NARESH JERAMDAS IDNANI ,MUMBAI vs. ITO, INT TAX WARD-2(2)(1), MUMBAI

The relevant facts in brief are that the Appellant filed revised return of income on 19/09/2016 declaring total income at INR.80,96,060/-. In the return of income, the Appellant had declared Long Term Capital Gain of INR.50,96,000/- arising from sale of a Flat at Khar, Mumbai [hereinafter referred to as ‘the Capital Asset’]. In the computation of Long Term Capital Gain, the appellant claimed Indexed Cost of Acquisition of INR.72,55.240/- by taking Fair Market Value of the Capital Asset as on 01/04/2081 at INR.6,71,160/- on the basis of valuation report obtained from a valuer. The Indexed Cost of Acquisition was computed by the Appellant as under: - FMV as on 01/04/1981 : INR.6,71,160/- - Cost Inflation Index for F.Y. 2015-16 : 1081 - Cost Inflation Index for F.V. 1981-02 : 100 - Indexed Cost of Acquisition : INR.72,55,240/- [INR.6,71,160 X 1081/100] 4. The case of the Appellant was selected for scrutiny assessment. During the course of assessment proceedings, the Assessing Officer formed a view that the Cost of Acquisition, being Fair Market Value of the Capital Asset as on 01/04/1981, adopted by the Appellant was high and therefore, reference was made to the District Valuation Officer (DVO), Mumbai on 13/12/2018 for determining the FMV of the Capital Asset. Thereafter, subject to revision on receipt of DVO's report in a reference made under Section 55A of the Act. Since the report from the DVO could not be received till the time of completion of the assessment, the Assessing Officer proceeded to pass Assessment Order, dated 28/12/2018, under Section 143(3) of the Act assessing total income of the Appellant at INR.1,07,98,450/-. While doing so that Assessing Officer adopted the Cost of Acquisition of Capital Asset at INR72,55,240/- as adopted by the Appellant while offering to tax capital gains income (subject to receipt of the report from DVO) which was reduced by Indexed Cost of Compensation Received amounting to INR.27,02,385/-. The issue of reduction of 3 Assessment Year: 2016-2017 Cost of Acquisition of Capital Asset of INR.72,55,240/- by the Indexed Cost of Compensation Received amounting to INR.27,02,385/-, travelled to the Tribunal and was decided in favour of the Appellant vide order dated 15/05/2023, passed in ITA No. 5830/Mum/2019.

Meanwhile, the final valuation report from the DVO was received by the Assessing Officer on 13/08/2019 wherein the FMV of the Capital Asset as on 01/04/1981 was determined at INR.2,55,360/- as against INR.6,71,160/- adopted by the Appellant in the computation of total income. On receipt of the DVO's report, the Assessing Officer issued a notice under Section 154 of the Act on 06/07/2023 proposing to re-compute Long Term Capital Gain adopting the FMV of INR.2,55,360/- (as on 01/04/1981) determined by the DVO. Thereafter, a Rectification Order, dated 25/07/2023, was passed under Section 154 read with Section 143(3) of the Act whereby (a) effect was given to the order, dated 15/05/5023, passed by the Tribunal in and (b) Long Term Capital Gain adopting the FMV of INR.2,55,360/- (as on 01/04/1981) determined by the DVO.

The Appellant preferred appeal before the CIT(A) against the above Rectification Order, dated 25/07/2023 contending inter alia that the same was barred by limitation as the Assessment Order sought to be rectified was passed on 25/07/2023 and since more than 4 years have lapsed since the passing of the assessment order, no rectification order could be passed in view of the provisions contained in Section 154(7) of the Act. However, the CIT(A) dismissed the appeal holding that no time limit was prescribed under the provisions of the Act to give effect to the report of DVO sought by the Assessing Officer under Section 55A of the Act.

Being aggrieved, the Appellant has preferred the present appeal 4 Assessment Year: 2016-2017 before the Tribunal.

The issue that arises for consideration is whether the Rectification Order, dated 25/07/2023, is barred by limitation.

Admittedly, the Assessing Officer has exercised powers under Section 154 of the Act. As per Section 154(7) of the Act, no order of rectification can be passed after the expiry of 4 years from the end of the financial years in which order sought to be rectified has been passed. Unlike Section 153 of the Act, which provides the time limit for completion of assessment, Section 154(7) of the Act does not contain any clauses for exclusion of any time taken for obtaining report in reference made Section 142A/55A of the Act. Section 154(7) of the Act prescribes an outer limit within which rectification order must be passed. In the present case the Assessment Order was passed on 28/12/2018 which falls within the Financial Year 2018-2019. The period of 4 years specified under Section 154(7) lapsed on 31/03/2023. Since the Rectification Order was passed on 25/07/2023, the same is barred by limitation prescribed in Section 154(7) of the Act. Even if the contention of the contention of the Revenue is accepted that there is no time limit prescribed to give effect to the report received from DVO in a reference made under Section 55A of the Act, there is time limit prescribed in Section 154(7) of the Act to pass a rectification order in terms of Section 154(1) of the Act. Admittedly, the Assessing Officer has exercised powers of rectification to pass order under Section 154(1) of the Act which should have been passed within the time limit of 4 years prescribed under Section 154(1) of the Act. In any case, it is settled law that where no time limit has been prescribed, the order should be passed within a reasonable time. In our view, unless the facts and circumstances of the case provide otherwise, a period of 4 years from the end of relevant previous year in which order sought to be rectified has been passed is a reasonable time. Therefore, we reject 5 Assessment Year: 2016-2017 the contention of the Revenue that the Assessing Officer can pass an order under Section 154 of the Act any time as the Assessing Officer may deem fit since no time limit has been prescribed. We note that Final Report of the DVO was received on 08/08/2019 whereas the rectification order was passed on 25/07/2023. It appears that the Assessing Officer came into action only after receiving the order, dated 15/05/2023, passed by the Tribunal in ITA No. 5830/Mum/2019.

We further note that the legislature had, where so desired, had provided for extended period for passing order of Rectification under Section 154 of the Act. Attention in this regard is invited to Section 155 of the Act which contains provisions relating to amendments in respect specified completed assessments. Section 155(15) of the Act reads as under: “Section 155(15) Where in the assessment for any year, a capital gain arising from the transfer of a capital asset, being land or building or both, is computed by taking the full value of the consideration received or accruing as a result of the transfer to be the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in accordance with sub-section (1) of section 50-C, and subsequently such value is revised in any appeal or revision or reference referred to in clause (b) of sub-section (2) of that section, the Assessing Officer shall amend the order of assessment so as to compute the capital gain by taking the full value of the consideration to be the value as so revised in such appeal or revision or reference; and the provisions of section 154 shall, so far as may be, apply thereto, and the period of four years shall be reckoned from the end of the previous year in which the order revising the value was passed in that appeal or revision or reference.]”

A perusal of Section 155(15) of the Act shows that the provisions contained therein permit the Assessing Officer to amend an order of assessment for the purpose of computing capital gains in case where the full value of consideration is revised in a reference made under 6 Assessment Year: 2016-2017 Section 50C(2)(b) of the Act. The aforesaid provisions also provide the period of four years for passing the rectification order under Section 154 of the Act shall also be reckoned from the end of the previous year in which the order revising the full value of consideration was passed, inter alia, in the reference made under Section 50C(2)(b) of the Act. However, no corresponding provisions relating to Section 55A of the Act are available either in Section 155 of the Act, or elsewhere in the Act.

In view of the above, we reject the contention of the Revenue that that there is no time limit prescribed under the provisions of the Act for passing rectification order under Section 154 of the Act in case of receipt of valuation report in a reference made under Section 55A of the Act. Accordingly, we hold that the rectification order passed on 25/07/2023 after the expiry of four years from the Assessment Order dated 28/12/2018 is barred by limitation of four years as prescribed Section 155(7) of the Act. Accordingly, Ground No.1.1. to 1.3. raised by the Appellant are allowed while all the grounds raised by the Appellant are dismissed as having being rendered infructuous.

In result, in term of paragraph 12 above, the appeal preferred by the Assessee is allowed.