportunity to the assessee. Ordered, accordingly.
In the result, both the appeals are partly allowed for statistical purposes in the terms indicated above. Pronounced in the open court today on the 1st April, 2019.
Sd/- Sd/-
Ms. Madhumita Roy Pramod Kumar (Judicial Member) (Vice President) Ahmedabad, the 1st day of April, 2019 *bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order