ASHISH DHAWAN,NEW DELHI vs. ACIT, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 3446/Del/2015 (Assessment Year: 2006-07) Ashish Dhawan, Vs. ACIT, 55-A, Jor Bagh, Circle-31(1), New Delhi New Delhi PAN: ADLPD9621N (Appellant) (Respondent)

Assessee by : Shri Sumit Mangal, CA Ms. Arzoo Batta, CA Revenue by: Shri V.K. Jiwani, Sr. DR Date of Hearing 19/09/2018 Date of pronouncement 29/11/2018

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee against the order of the ld CIT(A)-18, New Delhi dated 02.03.2015 for the Assessment Year 2006-07. 2. The assessee has raised the following grounds of appeal:- “1. The learned Commissioner of Income-tax (Appeals)-18, (ld CIT(A) and Deputy Commissioner of Income Tax, Circle-31(1) (Ld AO) have erred in making adjustments to the income of the appellant under section 154 of the Act on an issue which was not a mistake apparent from records and thus out of the scope of section 154 of the Act. 2. The ld CIT(A) and ld AO have erred in law and on the basis of the case in reducing the exemption claimed by the appellant under section 54F of the Act by excluding Rs. 1231260/- incurred in relation to the construction of residential house property from total cost of construction by alleging that these

costs are not covered within the provisions of section 54F of the Act. 3. The above grounds of appeals are independent and without prejudice to one another.” 3. The first ground of appeal is with respect to issue that adjustment to the income of the appellant has been made on an issue, which was not a mistake apparent from the record and thus is not in the scope of provision of section 154 of the Act. 4. The brief facts of the case are that the assessee is an individual. Original return was filed on 31/10/2006 declaring total income of INR 20,19,98,480/–. The assessee revised the above return on 31/7/2007 enhancing the total income from INR 20,19,98,480/- to INR 21,61,27,270/-. The assessment under section 143 (3) of the act was passed on 10th/12/2008. That assessment order was determined considering the original return of income and the assessed income of INR 20,19,98,480/– was accepted. In nutshell the returned income was assessed under section 143 (3) by the above order dated 10/12/2008. 5. On 25/4/2010 the AO issued notice for rectification under section 154 of the income tax act holding that original income tax order passed by the learned assessing officer is having mistake apparent from record on two counts. 6. The first reason was that assessee has filed revised return on 31/7/2007 enhancing the total income at INR 216127270/– from the original returned income of INR 201998480/–, However, the assessment order under section 143 (3) was passed Considering the original returned income of INR 201998480/– instead of revised return income and therefore there is a mistake apparent from the record which is supposed to be rectified under section 154 of the income tax act.

a. He reinstated the revised return income of the assessee of INR 2 16127270/– instead of the assessed income of INR 2 01998480/– which was the original returned income of the assessee. Even assessee has no objection to the above proposition. b. He held that assessee has made in excess claim of exemption under section 54EC amounting to INR 7683583/– disallowed under section 154 of the income tax act. This adjustment made by the assessing officer was subject matter of the dispute before the learned Commissioner of income tax appeals as well as before us. 11. Assessee preferred an application under section 154 of the income tax act against that order wide letter dated 09/11/2010 before the learned assistant Commissioner of income tax stating that while passing the order under section 154 read with section 143 (3) of the income tax act dated 01/10/2010. The disallowance made by the learned assessing officer under section 54EC of the act is a mistake apparent from the record as there is no error in the claim of the assessee or originally made. 12. Meanwhile the assessee also filed an appeal before the learned Commissioner of income tax appeals contesting that the claim of deduction made by the assessee is correct and further the withdrawal of the excess deduction under section 54F is also incorrect. The assessee also submitted that the above adjustment made by the learned assessing officer is beyond the scope of the provisions of section 154 of the income tax act. 13. The learned Commissioner of income tax (appeals) –XVII,, New Delhi passed order dated 5/11/2012 a set aside the issue of the computation of the capital gain exemption under section 54F of

INR 7 683583/–. He noted that in the original return the appellant has claimed INR 1 0239517/– as exemption under section 54F of the income tax act filing revised return. The claim was reduced to INR 7 683583/–. The assessee has given the working of deduction under section 54F of INR 7 683583/–. In their letter dated 13/5/2010 In response to notice under section 154, dated 25/4/2010. Therefore, he directed the learned assessing officer to examine this claim and grant deduction as per law. 14. In pursuance to the direction of the learned Commissioner of income tax appeals, the assessing officer issued notice dated 8/1/2013 to the assessee for examination of the about the details, which was replied to by the assessee on 24/1/2013. It culminated into the assessment order dated 16th/4/2013 passed by the learned assessing officer under section 250/154/143 (3) for assessment year holding that the deduction allowable to the assessee under section 54F is only INR 6452323 and not INR 7683583 as claimed by the assessee. The learned assessing officer noted that out of the amount spent for construction of INR 7 683583, INR 1231260 is incurred by the assessee for the various gadgets for which deduction under section 54F is not allowable. Consequently the total income of the assessee was computed at INR 217358530/–. 15. This order was also challenged by the assessee before the Commissioner of income tax appeals. In the appeal the assessee raised a ground that the learned assessing officer has erred in making adjustment to the income of the appellant under section 154 of the act on an issue which was not a mistake apparent from record and thus out of the scope of section 154 of the

income tax act. As a sub ground assessee also challenged the order with respect to the denial of deduction by excluding the expenditure amounting to Rs. 1231260/– incurred by the appellant in relation to the construction of residential house property related to the purchase of various gadget. 16. The learned Commissioner of income tax (Appeals) passed order dated 2/3/2015 rectifying the order wherein the 1st ground challenged by the assessee of making an adjustment to the returned income of the appellant, 2nd ground the applicability of the adjustment under section 154 of the act on an issue which was not a mistake apparent from record and thus out of the scope of section 154 of the act, and the ground number 4 and 5 stating general grounds were dismissed. However, no such reasons were given in the order of the learned Commissioner of income tax appeals. With respect to the 3rd ground of the appeal regarding exclusion of INR 1231260/– incurred by the appellant in relation to the construction of residential house property for purchase of gadgets the action of the learned assessing officer was confirmed and on this ground the appeal of the assessee was dismissed. 17. Against this order, the appeal has been preferred before us. 18. The ld AR firstly submitted that above adjustment cannot made u/s 154 of the Act as there is no mistake apparent from the record. He submitted that the order passed by the ld AO is cryptic and without application of mind. He further submitted that the ld CIT(A) has not recorded any reason for not adjudicating the objection u/s 154 of the Act. He further stated that there is change of opinion and in such circumstances; the provision of section 154 of the Act does not apply. He further

stated that when the mistake is to be discovered on the interpretation or construction of the provision of the Act it can never be a mistake apparent from the record. The assessee also relied upon the decision of the coordinate bench in 9 SOT 601 wherein it has been held that it is a subject of examination whether the expenditure incurred to make the house habitable or just to make the house more comfortable. Therefore, he submitted that what constitutes the residential house is a debatable issue with respect to the expenditure incurred for the construction of residential house. 19. The ld DR vehemently supported the order of the lower authorities. 20. We have carefully considered the rival contentions. Firstly, the learned Commissioner of income tax appeals has not decided the ground raised by the appellant before him that whether the issue of the cost of residential house can be the subject matter of rectification or not. The provisions of section 154, are very clear which gives a power to the assessing officer to rectify the mistake if it is apparent from the record. This issue is apparently not a mistake apparent from the record. When the learned assessing officer has made the detailed examination of the cost of construction of the residential house property and held that certain items incurred by the assessee for the construction of residential house are not covered for the purpose of exemption under section 54F of the income tax act. It is always debatable what are the amenities, which can be included in the cost of residential house. Therefore according to us the learned AO was not correct a invoking the provisions of section 154 of the income tax act, for the purpose of competition of the capital gain with

respect to the cost of residential house. First we come to the notice under section 154 of the income tax act issued on 25/4/2010, where the assessing officer has noted as under:- “the perusal of the assessment record shows that you have declared total amount of long-term capital gain on the sale of foreign securities amounting to rupees 228994110/–. Out of this amount the sum of rupees 119708471/– has been claimed as exempt under section 54EC of the income tax act being investment in the NHB bonds. Since, the investment in NHB bonds is less than the amount of LTCG the provisions of clause (b) of section 54EC (1) as highlighted above, are applicable to the case of the assessee. Consequently, the proportionate of the capital gain invested as exempt under section 54EC (1) (b). Accordingly, the chargeable LTC comes to INR 7 683583/– leading to the loss of revenue. Since the mistake is apparent from the record the same is sure to be rectified.” On careful reading of the above reasons for the invoking of the provisions of section 154 of the income tax act. It is apparent that the learned assessing officer was not considering the issue of the cost of the residential house, but the provisions of section 54EC of the act. In view of this, we are of the opinion that even in the show cause notice the learned assessing officer has not noted that the assessee has shown the incorrect cost of residential house property. The assessing officer is to pass detailed order to show that certain cost of gadgets have been included by the assessee in the cost of residential house property for claiming exemption under section 54F of the act. In view of

this we are of the opinion that the impugned adjustment that is proposed to be made by the learned assessing officer to the total income of the assessee is not on account of mistake apparent from record. In view of this we are not inclined to uphold the order of the learned assessing officer so far as it relates to the adjustment on account of the capital gain is chargeable to tax by tweaking the cost of the residential house property. Accordingly, the ground number 1 of the appeal is allowed. 21. Ground No. 2 is with whether deduction u/s 54F of the Act will include the expenditure incurred by the assessee of Rs. 1231260/- on account of heater, air conditioner and home kitchen. As we have already quashed the rectification notice issued by the assessing officer to the extent of adjustment to the capital gain computed by the assessee. The ground number 2 becomes infructous. Accordingly, same is dismissed. 22. Accordingly, appeal of the assessee is partly allowed. Order pronounced in the open court on 29/11/2018. -Sd/- -Sd/- (KULDIP SINGH) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29/11/2018 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi