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Income Tax Appellate Tribunal, BANGALORE BENCHES “B”, BANGALORE
Before: Shri N.V.Vasudevan, VP & Shri B.R.Baskaran, AM
Per B.R.Baskaran, AM : The Revenue has filed these appeals challenging the orders passed by the learned CIT(A)-6, Bangalore in the hands
2 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. of the assessees herein for assessment years 2006-2007 and 2007-2008. Since issues urged in these appeals are identical in nature, they were heard together and are being disposed of by this common order.
The facts relating to the issues are stated in brief. The assessments in the hands of these assessees for the years under consideration were completed by the Assessing Officer u/s 143(3) r.w.s. 153A / 153C of the Act on 30.12.2009. The assessees along with their son Shri S.N.Ravi Kumar had entered into a joint development agreement on 07-08-2003 with a developer named M/s.Ittina Properties Private Limited for development of property owned by them. Both the assesses herein declared capital gains arising on account ofJoint development agreement in their returns of income filed for the years under consideration. The Assessing Officer completed the assessments by accepting the capital gains declared by both these assesses in both the years in the order passed u/s 143(3) of the Act.
Subsequently, both the assessees moved petitions u/s 154 of the Act requesting the Assessing Officer to exclude the capital gains offered by them in these two years. The case of the assessees was that the joint development agreement was entered on 07.08.2003 and hence the capital gains is assessable in the assessment year 2004-2005 only and not in the years under consideration. The assessees took support of the decision rendered by Hon’ble jurisdictional Karnataka
3 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. High Court in the case of Dr.T.K.Dayalu v. CIT (ITA 3205/2005).
The A.O., however, took the view that both theseassesseesare making a new claim, which they could have made only through revised return of income, as per the decision rendered by the Hon’ble Supreme Court in the case of Goetz (India) Ltd. The A.O. also took support of the decision rendered in the case of T.S.Balaram, ITO v. Volkari Bros (1971) 82 ITR 40], wherein it was held that a mistake apparent on the record must be and obvious and patent mistake and not something which can be established by a long drawn process or reasoning on points on which there may be conceivably two opinions. Accordingly, the A.O. took the view that the rectification petition filed by the assessees u/s 154 of the Act is not maintainable and accordingly, he dismissed them in both the years in the hands of both the assessees. The learned CIT(A), however, allowed the claim of the assessee and hence, the Revenue has filed these appeals before us.
The learned Departmental Representative invited our attention to Circular No.68 dated 17.11.1971 and submitted that the CBDT Circular permits rectification of mistakes u/s 154 of the Act only in the light of later decision of the Hon’ble Supreme Court. The learned DR submitted that, in the instant case, the learned CIT(A) has placed reliance on the subsequent decision rendered by the Hon’ble High Court of Karnataka in the case of CIT v. T.K.Dayalu (ITA No.3209/2005). The said
4 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. action of the learned CIT(A) is not in accordance with the view expressed in the CBDT Circular referred above. The learned DR also placed reliance on the case laws given in her written submission and contended that the rectification sought by the assessees is not permissible u/s 154 of the Act. For the sake of convenience, we extract below the written submission given by the learned CIT-DR:-
“GOA Nos. 2-3 – CIT(A) Travelled Beyond The Scope of Section 154 – Order Erroneous.
The order of CIT(A) is erroneous and therefore liable to be dismissed on the following ground:- 1. In GOA No.3 before CIT(A) the appellant clearly stated that as per C.B.D.T. Circular No.68 of 1971 any subsequent decision of Supreme Court could be applied for rectification under section 154, yet CIT(A) erroneously applied it to High Court decision. Thereby the CIT(A) violated the CB.D.T. Circular No.68 of 1971.
This legal position is upheld by the Apex Court in the following decision:
Mepco Industries Ltd. v. CIT (2009) 185 Taxman 409 (SC)
II. Further, the correct SCOPE of 154 is discussed in the following decisions:
CIT v. Jindal Stainless Ltd. (2012) 20 taxmann.com 531 (Delhi) – Neither a debatable point of law nor failure to apply the correct law to a set of facts can be corrected by way of rectification order.
