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Income Tax Appellate Tribunal, H BENCH, MUMBAI
Deputy Commissioner of Income Tax - Vs (CPC), Bangalore, Office of Commissioner of Income Tax (Appeals) – 1, 4th Floor, Room No. 407, Piramal Chambers, Lalbaug, Parel, Mumbai - 400012 Respondent …………….… Appearances For the Appellant/ Assessee : Shri Milin Dattani For the Respondent/Department : Ms. Neha Thakur Date of conclusion of hearing : 22.02.2022 Date of pronouncement of order : 19.05.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 04.06.2019, passed by the Commissioner of Income Tax (Appeals)–1 , Mumbai [hereinafter referred to as „the CIT(A)‟] in appeal [CIT(A)-1/1013/DCIT(CPC)/2018-19] for the Assessment Year 2014-15, whereby the CIT(A) had dismissed the appeal filed by the Assessee against the rectification order, dated 25.09.2018, passed under Section 154 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟].
Assessee has raised the following grounds of appeal:
“1. The learned Commissioner (Appeals) was not justified in confirming the DCIT(CPC)‟s action of rejecting the appellant‟s application u/s 154 of the Income Tax Act, 1961.
2. The learned CIT(A) erred in not accepting the appellant‟s contention that computation of capital gain considering only sale consideration/cost by the DCIT(CPC) is a mistake apparent from the record which can be rectified u/s 154 of the Income Tax Act, 1961.
3. The learned CIT(A) erred in confirming action of the DCIT(CPC) of computing capital gain of Rs. 27,92,265/- as against capital gain of Rs. 12,873/- reported subject exemption u/s 11(1A) in the return of income which is mainly because of adoption of sale proceeds or adoption of cost as the capital gain.
4. The learned CIT(A) erred in relying on the meaning of net sale consideration as explained in explanation (iii) to section 11(1A) for rejecting the appellant‟s claim of deduction of cost of capital assets while working capital gains.”
All the grounds pertain to the same issue and are, therefore, taken up together.
The brief facts of the case are that the Appellant is a charitable trust registered under Section 12A of the Act. The Appellant filed its return of income declaring „Nil‟ income under Section 139(1) of the Act on 30.09.2001 (hereinafter referred to as „the Original Return‟). During the relevant previous year, the Appellant suffered capital loss of INR 64,060/- on account of redemption of units of mutual funds which were purchased for INR 27,76,840/- and were sold for INR 27,12,780/-. The Appellant reported the same in the Income Tax Return in Schedule CG as well Part B-TI. The Original Return was processed by Centralised Processing Centre (CPC) and intimation/order, dated 14.01.2016, was issued under Section 143(1) of the Act determining gross total income at INR 17,92,220/- as against „Nil‟ income returned by the Appellant.
Being aggrieved, the Appellant preferred an appeal before the then Ld. Commissioner of Income Tax (Appeals)-1, Mumbai [hereinafter referred to as „the Predecessor CIT(A)‟] against intimation/order, dated 14.01.2016 who was pleased to allow the appeal, vide order dated 27.08.2018, holding as under:
“4.3 Decision: I have considered the facts of the case and submissions made by the appellant trust. In this case the appellant has e-filed a Nil return of income for the A Y. 2014-15 on 30.09.2014. However, the AO(CPC) while processing the return had taken the full value of sale consideration of Rs.27,12,780/- as income from capital gain as against the loss of Rs 64.060/- shown by the appellant and after adjustments assessed the total income at Rs 17,92.219/-. It is against this action of the A.O., the appellant has filed the present appeal. On perusal of the Return of Income, it is seen in Schedule CG the appellant has shown the full value (of consideration at Rs.27,12,780/- and cost of acquisition at Rs 27,76,840/- thereby there is a short term capital loss of Rs.64,060/-. The contention of the appellant appears to be correct. In view of the above, the AO is directed to verify the facts of the case and re-compute the total income of the appellant as per the provisions of Act. Therefore, the grounds of appeal of the appellant are allowed, subject to verification.
5. In the result, the appeal is partly allowed.” (Emphasis Supplied)
5. However, in the meanwhile on 31.03.2016 the Appellant filed a revised return declaring „Nil‟ income (hereinafter referred to as „the Revised Return‟).
The working of capital gains as offered to tax in the Original Return as compared to the Revised Return was as under:
Short Term Capital Original Return Revised Return Gain (STCG) Sale consideration 27,12,780 5,767 Cost of acquisition 27,76,840 5,761 STCG (-) 64,060 6 Long Term Capital Original Return Revised Return Gain (LTCG) Sale consideration - 27,99,365 Cost of acquisition - 27,86,498 LTCG - 12,867 Capital Gain Original Return Revised Return STCG (-) 64,060 6 LTCG - 12,867 Total Capital Gain (-) 64,060 12,873
The Revised Return was processed by CPC and intimation/order, dated 11.10.2016, was issued under Section 143(1) of the Act determining gross total income at INR 18,01,729/- as against „Nil‟ income returned by the Appellant.
According to the Appellant, the working of Capital Gains as processed by CPC is as under: Intimation under Intimation under Section 143(1), Section 143(1), 14.01.2016 11.10.2016 STCG 27,12,780 5,767 LTCG - 27,86,498 Total Capital Gain 27,12,780 27,92,265
Being aggrieved, the Appellant filed application for rectification under Section 154 of the Act on 13.06.2018 highlighting that while processing the return of income instead of capital gains the amount of sale consideration/cost of acquisition has been included in the total income as capital gains income. The aforesaid application was rejected vide rectification order dated 25.09.2018.
Being aggrieved, the Appellant preferred appeal before the then CIT(A) who dismissed the appeal holding as under:
“6.3 I have carefully considered the facts of the case, oral contentions and written submissions of the assessee, reason of rejection given by the AO in the impugned order and material available on record. The appellant in their submission have contended that in intimation on processing the revised return of income, the sale consideration/cost has been considered as capital gain, which is a mistake apparent from record and ought to be rectified u/s 154 of the Act. The appellant contends that in the intimation u/s 143(1) of the Act, the AO has considered the sale consideration as taxable instead of capital gain of Rs.12,687/- (Sale consideration Rs. 28,05,132 less Cost Rs. 27,92,259) and raised a demand of Rs. 2,45,890/-. The appellant further states that in their appeal filed against intimation u/s 143(1) of the Act, issued to them in respect of their original return filed, the Ld. CIT(A) had allowed the issue in Assessment Year: 2014-15 their favour, subject to verification by the AO in respect of such submissions of the assesses it is stated that the instant appeal has been filed against order passed u/s 154 of the Act and what could therefore be rectified is the mistake apparent from record and not any issue which is debatable in nature. As per the provisions of Sec.11(1A) of the Act, net sale consideration is required to be computed wherein only reducing the expenditure incurred in connection with the transfer from the value of consideration is allowed, in working out the net consideration in accordance with the provisions of Sec.11(1A) there is no mention of allowance of the cost of acquisition of the capital asset or invoking the provisions of Sec.48 of the Act. In this view of the matter, the issue not only becomes detable in nature but also prima facie not allowable to the assessee. Accordingly, the AO‟s action in rejecting the assesse's application filed u/s 154 of the Act observing there is no mistake apparent from record in the order sought to be rectified is found to be justifiable and is therefore upheld. The grounds raised on merits of the issue do not emanate from the impugned order, and hence need not adjudicated. However, in view of the facts and circumstances of the case and discussion hereinabove, they are also treated as rejected. Ground No. 1 to 4 are accordingly dismissed.”
11. Now the Appellant is before us challenging the order of CIT(A).
The Ld. Authorised Representative of the Appellant appearing before us took us through the paper book to highlight that the CPC has included in the total income sale consideration/cost of acquisition instead of capital gains. He submitted that the issue, on merits, has been decided in the favour of the Appellant by the Predecessor CIT(A) who has passed the impugned order, vide order dated, 27.08.2018. He relied upon submissions dated 07.05.2018 and 28.05.2019 filed before CIT(A) to support his case. He submitted that provisions of Section 143(1) of the Act can be invoked only for the limited purpose of making adjustments specified therein. In effect while computing the capital gains cost of investment has been Assessment Year: 2014-15 disallowed by substituting capital gains by sale consideration without giving any opportunity to the Appellant. Such an act is beyond the scope of powers vested in the AO in terms of section 143(1) of the Act. Further, he submitted that despite having all the material on record, the CIT(A) failed to consider the merits of the claim made by the Appellant.
The Ld. Departmental Representative, on the other hand, submitted that CIT(A) has rightly noted that the appeal was filed against rectification order passed under Section 154 of the Act and therefore the CIT(A) was justified in not examining the merits of the matter. She further submitted that there was no mistake apparent on record and the Appellant had raised debatable issue which could not have been addressed in rectification proceedings.
We have heard the rival contentions and perused the material on record.
It is admitted fact the Predecessor CIT(A) had, vide order dated, 27.08.2018, held that while processing the Original Return the CPC had taken the value of sale consideration of INR 27,12,780/- as income from capital gains against the return loss of INR 64,060/-. The copy of the aforesaid order was placed before the CIT(A) who has passed the order dated 04.06.2019 impugned by way of present appeal. However, the CIT(A) chose to ignore the same and proceeded to dismiss the appeal of the Appellant without examining the merits of the claim. The CIT(A) held that the Appellant was raising a debatable issue in rectification proceedings. If the stand of the CIT(A) is to be accepted then, in our considered view, the adjustment made by CPC while processing the Revised Return under Section 143(1) of the Act could not have been made by the CPC in the first place. It is a settled legal position that the provisions of Section 143(1) of the Act can be invoked only for limited purposes 7 specified therein and a debatable issue cannot be subject matter of adjustment in terms of Section 143(1) of the Act. [Bajaj Auto Finance Ltd. vs. CIT : 404 ITR 564(Bom)].
When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. Accordingly, we proceed to examine the reasons for rejecting rectification application as stated in the order dated 11.10.2016 which read as under:
As seen from the return of income filed, there is no mistake in the intimation under Section 143(1). The computation of income for the purpose of Section 11(1A) exemption is as under. The income under the head “Capital Gains being the net consideration is computed as per the provisions of Section 11(1A) by reducing the expenditure incurred in connection with the transfer, for the value of consideration.”
In our view the CPC has adopted an interpretation that is contrary to the plain language of Section 11(1A) of the Act. Section 11(1A) of the Act lays down that in case a property held under a trust is transferred and whole or part of the net sale consideration (i.e. full value of consideration reduced by expenditure incurred wholly and exclusively for the purpose of transfer) is utilised for acquiring another asset, then the capital gains arising from such transfer, to the extent specified in Section 11(1A) of the Act, is deemed to have been applied for charitable purpose. A perusal of Section 11(1A) of the Act would show that on compliance/fulfillment of the provisions contained in Section 11(1A) of the Act it is the amount of capital gains (and not the net sale consideration) arising from transfer of a capital asset that is deemed to have been applied to charitable/religious purposes. Where the asset transferred is used wholly for charitable/religious purposes, in case the whole amount of Assessment Year: 2014-15 the net consideration is utilised for acquiring a new asset the whole of such capital gains are deemed to have been applied for charitable/religious purposes, whereas where only part of the net consideration is so utilised, only the amount utilised to the extent the same exceeds the cost of the transferred asset is deemed to have been applied. The amount of capital gains or part thereof, as the case may be, that is deemed to have been applied for charitable/religious purposes in terms of Section 11(1A) of the Act and the same is not included in the total income of the previous year in terms of Section 11(1) of the Act. The definition of expression net consideration contained in Explanation (iii) to Section 11(1A) of the Act is relevant for the limited purpose of for considering the quantum of utilisation which is in turn relevant to determine the quantum of capital gains to be included/excluded from the total income in terms of section 11(1). Accordingly, on co-joint reading of Section 11(1) and 11(1A) of the Act, it is the income being capital gains that is either included in or excluded from the total income of the previous year. Since, the Appellant has suffered capital loss in the present case, the failure of the Appellant to fulfill the requirements of Section 11(1A) would not lead to inclusion of any income in the hands of the Appellant. The Predecessor CIT(A) has also adopted this view in the order dated, 27.08.2018.
In view of the above, all the grounds raised by the Appellant are allowed. In the result, appeal is allowed.