DCIT, CIRCLE-2(2), NEW DELHI vs. ANANT RAJ LTD., NEW DELHI

We will first take up the Revenue’s appeal in ITA No.5237/Del/2017 for the Assessment Year 2009-10.  In the first ground, the Department has challenged the quashing of the assessment order passed by the AO u/s 147 /143(3) of the Act where the CIT (A) held that there was a change of opinion as all the facts were on record and had been examined by the AO while passing the original assessment order.  In the second ground, the Department has challenged the deletion of an addition of Rs. 98,60,63,613/- made by the AO by holding the claimed long term capital gain arising on sale of a property being 2 contiguous plots of land and building thereon as short term capital gain u/s 50 of the Act.  In the third ground, the Department has challenged the deletion of disallowance of depreciation of Rs. 2,42,48,977/- made by the AO as the WDV of the relevant block of assets which in his opinion had become nil in terms of the provision of the section 50 of the Act.

The facts in brief are that the assessee filed its original return of income for the AY 2009-10 on 29/09/2009. The return of income was subject to scrutiny and income-tax assessment was completed u/s 143(3) on 28/12/2011 at the

The assessee company had sold one built up property built on the two contiguous plots of land falling in two adjacent villages to M/s International Institute of Planning and Management (P) Ltd. (IIPM) which was later known as Centre for Vocational and Entrepreneurship (COVS) vide two sale deeds dated 24/09/2008. The details of property were as under: - i. Plot of land with Motel built thereon in Khasra nos. 2, 3, 4, 5, Village Shahurpur, Tehsil Main Chhatarpur Road, District Hauz Khas, New Delhi sold for Rs. 130 Crores; ii. Plot of land in Khasra no. 584/2, 585, Village Satbari, Tehsil Hauz Khas, New Delhi sold for Rs. 21 Crores.

The said property was purchased by the assessee in the F.Y. 2005-06. Admittedly, as per the records the assessee never claimed any depreciation on the said property as the

IIPM paid Rs. 21 crores against the sale deed for the property at Plot of land in Khasra no. 584/2, 585, Village Satbari, Tehsil Hauz Khas, New Delhi; and paid Rs. 12 Crores out of Rs. 130 Crores against the sale deed for the Plot of land with Motel built thereon in Khasra nos. 2, 3, 4, 5, Village Shahurpur, Tehsil Main Chhatarpur Road, District Hauz Khas, New Delhi; and the balance payment of Rs. 118 crores by way of postdated cheques. Possession of the property was also handed over to the buyer IIPM alongwith the sale deeds on 24/09/2008 as such, because the IIPM was already in possession of the property as tenant. In order to secure the postdated cheques, a mortgage deed dated 24/09/2008 was also executed. However, the purchaser IIPM was unable to meet the financial obligation of those postdated cheques and therefore, a supplementary mortgage deed dated 28/08/2009 was executed and the due payment was rescheduled. But again, IIPM failed to honour its obligations even as per the supplementary mortgage deed.

Due to failure of IIPM to make the payments, the assessee filed a suit before the Hon’ble Delhi High Court,

The AO recorded his reasons for reopening the assessment which have been incorporated on page nos. 1-3 of the assessment order. The AO in his reasons has stated that, a perusal of the records shows that the asset on which the assessee declared LTCG during AY 2009-10 formed part of the block of assets on which depreciation had been claimed. A perusal of the record of AY 2009-10 shows that the treatment of sale of one asset was not made as per the provision of section 50 of Income-tax Act as per which excess between full value of consideration and WDV of the block of asset shall be deemed to be capital gain arising from the transfer of a short-term capital asset. The full value of consideration of asset sold was Rs. 151 Crores, whereas the total value of the block of assets after adjustment of the additions and deletions was Rs.46,29,29,064/- and therefore, the value of the entire block of building shown shall be reduced to ‘Nil’. The AO also stated that it is seen from the

The assessee submitted a letter dated 20/04/2015 to treat the original return of income as return of income filed in response to the notice u/s 148 of the Act.

However, during the course of reassessment proceedings when the sale of above property through 2 separate sale deeds as above stood cancelled by the Hon’ble Delhi High Court’s order dated 05/06/2015, the assessee revised its return of income filed in response to the notice u/s 148 of the Act and filed with it a letter dated 29/02/2016. The assessee explained the sequence of events and submitted all the documents to explain its case in the said letter which has been placed at page nos. 14-20 of the PB. The assessee explained that there arose no capital gain at all to the

The assessing officer held the return of income filed with a letter dated 29/02/2016 as null and void by holding that the assessee is not entitled to revise the return of income filed in response to the notice u/s 148 of the Act.

The assessing officer held that the depreciation was charged on the property sold. The said asset was included in the block of assets on which depreciation was charged and treatment of sale of the said asset was not made as per provision of Section 50 of the Act. Since depreciation was charged on the asset sold and the sale consideration was more than the WDV of the block of assets, the excess was held by him as a short-term capital gain chargeable u/s 50 of the Act. Further, the assessing officer held that since the sale consideration was more than the WDV of the block of assets, the WDV of the block was reduced to ‘nil’ and therefore, no depreciation was allowable on the same, whereas the assessee had claimed depreciation of Rs. 2,42,48,997/- on this block of assets and therefore, the AO disallowed the said depreciation also.

