MR POPATRAO DASHRATHRAO SURYAWANSHI,PUNE vs. INCOME TAX OFFICER, WARD-7(4), PUNE, PUNE

Before the Ld. CIT(A) / NFAC the assessee, apart from challenging the denial of deduction u/s 54B of the Act, made an alternate claim that the assessee would like to file a revised computation for the year under consideration for withdrawing the capital gain income and claim deduction u/s 54F of the Act. Relying on various decisions including the decision of Hon’ble Bombay High Court in the case of CIT vs. Pruthvi Brokers & Shareholders reported in 349 ITR 336 (Bomb) it was argued that the assessee be allowed to revise its claim.

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:

The learned CIT Appeals has erred in dismissing the assessee's appeal without affording adequate opportunity of being heard and without considering assessee's submissions.

The Ld. Counsel for the assessee at the outset submitted that the assessee has entered into a Joint Venture agreement on 20.01.2011 which was registered and the possession was delivered. Therefore, the transfer as prescribed u/s 2(47)(iv) / (v) of the Act has taken place. Referring to the decision of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT reported in 260 ITR 491 (Bom), he submitted that handing over possession pursuant to development agreement constitutes transfer.

The Ld. Counsel for the assessee referring to the assessment order for assessment year 2014-15, copy of which is placed at pages 70 to 88 of the paper book drew the attention of the Bench to page 73 of the paper book i.e. para 3.1 of the assessment order and drew the attention of the Bench to the reasons recorded for issue of notice u/s 148 of the Act where the Assessing Officer has mentioned as under:

Similarly, referring to the assessment order for assessment year 2015-16, copy of which is placed at pages 89 to 100 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to para 3.1 of the order where the Assessing Officer has mentioned as under:

Referring the assessment order for assessment year 2016-17, copy of which is placed at pages 101 to 108 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to para 6 of the order where the Assessing Officer has mentioned as under:

Referring to the decision of Hon’ble Supreme Court in the case of CIT vs. Balbir Singh Maini reported in 398 ITR 531 (SC), he submitted that the Hon’ble Supreme Court in the said decision has held that registered development agreement with possession constitutes transfer within meaning of section 2(47) of the Act. He submitted that the purpose of assessment proceedings before the taxing authorities is to assess the correct tax liability of an assessee in accordance with law. For the above proposition, he relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. Bharat General Reinsurance Co. Ltd. reported in 81 ITR 303 (Del) and the decision of the Pune Bench of the Tribunal in the case of Technoforce Solutions (I) Pvt Ltd vs. DCIT vide order dated 10.01.2024 for assessment year 2015-16.

Referring to the decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT reported in (2006) 284 ITR 323 (SC) and the decision of Hon’ble Bombay High Court in the case of CIT vs. Pruthvi Brokers & Shareholders (supra), he submitted that the assessee can make a new claim during the appellate proceedings.

Referring to the decision of Hon’ble Bombay High Court in the case of Balmukund Acharya vs. CIT reported in (2009) 310 ITR 310 (Bom) and the decision of Hon’ble Karnataka High Court in the case of Shri Devendra Pai vs. ACIT reported in 439 ITR 532 (Kar), he submitted that the department must not take advantage of ignorance of the assessee about his rights and it is their duty to assist the tax payer in every reasonable way.

Referring to the following decisions, he submitted that the appellate authorities have the appellate power u/s 254 of the Act to consider the revised claim or admit a new claim by the assessee: i) National Thermal Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC) ii) Jute Corporation of India Ltd. Vs. CIT (1991) 187 ITR 688 (SC) iii) CIT vs. M/s. Abhinitha Foundation Pvt Ltd. vide of 2016 dated 06.06.2017 iv) Sanchit Software & Solutions (P.) Ltd. Vs. CIT (2021) 349 ITR 404 (Bom)

Referring to the decision of Hon’ble Supreme Court in the case of CIT vs Mahalakshmi Textile Mills Ltd reported in 66 ITR 710 (SC) and the decision of Hon’ble Bombay High Court in the case of Ciba of India Ltd vs. CIT reported in 70 Taxman 505 (Bom), he submitted that the assessee can raise an alternate plea / ground before the Tribunal even if not raised earlier.

The Ld. Counsel for the assessee submitted that both the lower authorities have given a concurrent finding that the transfer of agricultural land occurred on 20.01.2011 by virtue of provisions of section 2(47)(iv) and 2(47)(v) of the Act. He submitted that whichever stand one adopts whether conversion into stock or whether transfer of agricultural land, the issue of capital gain on sale has to be considered in assessment year 2011-12. He submitted that on that date the land was agricultural land under cultivation situated beyond municipal limits. Since the agricultural land is not a capital asset u/s 2(14)(iii) of the Act, therefore, no capital gain could arise in assessment year 2011-12. He submitted that conversion of capital asset into stock u/s 45(2) of the Act is inconsequential and the transfer of land and conversion of land into stock on same day has no effect. Further, if flats are treated as converted, then its cost and market value on date of conversion is again the same. Therefore, the issue of section 45(2) is inconsequential.

The Ld. Counsel for the assessee also filed a copy of the occupancy certificate dated 23.12.2014 and the following chart disclosing the calculation of correct capital gain on sale of flats:

He accordingly submitted that once the transfer has taken place the capital gain that arises for receipt of the area as per the JV agreement is liable to tax in the assessment year 2015-16. Once the assessee sells the flats in the current assessment year i.e. assessment year 2017-18, the capital gain that is liable to be taxed is the difference between the sale price minus the cost of acquisition i.e. the cost of flats that has been allotted to the assessee in the financial year 2014-15 relevant to assessment year 2015-16. He accordingly submitted that he has no objection if the matter is restored to the file of the Assessing Officer with a direction to compute the correct capital gain tax as per law.

The Ld. DR on the other hand while supporting the orders of the Assessing Officer and the Ld. CIT(A) / NFAC submitted that he has no objection if the matter is restored to the file of the Assessing Officer with a direction to re-compute the correct tax liability on account of sale of flats during the impugned assessment year.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case disallowed the claim of deduction u/s 54B of the Act on the ground that the assessee has already availed deduction u/s 54B of the Act in assessment years 2014-15, 2015-16 and 2016-17. Further, the assessee during the year has again claimed the deduction u/s 54B of the Act on account of purchase of agricultural land which is after a period of 2 years since the date of transfer as per JV agreement and as per the transfer of capital asset in stock in trade is dated 20.01.2011 and the assessee has purchased the agricultural land on 23.03.2017. The reasons given by the Assessing Officer for rejecting the claim of deduction u/s 54B of the Act have already been reproduced in the preceding paragraphs. We find before the Ld. CIT(A) / NFAC the assessee made an alternate claim stating that the claim of deduction u/s 54B is incorrect and the assessee is entitled to claim deduction u/s 54F of the Act. However, the Ld. CIT(A) / NFAC also rejected the same, the reasons of which have already been reproduced in the preceding paragraphs.

It is an admitted fact that the assessee is neither entitled to any deduction either u/s 54B or u/s 54F. The assessee is liable for capital gain tax on the income that arose on the sale of flats during the impugned assessment year i.e. assessment year 2017-18. It is the submission of the Ld. Counsel for the assessee that once the assessee has entered into a registered JV agreement on 20.01.2011 the asset was transferred and the share of the assessee being 34% of the constructed area is the capital asset in the hands of the assessee and the same is liable for capital gain. However, since the land sold was an agricultural land, the capital gain in the hands of the assessee during the assessment year 2011-12 does not arise. However, when the flats are sold during the impugned assessment year, the capital gain has to be computed by deducting the cost of acquisition from the sale price and the resultant capital gain, if any, is liable to tax.

We find some force in the above arguments of the Ld. Counsel for the assessee. The Hon’ble Bombay High Court in the case of CIT vs. Pruthvi Brokers & Shareholders (supra) has held that an assessee is entitled to raise not merely legal submissions before the appellate authorities but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. The relevant observations of Hon’ble High Court read as under: “(B) It is clear, therefore, that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion

We find the Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (supra) has held as under: “4. The decision in question is that the power of the Tribunal under section 254 of the Income Tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Tribunal under section 254 of the Income Tax Act, 1961. There shall be no order as to costs.”

In view of the above decisions, we hold that the assessee is entitled to raise an additional claim before the appellate authorities and the appellate authorities have the jurisdiction to entertain such a new claim.

We further find the Hon’ble Bombay High Court in the case of Balmukund Acharya vs. CIT (supra) has held that if any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. If particular levy is not permitted under the Act, tax cannot be levied applying the doctrine of estoppel. Similar view has been taken by Hon’ble Karnataka High Court in the case of Shri Devendra Pai vs. ACIT (supra).

We find the Hon’ble Delhi High Court in the case of CIT vs. Bharat General Reinsurance Co. Ltd. (supra) has held that the purpose of assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law.

Since the Assessing Officer in the preceding years has already given a finding that the date of transfer of the land as per the JV agreement is 20.01.2011, therefore, the transfer of the land has taken place in assessment year 2011-12. Further, the flats were handed over to the assessee on 23.12.2014 as per the occupancy certificate. Thus, the market value of the share of the assessee towards the flats is the cost of acquisition in the assessment year 2015-16. Once the assessee sells the same in assessment year 2017-18, the capital gain that can be brought to tax is the difference between the sale price and the cost of acquisition. Since the assessee has filed a revised computation for determination of the correct tax liability on account of capital gain, therefore, considering the totality of the facts and circumstances of the case and relying on the decisions cited (supra), we deem it proper to restore the issue to the file of the Assessing Officer with a direction to verify the computation of long term capital gain and determine the correct tax liability in the hands of the assessee. Needless to say the Assessing Officer shall decide the issue as per fact and law and after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes.