Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-36, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal filed by the assessee read as under: “1] CIT[A] has erred in directing AO to initiate proceedings for reopening the assessment for A Y 2014-15 and assessed capital gain in Asst. year 2014-15 which is against the capital gains account scheme. 2] CIT[A] has not taken into consideration that fixed deposit has been renewed for further 15 months.
Mr. Nilkanth Mangesh Rege 3] CIT[A] has wrongly directed capital gain of Rs. 7000000/- for A.Y. 2015-16 should be deleted. 4] CIT (A] has misunderstood ground no. 2 regarding gross income and TDS on it this ground was that appellant has included net amount in the profession receipt only TDS amount to be added to income, and credit for TDS to be given. 5] CIT(A) has erred in confirming disallowance of cost of improvement. 2.1 The Additional ground filed by the assessee reads as under: - “1. On the facts and in the circumstances of the case and in law, FAA is not justified in directing AO to initiate reopening the assessment proceeding for AY 2014-15 and bring the amount of Rs. 7000000/- to tax for AY 2014-15 as it amounts to enhancement without being heard in violation of section 251[2] and is without any the authority of law and jurisdiction, therefore it is bad-in-law and liable to be quashed.”
We find that the above additional ground filed by the assessee is inextricably linked with the original grounds of appeal filed. In NTPC v. CIT 229 ITR 383 (SC), the Hon’ble Supreme Court following the decision in Jute Corporation of India Ltd. 187 ITR 688 (SC) observed at page 387 as under : "The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income Tax (Appeals) takes too narrow view of the powers of the Appellate Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee."
Mr. Nilkanth Mangesh Rege As the additional ground of appeal filed by the assessee in the present case has a bearing on the issue to be decided, we admit it.
4. The 1st, 2nd, 3rd, 5th grounds of appeal and the additional ground of appeal are discussed together below as they address a common issue. Briefly stated, the facts are that during the year under consideration, the assessee sold a residential flat for Rs.93,84,868/-. He claimed exemption u/s 54EC on account of Long Term Capital Gains (LTCG) arising out of it. During the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had acquired the Flat bearing No. A-9, 2nd floor, Raigad Niketan CHS Ltd., Sahar Road, Chakala, Andheri (E), Mumbai vide agreement dated 02.10.1976. The value of the flat determined as on 01.04.1981 as per valuation report dated 13.09.2012 is Rs.2,30,120/-. The assessee sold the said flat on 09.09.2011 for a consideration of Rs.93,84,868/-. While working the LTCG on sale of the flat, the assessee claimed cost of improvement of Rs.55,750/- towards furniture and grill work and Rs.47,260/- towards kitchen improvement. In order to verify it, the AO asked the assessee to submit the proof of cost of improvement claimed by him such as bills. But the assessee failed to produce it before the AO. In absence of such documentary evidence, the AO disallowed the indexed cost improvement of Rs.5,97,437/- made by the assessee. Thus the AO arrived at LTCG of Rs.75,78,426/- by reducing indexed cost of acquisition of Rs.18,06,442/- from sale consideration of Rs.93,84,868/- The assessee had claimed exemption u/s 54EC at Rs.70,00,000/- in respect of LTCG on sale of the above flat. He submitted before the AO that investment has been made in capital gains scheme with State Bank Mr. Nilkanth Mangesh Rege India (SBI). He submitted a copy of the term deposit receipt with SBI under capital gain scheme of Rs.70,00,000/- dated 25.12.2013. The AO observed that the assessee is not eligible for deduction u/s 54EC of the Act. However, he examined the case of the assessee from the point of view of provisions of section 54 of the Act. The AO noted that the assessee vide letter dated 10.12.2014 has submitted copy of certificate issued by SBI dated 10.10.2014 certifying that the assessee has deposited Rs.70,00,000/- under capital FD on 25.09.2012. Observing that the assessee filed his return of income for the AY 2012-13 on 20.09.2012, but has made deposit in capital gains deposit account scheme on 25.09.2012 i.e. after filing of the return of income, the AO concluded that the assessee has not fulfilled the requisite conditions laid down in section 54EC/54 and therefore rejected the claim of the assessee.
In appeal, the Ld. CIT(A) observed that prima facie, the assessee’s claim for exemption u/s 54 of the Act is allowable since the deposit of Rs.70,00,000/- was made by the assessee on 25.09.2012 i.e. within the time prescribed u/s 54 of the Act. Thus he allowed the above claim of the assessee. However, the Ld. CIT(A) held as under : “However, it appears from the photo copy of the fixed deposit number 32597452212 dated 25/9/2012 issued by the SBI, Vile Parle East, Mumbai that " the deposit was made for a period of "1 year and 3 months" and hence the amount on maturity was taxable during assessment year AY 2014-15 relevant to previous year ending 31/3/2014 in which the maturity date of 25/12/2013 fell since the deposit matured on 25/12/2013. It appears from records that the assessee offered the amount of Rs.70,00,000/- for taxation in AY 2015-16 as capital gains, however, the amount of Rs.70,00,000/- became taxable in AY 2014-15. AO is directed to initiate proceedings for reopening the assessment for AY 2014-15 and bring Mr. Nilkanth Mangesh Rege Rs.70,00,000/- to tax for AY 2014-15 subject to the condition that when the amount of Rs.70,00,000/- by way of long term capital gains is taxed for AY 2014-15, the amount taxed as long term capital gains of Rs.70,00,000/- for AY 2015-16 should be deleted and refund granted for AY 2015-16 and the fact of payment of taxes for AY 2015-16 is taken into consideration while finalizing the assessment for AY 2014-15. Thus, this ground of appeal
is partly allowed.”
6. Before us, the Ld. counsel for the assessee files a copy of the fixed deposit receipt, copy of affidavit and submits that the AO disallowed cost of improvement of Rs.1,03,000/- for want of proof and the CIT(A) confirmed the same without taking into consideration that the amount was spent on improvement long back before 30 years. It is stated that the assessee has filed affidavit about the expenses. It is further submitted by him that the CIT(A) has allowed deduction u/s 54 but directed the AO to initiate reassessment proceedings for AY 2014-15 and bring to tax Rs.70,00,000/- in AY 2014-15. The Ld. counsel submits that the direction of the CIT(A) is not in accordance with proviso (i) of section 54(2) and by violating provisions of section 251(2), the CIT(A) has given the above direction to the AO without providing opportunity of being heard to the assessee. It is further stated that the assessee has incurred cost of improvement of Rs.1,03,000/- during the period 02.10.1976 to 31.03.1980 and the proof on the above was not traceable because it was incurred before 30 years. The Ld. counsel submits that it is known to all that purchase of flat from builder is not habitable house, investment made up to stages to making house as habitable is to be considered as investment in house.
Mr. Nilkanth Mangesh Rege Finally, the Ld. counsel submits that as per proviso to section 54(2), if the amount deposited is not utilized wholly, the capital gain will be brought to tax in the year in which the specified period expires. It is stated that in the case of the assessee, the flat sold on 09.09.2011 specified period of 3 years expired on 09.09.2014 i.e. in the AY 2015- 16, he has to pay tax on capital gains. In this respect a copy of the computation and challan for tax paid was filed. In support of his above contentions, the Ld. counsel filed a copy of the decision in Saleem Fazelbhoy v. DCIT (2007) 106 ITD 167 (Mumbai), CIT v. Late Khoobchand M. Makhija (2014) 112 DTR (Kar), Anusuya Suren Mirchandani v. ACIT (ITA No. 3159/Mum/2012).
On the other hand, the Ld. DR refers to page 7 of the Paper Book (P/B) filed by the assessee and submits that as the assessee failed to file the voucher relating to cost of improvement and only an affidavit has been filed, the AO has rightly disallowed the indexed cost of improvement of Rs.5,97,437/-. Further, the Ld. DR submits that the matter may be restored to the file of the CIT(A) to consider his directions at page 11 of his order dated 23.10.2017, after giving opportunity of being heard to the assessee.
We have heard the rival submissions and perused the relevant materials on record. In the case of Saleem Fazelbhoy v. DCIT (2007) 106 ITD 167 (Mumbai), relied on by the Ld. counsel it is held that there is distinction between expenditure incurred on making the house habitable and the expenditure on renovation. The Tribunal in that case held :
Mr. Nilkanth Mangesh Rege “We may visualize a situation where assessee may buy a habitable house but the assessee may like to incur expenditure by way of renovation to make it more comfortable. He may not be happy with the quality of material used by the builder and, therefore, he may incur the expenditure on improvement of the house. Such expenditure cannot be equated with the expenditure on making the house habitable. Whether the house purchased by the assessee was in a habitable condition or not would depend on the state of condition of the house at the time of purchase. Hence this aspect would have to be kept in mind while adjudicating such issue.” In CIT v. Late Khoobchand M. Makhija (2014) 112 DTR (Kar), it is held that the assessee using only part of the amount deposited u/s 54(2) for purchase of new asset, the balance in the deposit does not become taxable immediately on purchase of new asset but needs to be offered for tax as income of the previous year in which the period of 3 years from the date of transfer of original asset expires.
In the case of Anusuya Suren Mirchandani v. ACIT (ITA No. 3159/Mum/2012 for the AY 2008-09), the ITAT ‘A’ Bench, Mumbai vide order dated 13.11.2013 allowed the additional ground filed by the assessee on the reason that the CIT(A), without hearing the assessee enhanced the income. Admittedly, the assessee failed to file before the AO and CIT(A) the voucher relating to expenditure on cost of improvement. No other evidence except an affidavit could be filed by him. This is evident from page 7 of the P/B filed by the assessee. As no evidence could be filed by the assessee with regard to the cost of improvement, neither the case- laws relied on by him nor the affidavit would help him. The fact remains that cost of improvement is to be supported by documents like vouchers etc. As the assessee failed to submit any document in this Mr. Nilkanth Mangesh Rege Ld. CIT(A) has rightly confirmed the disallowance of cost of improvement made by the AO. Thus the 5th ground of appeal is dismissed. In the instant case, the Ld. CIT(A) has given a direction to the AO as delineated at para 5 hereinabove which amounts to enhancement without any opportunity being given to the assessee. Section 251(2) provides that the first appellate authority cannot enhance the amount of tax assessed or penalty imposed, or reduce the amount of refund, without first giving a notice of show-cause and an adequate opportunity to the assessee to show cause against the proposed enhancement or reduction. In the case of Gedore Tools Pvt. Ltd. v. CIT (1999) 238 ITR 268, 273 (Del), it is held that the power for enhancement by the first appellate authority is subject to the limitation as provided in section 251(2) and the question of enhancement can be considered only if notice was given in that regard. Thus following the ratio laid down in the above decision and the order of the Co-ordinate Bench in Anusuya Suren Mirchandani (supra), we allow the 1st, 2nd, 3rd ground of appeal as the Ld. CIT(A) has not followed the limitation as provided in section 251(2) of the Act.
9. Now we turn to the remaining ground of appeal i.e. the 4th one. During the course of assessment proceedings, the AO noticed that as per the AIR details the TDS is shown at Rs.3,69,421/- whereas the TDS as per 26AS is Rs.3,65,450/-. The AO brought to tax the corresponding income of Rs.39,708/- (on the differential amount of TDS of Rs.3,971/-.
Mr. Nilkanth Mangesh Rege
In appeal, the Ld. CIT(A) held as under :
I have gone through the facts of the case and the written submission made before me. The crux of the two grounds is that when the AO has taxed the amount of Rs.39,708/- the claim for TDS of Rs.3,971/- was not allowed. It appears from the records and the P&L Account and the 26AS form that assessee accounted for gross receipts of Rs.43,68,101/- and arrived at net profit of Rs.28,91,480/- and after excluding bank interest of Rs.7,64,023/-, offered net profits of Rs.21,27,458/- as income from business and profession. Prima facie, there appears to be an issue of reconciliation of gross receipts of Rs.43,68,101/- and the amount of gross receipts mentioned in form number 26AS and the TDS amount mentioned in 26AS and hence the AO is directed to obtain party wise details of gross receipts, TDS deducted and the net amount reflected in the P&L Account and reconcile the same and tax the correct amount for AY 2012-13 and give credit for the TDS after proper and detailed, verification. The assessee will also furnish the party wise details and documents of gross receipts and bring to tax the correct amount of professional receipts” to tax. AO will give opportunity to the assessee and assessee will also try to comply with these directions within reasonable period of time.”
Before us, the Ld. counsel submits that any statement document is to be read in full when AO is taking income as per TDS in AIR, then TDS credit should also be given as per AIR information.
The Ld. DR submits that the Ld. CIT(A) has given a specific direction to the AO in this regard.
We have heard the rival submissions and perused the relevant materials on record. We find that the direction given by the Ld. CIT(A) extracted hereinabove would resolve the above issue. Thus the 4th ground of appeal is allowed for statistical purposes.
Mr. Nilkanth Mangesh Rege