As regards the reopening, the CIT(A) held that on going through the computation of assessable income for the AY 2006-07 to 2009-10 and other record with the AO, it was seen that the said property consisting of plots of land and building had been given on rent to IIPM after its purchase by the assessee in the year 2005. The assessee had also declared rental income from the said property as under:

The CIT(A) further stated that in the depreciation chart, the value of said property was shown at Rs. 6,10,00,000/- which was the purchase value of the said property and the same was reflected in the balance sheet. This shows that no depreciation at all was charged on the said property in the periods relevant to the AY 2006-07, 2007-08, 2008-09 and 2009-10.

He further observed that, all the said information was available and verified by the assessing officer during the original assessment proceedings from his record. No new

As regards the revised return, the CIT(A) held that the section 147 has been incorporated in the Act for taxing the income which has escaped the assessment and not for giving benefit to an assessee. Therefore, the claim of the assessee that the sale of the said property be treated as null and void and necessary income-tax paid on the declared capital gain on the said property and so assessed should be refunded cannot be accepted under reopening proceedings. By relying upon the judgment of the Apex court in Sun Engineering Works (P) Ltd. 198 ITR 297, the CIT(A) held that the benefit claimed by the assessee through the revised return is not maintainable.

As regards the depreciation, the CIT(A) held that the property being the plots of land and building which was the subject matter of sale and transfer was included in the block of assets but it was neither used for purpose of business nor any depreciation at all was claimed on it under the Act. Rental income received from the said property had also been

The learned CIT DR vehemently presented the case of the revenue and submitted that the assessee did not disclose fully and truly all the material facts necessary for that assessment and therefore, the reopening action was valid. The CIT DR placed reliance on the following decisions: a) Multiscreen Media (P.) Ltd. vs. Union of India, [2010] 324 ITR 54 (Bombay) – High Court of Bombay b) New Delhi Television Ltd. vs. Deputy Commissioner of Income-tax, [2017] 84 taxmann.com 136 (Delhi), High Court of Delhi

The CIT DR submitted that the principle of a mere change of opinion cannot be basis for reopening completed assessment, would be applicable only to the situation where the Assessing Officer had applied his mind and had taken a conscious decision on a particular matter in the issue. It

The ld. AR on behalf of the assessee, Mr. Bindal submitted that the assessment of the AY 2009-10 was completed u/s 143(3) vide order dated 29/12/2011. The assessment was reopened on 30/03/2015, i.e., beyond the period of four years from the end of the relevant assessment year. As per the proviso to section 147 of the Act, the assessment can be reopened after four years from the end of the relevant assessment year in case of assessment completed u/s 143(3) of the Act only if the income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.

In this case, the assessee sold the property during the relevant previous year and which undisputedly was held by the assessee for more than three years. Therefore, the assessee declared the gain arising on sale of the said property as long term capital gain after taking indexation benefit and due applicable income-tax thereon was paid. The said property was let out to IIPM, since the date it was acquired and rental income was duly recorded in the books of account as well as offered for taxation in the returns of income of the 4 assessment years. Since the said property was let out, no

The assessee submitted details of rental income to show that the rent was received on the said property and also submitted the depreciation chart prepared as per the Income- tax Rules and the relevant portion of the returns of income, showing details of depreciation to show that no depreciation was claimed or allowed on the said property and the value of the said property remained the same at Rs. 6,10,00,000/- in the depreciation chart as per the Income-tax Rules. These documents clearly show that the assessee had never claimed depreciation on the said property till the date of its sale and the property was held for more than three years which has not also been disputed by the revenue. Thus, the assessee

The AR also further submitted that no new information came on the record of the assessing officer. He referred to the reasons recorded for reopening and pointed out that the assessing officer has referred to the record and computation of the AY 2009-10 for forming its opinion regarding escapement of income. The said record and computation of income was already on the record of the assessing officer while passing the assessment order u/s 143(3) of the Act. Thus, it was clearly a change of opinion on the same facts which were already on the record of the assessing officer earlier and therefore the reopening of assessment was invalid as has been held by the Apex Court in the case of CIT Vs Kelvinator India Ltd. 320 ITR 560.

He also submitted that it is not necessary that the assessing officer should mention each and everything verified by him in the assessment order. What the AO has verified has to be seen from the entire assessment record. He further submitted that in the cases relied upon by the DR, some new information or fresh material had come to the notice of the assessing officer or there was no full and true disclosure by

We have heard the rival submissions and have perused the paper book, written submissions and synopsis placed on record. The assessee filed its original return of income on 29/09/2009 for the AY 2009-10 which was subject to assessment u/s 143(3) of the Act vide order dated 29/12/2011. The said assessment was reopened by issuing a notice u/s 148 of the Act on 30/03/2015, i.e., beyond the period of four years from the end of the relevant assessment year. Ostensibly, as per proviso to the section 147 of the Act, the assessment can be reopened after four years in case of the assessment completed u/s 143(3) of the Act when there was a failure on the part of the assessee to fully and truly disclose the particulars of income.

On perusal of the computation of assessable income for the AY 2009-10 placed at page nos. 1-4 of the paper book, it is seen that the assessee had declared long term capital gain of Rs. 143,85,67,404/- on sale of the said property. On perusal of the details of rental income from AY 2006-07 to 2009-10 placed at page nos. 242, 250, 258, 262 of the paper

Thus, the assessee has also placed on record all these evidences to show that the information submitted by it were correct, property was held for a period of more than three years, rent was received on the said property and no depreciation at all was claimed on the said property under the Income-tax Act and that the value of the said property remained the same at Rs. 6,10,00,000/- in the Asset chart submitted as per the Income-tax Rules in all the returns of income. All these documents were part of the returns of income and tax audit report filed before the Revenue. Thus, these evidences clearly show that the assessee had made a true and full disclosure of the facts regarding the sale of the asset and depreciation thereon and which were very much part of the assessment records and had also been examined by the assessing officer in the original assessment proceedings.

Neither the assessing officer in the assessment order nor the DR during the hearing pointed out any discrepancy in the above mentioned information submitted by the assessee to the Revenue authorities nor they brought any evidence on record to show that the said information was incorrect or to show that depreciation was actually allowed under the Income-tax Act on the said property but incorrectly shown by the assessee.

Further, on perusal of the reasons recorded, the contention of the assessee has been found correct. The assessing officer has referred to the record and return of income filed for the AY 2009-10 for recording his reasons which were very much available with the assessing officer at the time of framing the assessment u/s 143(3) of the Act. The AO has not referred to any fresh material or new information in the assessment order. Even the learned CIT DR did not point out to any new material which was there to record the reasons for escapement of income.

It is a settled law that the assessment cannot be reopened on the basis of mere change of opinion on the same set of facts on record. The Ld. DR relied on various case laws as referred above. On perusal of the same, it is seen that in those cases either new material had come to the notice of the assessing officer or there was some incorrect disclosure by the assessee in his return of income. Thus, the said cases are

We agree with the contention of the assessee that the assessment order cannot contain each and every fact verified by the assessing officer. What has been verified by him forms part of the assessment record. All the information regarding long term capital gain, depreciation, sale of asset was part of the return of income as well as the assessment record which only was later on referred to by the assessing officer to record reasons of escapement of income. Thus, the said facts were on the record of the assessing officer and verified by him. Further, the CIT(A) also verified the said information as has been mentioned in its order. Even, we have verified the said information from the documents placed in the paper book and have come to a conclusion that no depreciation was ever claimed or allowed on the land of building under consideration. Undisputedly, the said property was held by the assessee for more than three years as it was receiving the rent on the said property w.e.f. 1/5/2005 and no depreciation, was claimed thereon. Thus, there was true and full disclosure of the facts and no new information came to the knowledge of the assessing officer. On these facts and material already on record, the reopening of the assessment was invalid and the assessment so made on the basis of an invalid notice was correctly quashed by the CIT(A). Thus, ground no. 1 of the department is hereby dismissed.

Since the reopening of the assessment has been held invalid and no reassessment can be made, ground nos. 2 and 3 become infructuous. However, on merits, Section 50 is applicable only on the block of assets which are used for business and on which depreciation has been claimed under the Income-tax Act / Rules. As mentioned above, the documentary evidence clearly shows that the property in question was let out since the date of its acquisition and was never used for the purpose of business by the assessee. On perusal of the returns of income filed for the AY 2006-07 to 2009-10 and the depreciation charts submitted under Rule 5 of the Income-tax Rules, it is clearly evident that no depreciation was ever claimed on the said property since the date of its acquisition. Since no depreciation was claimed by the assessee and allowed by the department on this property, the provisions of section 50 cannot be invoked in this case. Hence, there would not be any change in the value of the block of assets as shown by the assessee as on 31/03/2009. Hence, the action of the assessing officer to assess the said surplus as Short-Term Capital Gain against the law and otherwise is not sustainable and the assessee is entitled to depreciation claimed on value of the block of assets as declared and the disallowance of depreciation is hereby deleted because this property was never part of the said block of assets eligible for depreciation. Thus, the ground nos. 2

As discussed above, the assessee filed a revised return of income during the course of assessment proceedings initiated by the AO u/s 148 of the Act but which was treated by the AO as invalid by holding that the assessee is not entitled to revise the return of income filed in response to the notice issued u/s 148 of the Act. The CIT(A) held that not only the said notice

The CIT DR placed reliance on the following judgments in support of his contention that the assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision to seek relief in respect of the items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings unless relatable to the escaped income and therefore cannot re-agitate the concluded matters:

We have considered the submissions and arguments made by the assessee and the CIT DR. Since we have already held that the reopening of the assessment u/s 147 of the Act for this assessment year as invalid and have confirmed the cancellation of the reassessment order, the return filed cannot be considered as revised return as the entire

Grounds no. 5 and 6 are general in nature and do not call for any adjudication.

The assessee raised two alternative additional ground being ground no. 7 and 8 vide letter dated 19/03/2020 which read as under: “7. Alternatively, the authorities below erred in law and on facts in not considering that the cancellation of sale deed by the consent decree duly confirmed by the Hon’ble jurisdictional Delhi High Court, tantamount to a mistake apparent on record which must have been rectified u/s 154 of the Act by following the judgment and for which necessary directions must be issued: a) M. K. Venkatachalam, ITO vs Bombay Dyeing & Mfg. Co. Ltd [1958] 34 ITR 143 (SC). b) L.HridayNarain vs ITO [1970] 78 ITR 26 (SC) c) CIT vs K. N. Oil Industries [1983] 142 ITR 13 (MP) d) NavNirman(P) Ltd vs CIT [1988] 174 ITR 574 (MP) e) KilKotagiri Tea & Coffee Estates Co Ltd vs ITAT [1988] 174 ITR 579 (Ker) f) CIT vs ArunaLuthra [2001] 252 ITR 76 (Punj. &Har.) g) CIT vs Ram Lal Babu Lal [1998] 148 CTR (Punj. &Har.) 643

The CIT DR objected vehemently against the admission of additional ground.

We have perused the material placed on record qua the additional grounds raised. Since this is purely a legal issue which goes to the very root of taxability of LTCG and whether in light of the judgment of Jurisdictional High Court passed in the assessee’s own case tantamount to mistake apparent from record and should be rectified u/s 154 of the Act or otherwise can be allowed, therefore, we are admitting the same for adjudication.

The AR of the assessee submitted that the assessee vide letter dated 20/04/2015 requested that the original return filed be treated as filed in response to the notice u/s 148 of the Act. The cancellation deeds cancelling the sale of properties by a consent decree of the Hon’ble Delhi High Court were executed on 06/06/2015, i.e., two months after filing the return of income in response to the notice u/s 148 of the Act. Thus, the sale transaction got cancelled and the assessee intimated the said fact for rectification with a detailed note supported with the relevant evidence to the assessing officer by way of a revised return of income on 29/02/2016 in view of this subsequent event and

The AR also submitted that the return of income can be revised u/s 139(5) of the Act only when the assessee discovers omission/wrong statement in the original return. In this case, no omission or wrong statement was discovered in the return of income filed in response to the notice issued u/s 148 of the Act. Thus, the said revised return was not filed u/s 139(5) of the Act but it was filed on the basis of events happened beyond the prescribed time limit u/s 139(5) of the Act and also beyond control of the assessee due to a decree order passed by the Hon’ble Jurisdictional Delhi High Court.

The assessee submitted that this revised return filed on the basis of equity, justice and the well settled law that only tax due can be collected as ingrained by the Constitution. The assessee placed its reliance on the judgment of the Hon’ble Supreme Court in Dalmia Power Ltd [2019] 112 taxmann.com 252 (SC)/[2020] 420 ITR 339 (SC) wherein it was held that the revised returns filed after the due date due to delay in sanction of scheme by the NCLT has to be accepted by the department and assessments have to be completed thereon. In Dalmia Power (supra), the NCLT order was the occasion to revise return but in the present case, the consent decree of the Hon’ble Jurisdictional Delhi High Court was the reason to revise the return of income. Further, it was

It is well established law that when a transfer of property becomes null and void for reasons of subsequent events, no capital gains can accrue thereon. In support, reliance was placed on Vithalbhai P. Patel 236 ITR 1001 (Guj) and Anant Chunilal Kate v. ITO [2004] 267 ITR 482 (Bom) followed by Narang Overseas (P.) Ltd 111 ITD 1 (Mumbai) (SB). Accordingly, he submitted when no capital gain accrues, then no tax is payable thereon.

The Ld. AR further submitted that it is the duty and power of this Court to take into consideration all the subsequent events in the interest of justice and placed reliance on undernoted authorities:

Even, the Act itself provides for rectification when there occur changes in the quantum of capital gains in sub- sections 7B, 10A, 11,15&16 of the section 155 in this regard. In support of this contention, reliance was placed on the judgment of Shah VrajlalMadhavji [1974] 95 ITR 614 (KER.) holding that the quantum of capital gain can be altered by way of rectification on subsequent change in sale consideration by High Court. Thus, he submitted that, this revised return, in essence, amounted to an application u/s 154 of the Act to correct the mistake apparent on record due to the later judgment of the Hon’ble Jurisdictional Delhi High Court in the case of the assessee cancelling the sale deed executed earlier. In case of the assessee, non-acceptance of the revised return in any manner even as an application u/s 154 of the Act would tantamount to taxing an income which

The Ld. AR submitted that the original assessment order u/s 143(3) of the Act was passed on 28/12/2011. Section 154(7) of the Act provides for a rectification within four years from the end of the financial year in which the order u/s 143(3) of the Act was passed which in this case was by 31/03/2016. The assessee filed the letter revising the computation of income on 29/02/2016 with which, the cancellation of the sale deed and consequently, non-accrual of the capital gains was also very well brought to the notice of the AO within the time prescribed by the law. The said letter has to be considered as an application u/s 154 of the Act to give effect to the cancellation of sale deeds of the property resulting into the assessed LTCG as there is no prescribed form of such application.

The assessee further submitted that once copies of the cancellation deeds of the sale of the property along with the consent decree of the Hon’ble Jurisdictional Delhi High Court was brought on record which established that the sale transactions were cancelled and capital gains on sale of the

The assessee also placed its reliance on the judgment of Madras High court in Dr. Rajah Sir M.A. Muthiah Chettiar 238 ITR 505 wherein a Supreme Court decision was the cause for rectification. It was held that if allowing an application for rectification would be in accordance with the substantive charging provisions of the Act then such exercise is a permissible exercise of power to rectify the mistake u/s 254(2) of the Act.

The AR also submitted that the Article 265 of the Constitution mandates that no tax can be levied or collected except by an express authority of law, which means that tax collected contrary to law has to be refunded. The purpose of assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. The right of the revenue to receive and collect tax under the said Act is limited to what is properly due and payable as tax. The amounts collected in excess thereof are not to be treated as tax and retained by the State. That amount is required to be refunded to the person from whom or on whose behalf it had been collected. Reliance was placed on the undernoted authorities: a) The Constitutional Bench decision of 9 Judges of Hon’ble Supreme Court in Mafatlal Industries versus Union of India, (1997) 5 SCC 536 / (2002-TIOL-54-SC- CX) b) CIT Vs Shelly Products [2003] 261 ITR 367 (SC)

The AR also submitted that the procedure should not be the handmaid and not the mistress of legal justice and cause of justice should not be subservient to the rules of procedure and placed reliance on the following judgments:

The AR further submitted that if this matter is decided on mere technicalities, the assessee would be left with payment of huge taxes on alleged capital gains which never accrued as the impugned transfer of the capital asset failed and the said property is still under possession of the assessee. When substantial justice and technical consideration are pitted

The assessee further submitted that even in reassessment proceedings, income has to be computed as per the provisions of Act. Reliance was placed on the following authorities:

It is well accepted law that the Courts have inherent powers to further the cause of substantive justice and make such orders as may be necessary to meet the end of justice or to prevent the abuse of the process of the Court. The Tribunals are also vested with these inherent powers as has been held in the undernoted authorities: a) Ajay Gandhi vs B. Singh [2004] 134 Taxman 537 (SC)[DoD: 05/01/2004] b) CIT Vs Walchand & Co 65 ITR 381(SC) c) Mafatlal Securities Ltd. [2009] 119 ITD 444 (Mum.) d) Rojer Mathew vs South Indian Bank Ltd And Ors Chief ... on 13 November, 2019 Civil Appeal No. 8588 of 2019 [Arising out of Special Leave Petition (Civil) No.15804 of 2017]

The assessee further submitted that the it has been held by the Hon’ble Bombay High Court in CIT Vs Lata Mangeshkar Medical Foundation [2019] 410 ITR 347 (Bom) that the period of limitation should not come as an hindrance to do substantial justice between the parties.

The assessee further placed reliance on a recent decision of the ITAT in Futura Polyster Ltd. v ITO [2020]118 taxmann.com 243 (Mumbai - Trib.) (Dated 16/07/2020)

The assessee submitted that there is no estoppel against the statutory provisions. When, the AO became aware that the transfer / sale of property had already been cancelled as per the consent decree of the Hon’ble Delhi High Court, he had no other option but to hold that no capital gain accrued on the impugned sale during the relevant period. When no capital gain had arisen in absence of a transfer of the property which even today the assessee holds, non-taxable income should not be just taxed on technicalities. The original assessed income must be rectified as a mistake u/s 154 of the Act due to subsequent order of the jurisdictional High Court.

The assessee further submitted that the power of the ITO to amend the assessment order in consequence to a decision in an appeal or an order of the Jurisdictional High Court or Supreme Court is inherent and traceable to the

The exercise of power to rectify an error apparent from record is not discretionary and if the conditions for its exercise are shown to exist, ITO cannot decline to exercise the said power as has been held in the case of L. Hirday Narain Vs ITO (1970) 78 ITR 26 (SC).

Further, there is no whisper in the settlement agreement as to what happened to the previous part payments received by the assessee and how the same was to be treated. Thus, the assessee has enriched itself by those payments and the tax treatment of all those payments received by the assessee has to be seen.

This transaction involves complex factual issues of determining the exact quantum of income to be taxed within the meaning of section 154 of the Act which takes it outside the purview of section 154 of the Act.

The CIT DR also submitted that even if it is presumed that the matter could be rectified u/s 154 of the Act, then this benefit could be allowed as per the procedure laid out in the statute which involves time limit. The assessee sought to rectify the order dated 28.12.2011 passed u/s 143(3) of the Act and thus, the rectification application could be filed within four years from the end of FY 2011-12 i.e. by 31/03/2016. However, there is no such claim for rectification filed by the assessee till 31/03/2016 and thus, the time limit

In the rejoinder, the AR of the assessee submitted that the assessee had already offered an interest income of more than Rs 95.70 crores on the outstanding principal sale consideration amount in different years on the amounts remaining receivable from the buyer and also paid income-tax thereon and no reversal of the same has been claimed by the assessee even after cancellation of the sale deeds. It was stated that a sum of Rs 56 crores only was received out of sale consideration of Rs 151 crores. Further, a sum of Rs 20 crores was also refunded by the assessee to the buyer at the time of registration of the cancellation deed out of Rs 56 crores leaving just Rs 36 crores with assessee. This fact was very much mentioned in the settlement deed duly decreed by the Hon’ble jurisdictional Delhi High Court vide its order dated 05/06/2015 and placed on record before the Assessing Officer and the CIT(A) and has also filed before us in the paper book.

The amount of Rs 36 crores as above remained with assessee in pursuance to the cancelled sale deeds was in the nature of mesne profit for adversely affecting the title on the

The AR further submitted that the section 56(2)(ix) of the Act introduced w.e.f. AY 2015-16 is otherwise not applicable to the facts of the case as any amount therein can be taxed only when the twin conditions mentioned therein are applicable. The said section reads as below: (ix) any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if, - (a) such sum is forfeited; and

The AR submitted that in this case no money was received as an advance or otherwise in the course of negotiation for transfer of capital asset where the negotiations did not result in transfer of such capital asset because in this case, the assessee had already transferred the capital asset in Sept 2008 by registered conveyance deeds and also handed over the possession of the property to the buyer. Thus, in this case the money remained with the assessee was not on account of the conditions stipulated in the said section because, firstly, the money was not received as an advance but it was the sale consideration of a duly completed transaction by virtue of the registered conveyance deeds; and secondly, the same was also not received in the course of negotiation where the negotiations did not result in transfer of such capital asset as the same had already been transferred.

The AR further submitted that the clauses (a) and (b) of the section 56(2)(ix) of the Act are not mutually exclusive since the word “and” has been used in between. Thus, to attract the said provision both the clauses (a) and (b) should be satisfied together. Further, no amount at all was forfeited as is required in the clause (a) above. The amount remained with the assessee was on account of a settlement duly

He also stated that this is a peculiar situation and happens rarely and therefore, the legislature has not made any provision for the same as it could not comprehend the same or all such probabilities. It was never a forfeited amount nor was received in the course of negotiation for transfer of a property which was never transferred but a compensation in the nature of mesne profit and a capital receipt.

It was further submitted that the Hon’ble ITAT is seized with the appeal for the AY 2009-10 and the settlement was arrived at in the period relevant to the AY 2016-17 which is not under consideration and no direction can be given by the Hon’ble ITAT in respect of any other assessment year.

The only issue remains for consideration here is, whether the long-term capital gain on sale of two properties declared by the assessee in its return of income has to be excluded from taxable income of the assessee for this assessment year in view of the cancellation of sale deeds of the said property in pursuance of the decree order passed by the Hon’ble Delhi High Court.

The assessee had filed a letter dated 29/02/2016 before the assessing officer during the reassessment proceedings (placed at pages 14-20 of the PB) wherein the assessee filed a revised return as well as computation of income and reasons for revising the return. The assessee placed all the documentary evidences being the sale deeds, mortgage deeds, suit filed by the assessee against buyers, settlement deeds, decree issued by Delhi High Court, and cancellation deeds of the properties executed in pursuance of the settlement agreement and Delhi High court order on record to establish that the sale of the property under consideration had been cancelled and therefore, no capital gain accrued on the sale of the said property to the assessee. Therefore, the assessee

However, the lower authorities rejected this relief to the assessee on the ground that a revised return cannot be filed during the reassessment proceedings and thus, ignored all the evidences placed on record and therefore, the assessee is before us claiming that not excluding the long term capital gain on sale of the said property from the taxable income is highly unjust and the same should be rectified.

Admittedly, all these documentary evidences establishing the cancellation of sale deeds of the said property were brought on the record of the assessing officer during the course of reassessment proceedings. Even the assessing officer has referred to this letter in the impugned assessment order. On perusal of the settlement agreement dated 30/05/2015, we observe that the said agreement was entered into between the assessee and purchaser before the Hon’ble jurisdictional Delhi High Court Mediation and Conciliation Centre of the Hon’ble jurisdictional Delhi High Court on the directions of the Hon’ble Delhi High Court only. Then, the Hon’ble jurisdictional Delhi High Court passed the decree in terms of the settlement made between the parties. The Cancellation deeds dated 06/06/2015 were registered in pursuance of this High Court decree dated 05/06/2015. Once a decree is passed by the High Court under its

Thus, it is established beyond doubt that the cancellation deeds were executed as per the decree of the Hon’ble jurisdictional Delhi High Court and under its approval resulting into cancelling the sale of the said property. Even, the AO or the CIT DR did not challenge the authenticity of these documents nor can it be challenged.

In the present case, the sale deeds of the property were executed and LTCG was declared in the return of income

A similar issue came up in the case of Futura Polyster Ltd. Vs ITO (2020) 118 taxman.com 243 (Mum- Trib.), where the assessee entered into an ‘agreement to sell dated 19/12/2012’ for transfer of a property and declared long term capital gain on that basis in its return of income. However, later on the agreement to sell was cancelled vide cancellation deed dated 28/09/2017 when the appeal was going on before the CIT(A). The assessee raised this issue before the CIT(A) who remanded the matter back to the AO. The AO having rejected the plea of the assessee brought long term capital gain to tax. In view of these facts, the Hon’ble Mumbai ITAT Bench observed as under:

In Futura Polyster (supra) as well as in the present case, the assessee declared long term capital gain on sale of properties in their returns of income. In both these cases, the sale of properties got cancelled much later. In both these cases, the ground raised by the assessee to exclude the long- term capital gain from the taxable income was not available at the time of filing the original return of income. Both the assessees raised their issues before the departmental authorities during the proceedings going on at the relevant time, i.e., before the CIT(A) in case of Futura and before the AO in the reassessment proceedings in case of the assessee. However, the departmental authorities did not accept the claim of the assessee ignoring all the evidences placed on record. Considering all the facts, the Hon’ble ITAT allowed relief and directed to exclude the long-term capital gain from taxable income for the property whose sale had been cancelled. In our opinion, the decision of Futura Polyster (supra) squarely applies to the facts of the case and the long- term capital gain declared on the sale of two properties under

The AO as well as the Ld. CIT(A) did not grant the claimed relief of excluding the impugned LTCG from taxable income for the A.Y. 2009-10 to the assessee merely on a technical issue that the assessee filed the claim in form of revised return which is not permissible in reassessment proceedings. When the assessee contended that the said letter should be considered as a rectification application u/s 154 of the Act which has been filed in time, i.e., within 4 years from the end of the financial year in which the assessment order u/s 143(3) was passed. The Ld. CIT DR contended that this letter does not mention to be an application u/s 154 of the Act and therefore, cannot be considered as an application u/s 154 of the Act. The Ld. CIT DR further contended that even if it is presumed that this can be rectified u/s 154 of the Act, then no application u/s 154 was filed by the assessee within the prescribed time. Thus, the issue arises as to whether the relief can be allowed to the assessee in the above mentioned circumstances.

A lot of emphasis has been placed by the Ld. CIT DR on the technical issue that the letter filed on 29/02/2016 cannot be considered as a revised return or an application u/s 154 of the Act. It is a trite law that when substantial justice and technical consideration are pitted against each other, the

Section 154 of the Act provides for rectification of a mistake apparent from record. “Any mistake apparent from the record” covers all mistakes discoverable from a perusal of the whole evidence in the case, or from an omission to apply certain provisions of the Act to the facts of the case, or a mistake due to an overlooking of certain aspects of the case, or a mistake arising on account of a wrong construction of any provisions of the Act. The error may be either of fact or error of law. Thus, we don’t agree with the contention of the CIT DR that the section 154 of the Act can be undertaken only to rectify arithmetical errors. Further, there is no format prescribed under the law for filing a rectification application u/s 154. What is relevant that a mistake is brought to the knowledge of the AO and here in this case assessee has filed a very detail letter alongwith all the relevant documents to

We find that what is material u/s 154 of the Act is that there is a mistake, a mistake which is clear, glaring and which is incapable of two views being taken. The expression ‘record’ has to be construed and understood in which it appears and in context of expression ‘apparent from the record’ in section 154; ‘record’ would mean the record of the entire proceedings of the case including the documents and material produced by the assessee and taken on record by the authorities, which were available at the time of passing of the order. All documents establishing the cancellation of sale deeds were placed on the record of the assessing officer who ignored the Jurisdictional Delhi High Court order and cancellation deeds passed in pursuance of the said Delhi High Court order and did not exclude the long-term capital gain while computing the assessed income. Thus, the assessing officer deliberately omitted to take into consideration the Delhi High Court’s order as well as other evidences regarding

It is a well establish law that, if on the basis of material on record, the assessee is entitled to a relief, then it would constitute a mistake apparent from record which can be rectified u/s 154 of the Act and such relief cannot be denied even if the assessee omitted to claim the same by mistake. The Hon’ble Supreme Court in the case of Anchor Pressings (P) Ltd. Vs CIT (1986) 161 ITR 159 (SC) held that the jurisdiction u/s 154 to rectify the mistake is much wider than provided in Order XLVII, rule 1 of the CPC, 1908, and therefore, relief could be allowed in the rectification proceedings if all the factual material necessary for allowing the relief were available on record and such relief could not be denied merely because the assessee omitted to claim the same. This view has been upheld in the case of Lustre Tiles Ltd. Vs. Addl. CIT (2007) 108 ITD 35 where reliance has been placed on Container Corporation of India Ltd. Vs DCIT (2005) 92 ITD 333 (Delhi) wherein the ITAT, Delhi Bench, after discussing several decisions of the Court including that of Anchor Pressings (P) Ltd. Vs CIT (1986) 161 ITR 159 (SC) held that the jurisdiction u/s 154 can be assumed if there is a mistake apparent from record. If on the basis of material on record, the assessee is entitled to a relief which has remained to be allowed, then it would constitute a mistake apparent from record and consequently, such relief

All the documents to establish that the sale of the said property had been cancelled were on the record of the assessing officer. The long-term capital gain on the said property was not at all taxable in the hands of the assessee in view of cancelled sale transaction. Thus, in view of the settled position of law, the assessing officer was duty bound to allow relief to the assessee even if the assessee did not claim so. Even if the letter dated 29/02/2016 is not considered as revised return but certainly it is an application to the AO to claim the relief, and in that case, the AO himself was legally obliged to exclude the amount of long-term capital gain on sale of the said property on the basis of material available on record.

The Article 265 of the Constitution of India lays down that no tax shall be levied except by authority of law. Hence, only legitimate tax can be recovered and even a concession or acquiescence by an assessee does not give authority to the tax collector to recover more than what is due from him under the law. For this proposition, we rely on judicial precedent from the judgment of the Constitutional Bench of 9 Judges of Hon’ble Supreme Court in Mafatlal Industries versus Union of India, (1997) 5 SCC 536 / (2002-TIOL-54-SC-CX), and from CIT Vs Shelly Products [2003] 261 ITR 367 (SC), R.

Thus, an income liable to be taxed has to be worked out in accordance with the law in force. In this process, it is not open to the Revenue authorities to take advantage of the ignorance of the assessee and tax cannot be levied on an assessee at a higher amount merely because the assessee did not claim the relief due to some error or ignorance. It can only be levied when it is authorized by law as is the mandate of the Article 265 of the Constitution of India. A sense of fair play by the field officers towards the tax payers is not an act of benevolence by the filed officers but it is call of duty in a socially accountable governance. In view of the above settled position of law, we are of the opinion that if a legitimate and bona fide claim is available to the tax payer then it cannot be ignored or be taxed in the absence of any authority.

In this regard an old circular no. 14(XL35) dated 11th April 1955 issued by the CBDT in the context of refunds and

Such a guidance to the field officers by the CBDT is to earn taxpayer’s confidence and trust. An action or inaction which erodes any taxpayer’s faith in Indian tax and judicial system does not do any of us any good. The well- meaning advice given by the CBDT must be implemented to the fullest extent. As to the binding nature of this advice, we may only refer to section 119 of the Act and Hon’ble Supreme Court’s judgment in the case of UCO Bank Vs CIT (1999) 237 ITR 889(SC). Hon’ble Supreme Court has time and again held that the circulars of CBDT are legally binding on the Revenue. The advice contained in the circular is also legally binding on all the field officers. 92. It is equally well-accepted law that the Tribunal has inherent powers to further the cause of substantive justice and make such orders as may be necessary to meet the end of justice as has been held in the case of Ajay Gandhi vs B.

In view of overall facts and legal position, we are of the opinion that substantive justice must be rendered to the assessee to meet both the ends of law and justice. Thus, we hereby hold that the AO has made a grave error apparent from record by ignoring the documentary evidences including the Hon’ble jurisdictional Delhi High Court’s order placed on his record for cancellation of the sale even though the same was brought to his notice by the assessee and thereby including the long term capital gain on sale of the property in the taxable income of the assessee. The letter dated 29.02.2016 filed before the AO is to be treated an application u/s 154 to rectify the assessment order passed u/s 143(3) on 28.12.2011 as the application has to be considered in respect of LTCG assessed therein, because the said application was within 4 years as held above. We hold that the long- term capital gain of Rs. 143,85,67,404/- on sale of the said property is not at all taxable in the hands of the assessee as the sale deeds were cancelled. We hereby direct the assessing officer to exclude the long term capital gain on sale of the said property from the computation of taxable income for the A.Y.

Further, as regards the taxability of the amount of Rs.36 crores remained with assessee after cancellation of the said sale in terms of the decree order of the Hon’ble jurisdictional Delhi High Court, we agree that the same was in the nature of mesne profit and beyond the provisions of section 56(2)(ix) of the Act. Moreover, as explained by the Ld. AR, the said section is also not applicable as the twin conditions mentioned therein have not been met on the facts, because as per the contention of the AR the said amount was in the nature of liquidated damages for affecting the title of the assessee on the property for nearly 7 years.

The appeal is allowed partly as indicated above. Order pronounced in the open Court on 27th November, 2020