KesharwaniZardaBhandar v. CIT (2013) 30 taxmann.com 387 (All.) – Applicability of a section not rectifiable.
5 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. CIT v. Historic Resort Hotels (2013) 31 taxmann.com 7 (Raj.) – In which year assessee was eligible to get depreciation, even if not claimed, is a disputable issue and not rectifiable.
CIT v. Thanbi Modern Spinning Mills Ltd. (2012) 21 taxmann.com 152 (Madras) – No rectification for debatable issues
R.B.L. BanarsiDass& Co. (P) Ltd. v. CIT (2008) 170 Taxman 419 (P&H)
JRD Stock Brokers (P) Ltd. v. CIT (2014) 52 taxmann.com 224 (Delhi). SLP Dismissed in (2015) 230 taxman 272 (SC)”
The Ld D.R submitted that the Joint Development Agreement entered by the assessee has to be examined in order to find out parity of facts between these cases and the case of Dr. T.K.Dayalu. When such an examination is required to be done, then the claim of the assessee cannot fall under the category of mistake apparent from record. She submitted that the Hon’ble Supreme Court has expressed so in the case of Mepco Industries Ltd (supra). She submitted that the assessee, in the case of Mepco Industries Ltd, offered power subsidy as revenue receipt. Subsequently it sought revision of the assessment order by claiming the same as capital subsidy. The Hon’ble Supreme Court held that the nature of subsidy should be examined in each case on the basis of facts available therein and the said exercise cannot be carried out u/s 154 of the Act. The Ld D.R further submitted that the assessees herein are making
6 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. new claims through rectification petition, which they should have made only by filing revised return of income. The claim made by these assesses are debatable in nature, since they seek exclusion of income, which was offered by them voluntarily. She further submitted that the debatable issues also cannot be rectified u/s 154 of the Act as held in the cases relied upon by her in the written submissions.
On the contrary, the learned AR took support of the decision rendered by the Hon’ble Supreme Court in the case of ACIT v. Saurashtra Kutch Stock Exchange Ltd. (305 ITR 227) and also the decision rendered by the Hon’ble Karnataka High Court in the case of Mysore Cements Ltd. v. DC of Commercial Taxes (1994) 93 STC 464 in order to contend that the subsequent order passed by the Hon’ble Supreme Court and High Court would give rise to the mistake apparent from record. The LdA.R submitted that the prayer made by the assessees to exclude the capital gains in these years isin accordance with the decision rendered by the jurisdictional High Court in the case of Dr. T.K.Dayalu (supra). He submitted that the capital gains assessed in the two years under consideration is not in accordance with the view expressed by Hon’ble jurisdictional High Court and hence the same is a mistake apparent from record. Accordingly, he contended that the Assessing Officer should have rectified the mistake, as prayed by the assesses by excluding the capital gains in the two years under consideration, since the capital
7 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. gain is assessable in AY 2004-05 only as per the decision rendered by the jurisdictional High Court.
We have heard the rival contentions and perused the record. We noticed that the learned CIT(A) has granted relief to the assessees with the following observations :-
“4.1 Further, the appellant relied on the following case laws in support of his claim / appeals.
Dr.T.K.Dayalu v. CIT (ITA 3205/2005) ChaturbujDwarda Kapadia – 260 ITR 491 (Bom.) SourashtraKatch Stock Exchange – Civil Appeal No.1171 of 2004 (SC)
India Tin Industries Pvt. Ltd. – 166 ITR 454 (Kar.)
Quilen Marine Produce Co. – 157 ITR 448 (Ker.)
Kesaria Tea Co. Ltd. – 233 ITR 700 (Ker.)
M/s.MinitexAerotools Pvt. Ltd. – ITA 1228/Bang/13 – ITAT Bangalore.
Smt.Shiromi Banerjee – MP No.56/Bang/11 – ITAT Bangalore
Larsen and Toubro Ltd. –WP No.2855 of 2016 (Bom.)
The grounds of appeal, Assessing Officer’s observations/ explanations, appellant’s written submissions made have been taken into consideration while disposing off these appeals. The Judicial decisions as highlighted by the AR, have also been duly perused.
It is noted that the assessment order passed u/s 143(3) on 30/12/2009 was based on the JDA entered into by the appellant with M/s.Ittina Properties on 07/08/2003. The appellant therefore
8 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. filed a rectification application u/s 154 with the Assessing Officer on 15/02/2013 contending that any income which arose by virtue of the JDA is assessable in AY 2004-05. However the Assessing Officer was of the view that no obvious or patent mistake was apparent from record since the long term / short term capital gains declared by the appellant was accepted in the assessment order. He therefore rejected the appellant’s contention.
During appellate proceedings, the AR of the appellant filed an Affidavit stating that the JDA entered into with M/s.Ittina Properties on 07/08/2003 was the sole and only JDA signed in respect of the said property.
It is also noted that the instant appeal is squarely covered by the decision of the Hon’ble jurisdictional High Court of Karnataka in the case of CIT v. Dr.T.K.Dayalu in ITA No.3209/2005. In the cited case supra, the Hon’ble High Court held that if date of contract indicates passing of or transferring of complete control over property in favour of developer, then date of contract would be relevant to decide the year of chargeability of capital gains. The Hon’ble Karnataka High Court placed reliance on the decision of the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (2003) 260 ITR 491 wherein it was held that long term capital gains arising out of JDA was chargeable to tax in the same year as that of JDA.
In the instant appeal, it is also noted that the property was handed over to the developer by appellant for construction of flats after signing of JDA. Therefore capital gains ought to have been charged in A.Y. 2004-05 as per amended provisions of section 2(47) (v) r.w.s. 53A of the Transfer of Properties Act wref 01/04/1988.
As mentioned in preceding paras, it is seen that assessment order passed u/s 143(3) on 30/12/2009
9 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. was based entirely on the JDA entered into by the appellant with M/s.Ittina Properties on 07/08/2003. Furthermore it is also observed that the appeal is covered by decision of Hon’ble jurisdictional High Court of Karnataka in the case of CIT v. Dr.T.K.Dayalu in ITA No.3209/2005. And Since judicial discipline requires that wisdom of higher authorities prevail, it is held that income which rose by virtue of JDA dated 07/08/2003 is assessable in A.Y.2004-05. The AO may give appeal effect in terms of section 250.”
The Ld A.R placed his reliance on the decision rendered by Hon’ble Supreme Court in the case of Saurashtra Kutch Stock Exchange Ltd (supra), wherein it was held that the AO can rectify mistakes on the basis of subsequent decision of jurisdictional High Court and Supreme Court. For the sake of convenience, we extract below the relevant observations made by Hon’ble Supreme Court:-
“40. The core issue, therefore, is whether non- consideration of a decision of Jurisdictional Court (in this case a decision of the High Court of Gujarat) or of the Supreme Court can be said to be a "mistake apparent from the record"? In our opinion, both - the Tribunal and the High Court - were right in holding that such a mistake can be said to be a "mistake apparent from the record" which could be rectified under Section 254(2). 41. A similar question came up for consideration before the High Court of Gujarat in Suhrid Geigy Limited v. Commissioner of Surtax, Gujarat, (1999) 237 ITR 834 (Guj). It was held by the Division Bench of the High Court that if the point is covered by a decision of the Jurisdictional Court rendered prior or even subsequent to the order of rectification, it could be said to be "mistake apparent from the record"
10 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. under Section 254 (2) of the Act and could be corrected by the Tribunal. 42. In our judgment, it is also well- settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a `new rule' but to maintain and expound the `old one'. In other words, Judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood. 43. Salmond in his well-known work states; "(T)he theory of case law is that a judge does not make law; he merely declares it; and the overruling of a previous decision is a declaration that the supposed rule never was law. Hence any intermediate transactions made on the strength of the supposed rule are governed by the law established in the overruling decision. The overruling is retrospective, except as regards matters that are res judicatae or accounts that have been settled in the meantime". (emphasis supplied) 44. It is no doubt true that after a historic decision in Golak Nath v. Union of India, (1967) 2 SCR 762, this Court has accepted the doctrine of `prospective overruling'. It is based on the philosophy: "The past cannot always be erased by a new judicial declaration". It may, however, be stated that this is an exception to the general rule of the doctrine of precedent.” In view of the law laid down by Hon’ble Supreme Court in the above said case, it is clear that the subsequent decision of jurisdictional High Court would give rise to mistake from
11 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. record, if the order of the AO is against the law interpreted by the jurisdictional High Court. Similar view has been expressed by the Hon’ble jurisdictional Karnataka High Court in the case of Mysore Cements Ltd. (supra).
Hence, on the legal point, there is merit in the contentions of the assesses that the subsequent decision of the jurisdictionalHigh Court would also give rise to mistake apparent from record.
The scope of rectification order to be passed u/s 154 of the Act is limited. The mistake sought to be rectified should be apparent from record. The Hon’ble Supreme Court in the case of T.S.Balaram vs. Volkart Bros (82 ITR 40) has explained the scope of mistakes apparent from record. It was held that a mistake apparent from record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two options. A decision on debatable point of law is not a mistake apparent from record. The various case laws relied upon by Ld D.R also explains the scope of provisions of sec.154 of the Act.
However, on a perusal of the rectification orders passed by the assessing officer as well as the original assessment order also, we notice that the assessing officer has not examined the Joint Development Agreement at all. Before us, the assessee has relied upon the decision rendered by Hon’ble jurisdictional High Court in the case of Dr.T.K.Dayalu (supra).
12 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. We notice that the said decision was rendered in respect of assessment year 1997-98. We are concerned herewith with assessment year 2004-05, 2006-07 and 2007-08. The provisions of sec.53A of the Transfer of Property Act has undergone a change in 2001 and the effect of the same was examined by Hon’ble Supreme Court in the case of CIT vs. Balbir Singh Maini (398 ITR 531) in the context of Joint Development Agreement, wherein the Hon’ble Supreme Court has partially upheld the view expressed by Hon’ble Punjab & Haryana High Court in the case of C.S.Atwal (378 ITR 244). Hence the law pronounced by Hon’ble Supreme Court in the case of Balbir Singh Maini (supra) may have a bearing on the claim put forth by the assessees herein in their respective petitions filed u/s 154 of the Act. We notice that the Ld CIT(A) has not considered the Joint Development Agreement and also above said decision rendered by Hon’ble Supreme Court.
We notice that the assessing officer has dismissed the rectification petitions filed by the assessee without showing that the claim of the assessees does not fall under the category of mistake apparent from record. Even though the assessing officer has taken support of the decision rendered by Hon’ble Supreme Court in the case of T.S.Balaram vs. Volkart Bros (supra), yet he has not spelt out as to how the said decision is applicable to the facts of the present case, meaning thereby, the rectification orders passed by the AO in both years in the hands of both the assessees are non- speaking orders. The AO, in our view, should have examined
13 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. the claims of the assessees within the scope of provisions of sec.154 of the Act by passing a speaking order by referring to the Joint Development Agreement. As noticed earlier, the Ld CIT(A) has also not examined the facts available in the present case and also did not examine the applicability of the decision rendered by Hon’ble Supreme Court, referred above.
Under these set of facts, we are of the view that the petitions filed by both the assessees in both the years require fresh examination at the end of the AO for examining the claim of the assessees within the scope of provisions of sec.154 of the Act. Accordingly we set aside the orders passed by Ld CIT(A) in the hands of both the assessees in both the years and restore them to the file of the assessing officer with the direction to examine the petitions of both the assessees afresh by duly considering various decisions rendered by Hon’ble jurisdictional High Court as well as Hon’ble Supreme Courts. After affording adequate opportunity of being heard, the AO may take appropriate decision in accordance with the law.
14 ITA No.1693/Bang/2016 &Ors. Late Sri.A.S.Narayana Raju &Anr. 14. In the result, all the appeals of the revenue are treated as allowed for statistical purposes.
Order pronounced on this 20th day of February, 2019.
Sd/- Sd/- (N.V.Vasudevan) (B.R.Baskaran) VICE-PRESIDENT ACCOUNTANT MEMBER
Bangalore ; Dated : 20th February, 2019. Devdas*/MS/
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) Mysore. 4. The Pr.CIT Mysore. 5. The DR, ITAT, Bangalore 6. Guard file. True copy
BY ORDER,
(Asstt.Registrar) ITAT, Bangalore