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Income Tax Appellate Tribunal, “C” BENCH KOLKATA
Before: SHRI SONJOY SHARMA & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. Pr. CIT, Kolkata-2 vide order No. ITBA/REV/F/REV5/2020- 21/1031965030(1) dated 30.03.2021 passed against the assessment order by the DCIT, Circle-11(1), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) dated 05.12.2018.
The assessee has raised as many as six grounds on the assumption of jurisdiction by the Ld. Pr. CIT of invoking the revisionary proceedings u/s. 263 of the Act and passing an order therein whereby the moot point is in respect of long term capital gain of Rs.15,09,157/-
2 ITA No.166/Kol/2021 Development Consultants Pvt. Ltd. AY 2016-17 which was reduced from the total income reported by the assessee in the return filed by it.
Brief facts of the case are that assessee filed its original return of income on 28.11.2016 reporting a total income of Rs.11,24,08,210/-. Thereafter, assessee filed a revised return of income on 06.02.2017 reporting total income of Rs.11,07,94,330/-. Ld. AO considered the revised return for completing the assessment u/s. 143(3) of the Act. The assessment was completed by the Ld. AO u/s. 143(3) of the Act vide order dated 05.12.2018 after making certain additions/disallowance at an assessed income of Rs.11,51,49,753/-.
Subsequent to the assessment, assessments records were called for and examined by the Ld. Pr. CIT from which it was observed that assessee has shown the income under the head long term capital gain from sale of investment. Vide letter dated 19.11.2018, assessee claimed before the Ld. AO that by mistake the amount of long term capital gain was reported as Rs.11,28,60,459/- which should be Rs.11,13,51,302/- and thus, claimed for reduced amount of long term capital gain by Rs.15,09,157/-. Ld. Pr. CIT observed that Ld. AO has considered the request of the assessee based on the letter submitted by it which ought to have been done only through filing of a revised return and not by way of a letter as per the judgment of Hon’ble Supreme Court in the case of Goetz India Ltd. Vs. CIT (2006) 204 CTR (SC) 182. Ld. Pr. CIT thus observed that if the deduction has not been claimed in the return and the assessee wants to claim such deduction in the assessment proceedings then, he can do so only by filing a revised return. The AO cannot entertain such claim made by the assessee through a letter thus, Ld. Pr. CIT drew his consideration in respect of reduction of long term capital gain of Rs.15,09,157/- in the course of assessment that it is not regular which has resulted in an under-assessment of the income
3 ITA No.166/Kol/2021 Development Consultants Pvt. Ltd. AY 2016-17 by Rs.15,09,157/-. Therefore, according to the Ld. Pr. CIT, the assessment is erroneous in so far as prejudicial to the interest of the revenue and the provisions of section 263 of the Act are attracted. Ld. Pr. CIT drew his consideration that the assessment order has not been passed in accordance with the decision rendered by the Hon’ble Supreme Court in the case of Goetz India Ltd. (supra) and thus, set aside the impugned assessment order giving direction to the Ld. AO to frame the assessment afresh after giving opportunity of being heard to the assessee.
Before us, Shri Anup Biswas, CA represented the assessee and Shri D. K. Sonowal, CIT represented the department.
Ld. Counsel has placed on record a written submission containing six pages along with annexure containing table and a paper book containing 34 pages. Ld. Counsel strongly pointed out before us that at the time of filing of return for the year under consideration, assessee was not having the Balance Sheet as at 31.03.1981 of Komerrah Limestone Mining Co. Ltd. (in short “KLMCL”) of which the assessee had sold shares during the year on which long term capital gain was reported in the return of income. Since the Balance Sheet of KLMCL as at 31.03.1981 was not available for the purpose of computing the long term capital gain, historical cost of acquisition of FY 1975-76 was taken as the basis. In this respect, Ld. Counsel submitted that in the course of assessment proceedings, the assessee was able to trace the audited Balance Sheet of KLMCL as at 31.03.1981 based on which it could calculate the fair market value (FMV) as on 01.04.1981 for the shares acquired in FY 1975-76. He stated that when this Balance Sheet became available to the assessee, valuation report from the Chartered Accountant was obtained for the valuation of the impugned shares. Based on this valuation, assessee exercised its option u/s. 55(2)(b) of
4 ITA No.166/Kol/2021 Development Consultants Pvt. Ltd. AY 2016-17 the Act to arrive at the FMV as on 01.04.1981 of the shares sold which were acquired in FY 1975-76. It was thus, submitted by the Ld. Counsel that when the option u/s. 55(2)(b) of the Act was exercised, it resulted into higher quantum of indexed cost of acquisition as on 01.04.1981, leading to reduction of the amount of long term capital gain already reported in the income tax return. The amount of long term capital gain which was reduced due to exercise of option u/s. 55(2)(b) of the Act is of Rs.15,09,157/-.
6.1. Ld. Counsel submitted that there was no claim of any new deduction except for this correction in the indexed cost for acquisition of shares by exercising the option u/s. 55(2)(b) of the Act which was initially based on the historical cost of acquisition of FY 1975-76. Ld. Counsel stated that from the audited financial statement of KLMCL, valuation report dated 26.11.2018 was obtained from a Chartered Accountant and a detailed calculation of the reduced amount of long term capital gain were, all furnished in the course of assessment proceedings before the Ld. AO. He referred to the e-proceeding response acknowledgment placed at pages 29 and 33 of the paper book to demonstrate that all these documents and details were placed before the Ld. AO in the course of assessment proceedings. Ld. Counsel also referred to the valuation report obtained from Halder & Dutta, Chartered Accountants, for arriving at FMV of the unquoted equity shares of KLMCL as at 01.04.1981 placed at page 32 of the paper book. 6.2. Ld. Counsel also referred to Table “B” forming part of the written submission giving details of the computation of long term capital gains on sale of shares of KLMCL, the same is reproduced hereunder:
5 ITA No.166/Kol/2021 Development Consultants Pvt. Ltd. AY 2016-17
Referring to the above Table, Ld. Counsel submitted that correction in the calculation of long term capital gain is not a case
6 ITA No.166/Kol/2021 Development Consultants Pvt. Ltd. AY 2016-17 where assessee has claimed any new deduction or made any new claim which was not there in the return of income as alleged by the Ld. Pr. CIT. According to him, it is only a case where the assessee has rectified the defect in the computation of income during the assessment proceedings by way of letter before the Ld. AO. According to him, rectification in the computation of LTCG was made in the course of assessment proceedings in order to comply with the provisions of section 55(2)(b) of the Act and, therefore, the law laid down in the case of Goetz India Ltd. (supra) by the Hon’ble Supreme Court is not applicable since the facts are different and distinguishable. Per contra, Ld. CIT, DR placed reliance on the order of Ld. Pr. CIT.
We have heard the rival submissions and gone through the material available on record. We note that assessee has submitted a letter dated 19.11.2018 in the course of assessment proceedings, correcting the amount of LTCG reported in the return which was reduced by an amount of Rs.15,09,157/- in respect of sale of shares of KLMCL. We also note that in respect of this reduction in the amount of LTCG reported by the assessee in its return, assessee has placed on record the relevant documentary evidence which formed the basis for such reduction namely, the audited financial statement as at 31.03.1981 of KLMCL for exercising the option available u/s. 55(2)(b) of the Act. It is also noted that the valuation of shares, the indexed cost of acquisition and the LTCG are not disputed. We also note that section 55(2)(b) of the Act provides an option to the assessee for the purpose of adopting the cost of acquisition as the FMV of the asset as at 01.04.1981 which the assessee has exercised by getting a valuation report from a Chartered Accountant in terms of requirement of Rule 11UA of the Income-tax Rules, 1962, when the audited financial statement of KLMCL became available to the assessee. It is stated by the Ld. Counsel for the assessee that assessee could not exercise the
7 ITA No.166/Kol/2021 Development Consultants Pvt. Ltd. AY 2016-17 option available u/s. 55(2)(b) of the Act at the time of filing of return since the audited financial statement of KLMCL as at 31.03.1981 were not available with it. In absence of such Balance Sheet of KLMCL, assessee resorted to compute the LTCG by taking historical cost of acquisition of FY 1975-76.
8.1. In the course of assessment proceedings, when the correction in the computation of LTCG on sale of shares was brought to the knowledge of the Ld. AO by exercising the option available u/s. 55(2)(b) of the Act, he took cognizance of this corrective facts, for which all the relevant corroborative documentary evidences were placed on record. Thus, by considering the details and documents, Ld. AO accepted the correction made by the assessee in the LTCG, reported by the assessee which was lesser by an amount of Rs.15,09,157/- when compared with the original return and completed the assessment.
8.2. On a specific query by the Bench to the Ld. CIT, DR to point out as to what is the prejudice caused to the revenue on the course of action adopted by the Ld. AO, nothing contrary was placed on record. The only issue raised by the Ld. Pr. CIT in the impugned revisionary proceeding/order is that Ld. AO cannot entertain a claim of deduction made by the assessee through a letter as such a claim of deduction can be made only by filing a revised return. In this context, we note that even if this impugned order u/s. 263 of the Act is to be upheld then also, the Ld. AO is bound to enquire and examine the claim of the assessee in respect of LTCG and frame the assessment afresh which to our understanding has already been adequately done.
We observe that in the course of proceedings u/s 263 of the Act before the Ld. PCIT, assessee had furnished the relevant details and explained the issue raised through the show cause notice by the Ld.
8 ITA No.166/Kol/2021 Development Consultants Pvt. Ltd. AY 2016-17 PCIT, supporting its contentions by various decisions. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts.
For that, let us take the guidance of judicial precedence laid down by the Hon’ble Apex Court in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC) wherein their Lordships have held that twin conditions need to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and in so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; [because AO has to discharge dual role of an investigator as well as that of an adjudicator] then in aforesaid any of the events, the order passed by the AO can be termed as erroneous order.
10.1. Looking at the second limb as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue, one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the AO. Their Lordships held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of
9 ITA No.166/Kol/2021 Development Consultants Pvt. Ltd. AY 2016-17 the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.
We find that the issue in the present case is purely on facts which is verifiable from the records of the assessee. Audited financial statements i.e. Balance Sheet of KLMCL, valuation report for FMV of the shares of KLMCL sold and the revised computation of LTCG by exercising the option available u/s. 55(2)(b) of the Act, reveals the correct state of affairs in respect of the issue raised in the impugned revisionary proceedings for which both, ld. PCIT and the ld. CIT, DR could not bring any material on record to controvert the verifiable factual position.
Accordingly, on the issue raised by the Ld. PCIT in the revisionary proceedings, no action u/s 263 of the Act is justifiable which in our considered view cannot be sustained under the facts and circumstances of the present case and judicial precedents dealt herein above. We, therefore, quash the impugned order u/s 263 of the Act and allow the grounds raised by the assessee.
In the result, appeal of the assessee is allowed.
October, 2022. Order is pronounced in the open court on 31st Sd/- Sd/- (SONJOY SARMA) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31.10.2022 JD, Sr. P.S.
10 ITA No.166/Kol/2021 Development Consultants Pvt. Ltd. AY 2016-17 Copy to: 1. The Appellant: 2. The Respondent:. 3. DCIT, Circle-11(1), Kolkata 4. The Pr. CIT, Kolkata-2. 5. DR, ITAT, Kolkata Bench, Kolkata //True Copy// [ By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata