K.NAGESH ,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7(2)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER

ITA No.864/Bang/2017 Assessment Year : 2013 – 14

Shri K Nagesh, The Dy. Commissioner of No.487, 1st Floor, 5th Income-tax, Cross, PWD Road, Circle-7(2)(1), Banashankari 3rd Stage, Vs. Bengaluru. 3rd Phase, Kathriguppe, Bengaluru.

PAN – ABMPN9499 B APPELLANT RESPONDENT

Appellant by : Shri Ramesh, C.A Respondent by : Shri Muzaffar Hussain, Addl. CIT

Date of Hearing : 08-10-2020 Date of Pronouncement : -11-2020

ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 30/01/2017 passed by Ld.CIT(A)-7, Bangalore for assessment year 2013-14 on following grounds of appeal: Concise grounds of appeal :

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“1. The order of the learned CIT(A) is opposed to the facts of the case and law applicable to it. 2. The learned CIT(A) erred in not allowing exemption U/s.54F of the Act as claimed. 3. The learned CIT(A) erred in not considering the deposit of Rs.44,00,000/- in the CGAS and investment of Rs.4,84,020/- being advance for purchase of site for computing exemption U/s.54F of the Act. 4. The learned CIT(A) erred in giving a finding that, the Assessing Officer has allowed an exemption of Rs.24,88,408/- under the provisions of section 54F of the act ignoring the fact that, the learned Assessing Officer infact has not allowed any such exemption in the assessment. 5. The learned CIT(A) erred in not considering the amount of Rs.55 lakhs which was retained by the Commissioner in the PD account despite an application made by the appellant U/s.132B of the act, thereby preventing the appellant from making any investment, for exemption under section 54F of the Act and therefore such amount retained by the commissioner should also have been considered for exemption U/s.54F of the act. 6. The learned 011(A) erred ignoring the position of law that unless a valid notice is issued under the provisions of section 143(2) of the Act there be an assessment s.143(3) of the Act and therefore the present assessment wherein no notice has been issued on the return filed for the A.Y.2013-14 is bad in law. 7. The learned CIT(A) erred in ignoring the position of law that once the appellant objects to an invalid notice, no shelter can be taken under the provisions of section 292BB of the Act. 8. The learned CIT(A) erred in confirming the levy of interest u/s 234B of Rs.5,03,880/- ignoring the fact that cash of Rs.55 Lakhs seized was laying with the department and available for adjustment towards advance tax. 9. The appellant craves permission to add, delete, alter any of the grounds of appeal of any time during the course of hearing.” Brief facts of the case are as under: 2.Assessee filed return of income for year under consideration on 31/07/2013 declaring total income of Rs.2,42,990/-under section 139 of the Act. There was action

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under section 132 of the Act on Shri. Prakashanchand Jain) on 17/10/2012. During course of search, it came to notice that, assessee sold immovable property being a vacant site located at No.11A, Ahimsa Marg, II stage, Siddhartha layout, Narasipura Road, Mysore for a value of Rs.1,04,00,000/- during the previous year relevant to year under consideration. Both assessee and the purchasers admitted that actual sale consideration was Rs.1.04 crores. It was also stated by assessee that he further received a sum of Rs.55 lakh on 14/10/2012 (the date of entering into sale agreement) and the same was kept in locker. In view of the aforesaid information, revenue conducted search operation in the hands of assessee under section 132 of the Act, and seized the above said amount of Rs.55 lakh In the bank locker. 2.1. Consequentially, assessee filed its return of income for assessment year 2013-14 on 30/07/2013 and computed long term capital gain on sale of the above said vacant site as under: Sale consideration received 1,04,00,000/- Acquired during the financial year 2009-10 by way of gift less: indexed cost of acquisition as on 01/04/1981 (Rs. 30/-per sq.ft.) 81,000 x 852/100 6,90,120 97,09,880 less: exemption under section 54 97,09,880 Nil Assessee thus declared ‘Nil’ capital gains.

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account and on same date withdrew Rs.20,00,025/-. Ld.AO noticed that assessee again withdrew sum of Rs.90,005/- on 10/06/2030. 6. Ld.AO, thus concluded that, assessee was not intending to utilise the amount for purpose of purchase/construction of residential property due to frequent transferring of amount from one account to another through transfer. The Ld.AO observed that in the instant case assessee frequently transferred amount from one account to another, and that, as on date of filing of return for year under consideration only sum of Rs.24,81,008/- was lying in capital gains account.Ld.AO thus rejected the claim of deduction of Rs.44,00,000/-. 7. In respect of Rs.55 Lacs seized and lying in PD account, Ld.AO observed that, assessee kept said amount in bank locker to suppress receipt, and had no intention to pay legitimate taxes on such amount. Ld.AO noted that, amount seized and lying in PD account cannot partake character of deposits made in capital gains account scheme, and rejected claim of deduction under section 54F of the said amount for following reasons: • Assessee kept the cash in bank locker and it was only after detection by income tax Department, that it was offered for taxation. • Amount seized and lying in PD a/c cannot partake the character of deposits made in the capital gains account scheme.

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Ld.AO thus rejected assessee’s claim of deduction of Rs.55 lakh under section 54F(4) of the Act. 8. Ld.AO noted that, assessee obtained the property sold by way of gift from his father vide gift deed dated 21/01/2010. He also noticed that assessee’s father purchased the property on 29/04/1974 and assessee had computed indexation benefit from financial year 1981-82. Ld.AO was thus of the opinion that assessee did not adopt cost of inflation index in accordance with law. Ld.AO was of opinion that, assessee became owner of property for first time during financial year 2009-10, by virtue of gift deed executed by his father on 21/01/2010. Ld.AO was of opinion that, cost inflation index applicable for financial year 2009-10 should be adopted for computing long term capital gains. 9. He thus computed long term capital gains at Rs.1,02,90,804/- in the hands of assessee. Aggrieved by order of Ld.AO, assessee filed appeal before Ld.CIT(A). 10. Before Ld.CIT (A) assessee raised legal issue that, Ld.AO had not issued notice under section 143(2) of the Act, during assessment proceedings. It was submitted that, notice has to be served within 6 months from end of year in which the return is filed, and since no notice was issued under section 143(2) of the Act, assessment proceedings are bad in law. Assessee placed reliance on decision of Hon’ble Supreme Court in case of ACIT vs Hotle Bluemoon reported in (2010) 188 taxmann 113. Ld.CIT (A) after perusal of assessment records observed as under:

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“8.4 In the instant case the notice u/s 143(2) of IT Act was issueon 19.11.2013 for the A.Y. 3 3-14. The only error in the notice was that the AO has mentioned the date of filing of Income Tax Return as 3 1.07.2013 which ought to have been on 31.07.2012. The proviso of section 143(2) of IT Act provides that no notice under clause (ii) shall be served on the assessee after the expiry of 6 months from the end of financial year in which the return is furnished Identical issues were adjudicated in the appellant's own case for the A.Y' 2007-08, A.Y. 08-09, A.Y.0910, A.Y. 2010-11 & A.Y. 2011-12.”

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Gains Account Scheme. Ld.CIT(A) was of opinion that, there is no provision, either in capital gains account scheme or under section 132B of the Act, to consider it mutually, and therefore, upheld disallowance made by Ld.AO. Before Ld.CIT(A) assessee contended that interest under section 234B of the Act should be computed after giving credit of Rs.55 lakh seized by revenue and kept in PD account. Ld.CIT(A) rejected this argument advanced by assessee Ld.CIT(A) thus observed as under: “6.2 There is no provision either in the Capital Gain account Scheme or in the Section 132B of the Act to consider it mutually. In the instant case, this amount of Rs. 55 lakh was seized from the Bank locker of the Appellant and it was never be a part of consideration of sale of property mentioned in the sale agreement. Undoubtedly , it was a unexplained income of the Appellant and the Appellant was having no intention ever to deposit it into CG account as i) it was not .a part of sale consideration in the sale Deed and received in cash, and ii) it was kept in Bank locker but-not in the Bank account. Accordingly , I do not find in the merit of appeal in this issue, hence rejected. 14. Ld.CIT(A) however allowed cost of indexation to be considered as on date of acquisition by previous owner for purpose of computing capital gains. Aggrieved by observations of Ld.CIT(A), assessee is in appeal before us now. 15. Ld.AR submitted that, Ground No.1-2 are general in nature and therefore do not require adjudication. 16. Ld.AR submitted that, legal issue has been raised by assessee in Ground No.7-8, wherein assessment order passed by Ld.AO has been challenged for non issuance of notice under section 143(2). As this issue leads to root cause

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of this appeal, it is necessary to adjudicate it before deciding merits of the case. Ground No.6-7: 17. Ld.AR submitted that, assessee filed its return of income for year under consideration on 30/07/2013, and accordingly, assessing officer issued notice under section 143(2) of the Act, on 19/11/2013 with wrong date of filing of return. He placed reliance on page 55 of paper book wherein, impugned notice has been placed. Ld.AR submitted that, this notice refers to return of income dated 31/07/2012 for assessment year 2013-14, therefore, is not a proper notice. Ld.AR submitted that, scrutiny assessment was completed for assessment year 2012-13, under section 143(3). The Ld.AR thus submitted that, no notice under section 143(2) was issued for return of income filed on 13/07/2013 pertaining to year under consideration. It was submitted that 143(2) notice issued in respect of non existing return for year under consideration is liable to be quashed. He placed reliance on decision of orderable Supreme Court in case of Hon’ble Supreme Court in case of Hotel Bluemoon reported in (2010) 188 Taxmann.com 113 . 18. On the contrary, Ld.CIT.DR submitted that, it is typographic mistake, which automatically stands covered under section 292B of the Act. It has been submitted that, except for date of return of income mentioned in notice dated 19/11/2013, other details pertains to relevant year. Ld.CIR DR, submitted that, merely for typographic mistake of mentioning date of return, will not invalidate notice issued

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dated 19/11/2013. However he submitted that Ld.AO subsequently issued notice on 4/9/2014 with in the period of limitation. We have perused submissions advanced by both sides in light of records placed before us. 19. Ld.AR placed reliance on decision of Hon’ble Supreme Court in case of Hotel Bluemoon (supra), in support of his claim. 20. We note that, assessee filed its original return of income under section 139 of the Act on 30/07/2013, and notice under section 143(2) of the Act, was issued to assessee on 19/11/2013. In the notice, date of return filed by assessee for year under consideration is mentioned to be 31/07/2012 as against 30/07/2013. It is contended by Ld.AR that, no notice under section 143(2) of the Act, was issued, in relation to return of income dated 30/07/2013 filed by assessee for year under consideration. On analysing the argument advanced by Ld.AR having regard to the notices issued placed at page 55 of paper book, it is a fact that return of income for assessment year under consideration could not have been filed on 31/07/2012. And therefore in our view date of filing of return for assessment year 2013-14 mentioned in notice issued under section 143 (2) of the Act on 19/11/2013 could only be a typographic mistake. Therefore, contentions of Ld.AR cannot be appreciated. In our view the error has occurred due to typographical mistake and hence it is curable as per provisions of section 292B of the Act.

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Layout, together with residential building constructed of 45 squares. Assessee accordingly paid advance of Rs.21,00,000/- on 02/06/2013, which was directly transferred from capital gain account to the vendor. Ld.AR submitted that, this purchase did not materialise due to dispute on illegality of titles and accordingly, the same was cancelled. On 18/07/2013, cancellation deed was registered with Sub Registrar of Baswangudi, Bangalore. Assessee received amount paid as advance to vendor, which was deposited into capital gains account on 24/10/2013, before due date of filing of return under section 139(4) of the Act, being 31/03/2014. It was submitted that, as on last date of filing of return u/s 139(4), sum of Rs.44,52,777/- was lying in capital gains account. 28. Ld.AR submitted that, subsequently, assessee entered into purchase of site on 17/10/2015 and sum of Rs.45,86,305/- by utilising capital gains account scheme, as per provisions of section 54F. Ld.AR submitted that, since assessee did not receive sum of Rs.55lakh, held in PD account, he could not carry out construction, as there was no money left. 29. Ld.AR submitted that, assessee filed all relevant details in relation to exemption claimed by assessee u/s.54F, and subsequent withdrawals and deposits of monies into capital gains account scheme, due to multiple cancellations of agreements. Ld.AR submitted that, assessee had good intention of investing in residential plot for construction, but failure on behalf of vendors to whom, in good faith, assessee

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paid money for acquiring plot, could not be attributed to assessee, for denying legitimate claim of exemption under section 54F. 30. On the contrary, Ld.Sr.DR submitted that, all contentions argued by Ld.AR has not been substantiated before authorities below, as has been observed by Ld.CIT(A). We have perused submissions advanced by both sides in light of records placed before us. 31. Date on which capital gain was effected was 17/10/2012. As per section 54F, time period allowed for making purchase, if it is done after the date of transfer is 2 years, and if it is construction, would be 3 years. Assessee admittedly purchased vacant site on 17/10/015 in the present facts and as per section 54F, time limit prescribed for construction of a house is within a period of 3 years from the date of transfer. 32. Before us Ld.AR submitted that assessee entered into purchase deeds, which led to withdrawal of certain amount payable as advance from capital gains account. However monies were re-deposited into the account, due to cancellation on subsequent dates. Admittedly, assessee made all these payments though bank directly. Before us, assessee sufficiently demonstrated his intention to invest capital gains earned in residential plot and construction thereafter. A careful perusal of provisions of section 54 we note that deduction is allowed for amount deposited before the due date of filing of return of income specified under section 139 of the act in the capital gains account scheme.

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Proviso to section 54F (4) of the Act, deals with a situation when the amount so deposited is not utilised for purchase or construction of new asset. 34. According to the proviso, the amount so not utilised is chargeable to tax under section 45 as income of the previous year in which the period of 3 years from the date of transfer of original asset expires. In our view provisions of section 54F(4) allows deduction under section 54F(1) by a deeming fiction that an amount deposited in capital gains account scheme as cost of new asset. And if the amount so deposited is not utilised for purchase or construction of new asset, then the same becomes taxable only in the previous year in which the period of 3 years from the date of transfer of original asset expires. Thus, the issue that needs to be examined is as to whether, the amount so deposited was utilised for purchase or construction of asset shall arise only in the previous year in which the period of 3 years from the date of transfer of original asset expires. 35. In the present facts of the case, admitedly, assessee deposited Rs.44 lakh in capital gains account scheme on 06/11/2012 and due date for filing return of income for the year under consideration was 31/07/2013. Thus assessee has made deposit in capital gains account scheme before the due date prescribed under section 139(1) of the Act and as per provisions of section 54F (4) the amount so deposited shall be deemed to be the cost of new asset eligible for deduction under section 54F(1) of the Act. Hence the question of examining as to whether the amount so

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deposited has been utilised for construction or purchase of house would arise only in assessment year 2016-17. 36. In the present facts of the case, we note that assessing officer has examined the withdrawals/deposits found in the capital gains account scheme during the year under consideration. In our view such action by Ld.AO is not in accordance with provisions of section 54F(4) as discussed hereinabove. We are therefore of the opinion that, assessee is eligible to claim exemption under section 54F, to the extent the amount was deposited as on 31/03/2013 i.e before the end of financial year relevant to assessment year under consideration i.e Rs.44,00,000/-. 37. We also note that assessee has claimed that advance of Rs.4,84,020/- was paid to telecom employees co-operative society with an intention to purchase site, and that, said amount was refunded back, since BDA did not allot the site. Ld.AR brought to our notice specific ground no.3, raised in respect of the same, as assessee is denied said amount as deduction under section 54F. We note that Ld.CIT(A) rejected assessee’s contention only on the ground that no details were filed in respect of cancellation of deed with BDA. We note that this claim was made before Ld.AO during assessment proceedings. At the outset we also note that Ld.Ar fairly admitted that assessee is not eligible for deduction of Rs.44,00,000/-. However, he submitted that the advance given proves that assessee was genuinely perusing investment in a new asset as required under the law.

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Accordingly, Ground no.3-4 raised by assessee stands partly allowed. 38. Ground no.8 is in respect of Rs.55 Lacs seized by revenue lying in PD account. 39. Ld.AR submitted that Rs.55 Lacs was seized from bank locker and was lying with Department and was considered as part of sale consideration. Ld.AR submitted that authorities below proceeded on wrong footing as sale consideration of Rs.1,04,00,000/- comprised of Rs.44 lakhs and Rs.55Lacs. It was submitted that, entire sale consideration was to be utilised for purchase of plot and construction of residential house. Ld.AR submitted that, assessee received cash of Rs.55Lacs on the date of registration of agreement, which was kept in the bank locker. And immediately on 25/10/2012 by invoking provisions of section 132 of the Act, revenue seized the said amount. He submitted that, assessee had no intention to evade tax as the said amount, are declared as part of sale consideration on the statement recorded as well as the agreement. 40. Ld.AR submitted that, assessee had no intention to evade any tax on Rs.55 Lacs. He submitted that, said sum was separately kept in the locker for utilising it for construction. Ld.AR submitted that, assessee when filed original return of income considered entire sale consideration to be exempt under section 54F and therefore allegation casted by revenue is baseless. He submitted that, as said amount was seized immediately after search, which

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took place during the year, after filing original return of income, assessee could not utilise this monies, when plot was purchased for construction. He thus submitted that, since the sum was lying in PD account with revenue, it may be treated as having deposited in capital gains account scheme. Ld.AR urged that, sum of Rs.55 Lacs cannot be considered as undisclosed income for the above reasons. Ld.AR referring to page 44-51 of paper book wherein, letters were filed by assessee requesting to release the said amount. 41. On the contrary, Ld.Sr.DR submitted that, had the search not been taken place, said sum would not have been disclosed by assessee. He therefore placed reliance on observations of Ld.CIT(A). We have perused submissions advanced by both sides in light of records placed before us. 42. We note that Ld.CIT(A) rejected assessee’s submissions by observing as under: “6.1. Section 132B of the I T act lays down the procedure for application and release of assets seized under section 132 or requisition under section 132A of the act. As per the provisions of clause (i) of section 132B(1), such assets have to be applied for recovery of any existing liability under the income tax act, the expenditure tax act, the wealth tax act, the gift tax act and the interest tax act and the liability determined on completion of the search and seizure assessment, including any penalty levied interest payable in connection with such assessment. The balance, if any, remaining after such adjustment, has to be forthwith released to the person from whose custody such asset was seized in accordance with the provisions of section 132B(3). On such release of money (lying in PD account), the

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Government is also under obligation to pay interest in accordance with the provisions of section 132B (4). 6.2 There is no provision either in the capital gains account scheme or in the section 132B of the Act to consider it mutually. In the instant case, this amount of Rs. 55 lakh was seized from the Bank locker of the Appellant and it was never to be part of consideration of the sale property mentioned in the sale agreement. Undoubtedly, it was an unexplained income of appellant and the appellant was having no intention ever to deposited into CG account as (i) it was not a part of sale consideration in the sale deed and received in cash and (ii) it was kept in Bank locker but not in Bank account. Accordingly, I do not find in the merit of appeal in this issue, hence rejected.”

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the types of deposits. Assessee could avail deduction under section 54F(1) of the Act, only if the deposit is actually made in the capital gains account scheme. Accordingly, we are of the view that Ld.CIT(A) rightly rejected the claim of deduction under section 54F of the Act in respect of Rs.55 lakh seized by Department and kept in PD account. Accordingly this ground raised by assessee stands partly allowed. 46. Ground No.8 is in respect of interest charged under section 234B of the Act. 47. Ld.AR submitted that the amount of Rs. 55 lakh seized and kept in PD account should be treated as payment of tax and accordingly interest under section 234B of the Act should be computed by deducting the said sum as payment of tax. Ld.CIT(A) rejected the said submission by observing as under: “10. In Ground No.7 the appellant has contended that since the cash of Rs.55,00,000/- was seized and lying with the Department and was available for adjustment towards taxes thus interest under section 234B cannot be levied. The adjustment of amount seized and kept in PD account of Commissioner concerned are available for adjustment towards tax but only after the taxes and other dues are determined and it cannot be said or equated with the amount of prepaid taxes. The charging of interest is mandatory and are chargeable whenever there is incidence of the same. Therefore, no appeal can lie against the order charging interest if

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there is an in Siddons, unless it concerns are perceived an apparent non application of mind. The AO is accordingly directed to levy interest applicable as per law after taking into consideration the filing of this appellate order. Accordingly, these grounds are dismissed.” From the above observation of Ld.CIT(A), it is found that provisions of section 132B of the Act governs the manner of utilisation of funds seized by the Department. If the amount seized and kept in PD account is more than the liability payable by assessee, then the assessee is entitled to interest also as per the provisions of section 132B of the Act. Accordingly, this amount cannot be treated as equal and to advance tax for purpose of computing interest under section 234B of the act. We, therefore do not find any infirmity in the observations of Ld.CIT(A). Accordingly, this ground raised by assessee stands dismissed. In the result appeal filed by assessee stands partly allowed as indicated hereinabove. Order pronounced in open court on 5th November, 2020

Sd/- Sd/- (B.R BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 5th Nov., 2020. /Vms/

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Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file

By order

Assistant Registrar, Income-Tax Appellate Tribunal. Bangalore.

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Date Initial On Dragon 1. Draft dictated on Sr.PS -11-2020 2. Draft placed before Sr.PS author -11-2020 3. Draft proposed & placed JM/AM before the second member -11-2020 4. Draft discussed/approved JM/AM by Second Member. -11-2020 5. Approved Draft comes to Sr.PS/PS the Sr.PS/PS -11-2020 6. Kept for pronouncement Sr.PS on -11-2020 7. Date of uploading the Sr.PS order on Website -- 8. If not uploaded, furnish Sr.PS the reason -11-2020 9. File sent to the Bench Sr.PS Clerk 10. Date on which file goes to the AR 11. Date on which file goes to the Head Clerk. 12. Date of dispatch of Order. No 13. Draft dictation sheets are Sr.PS attached