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Facts
The assessee sold tenancy rights for INR 6,00,00,000/- resulting in a capital gain of INR 5,50,00,000/-. Initially, the assessee claimed deduction under Section 54EC but later revised the claim to Section 54 and then to Section 54F, stating the original mention was an inadvertent mistake.
Held
The CIT(A) held that the assessee was entitled to claim deduction under Section 54F of the Act, as the conditions were fulfilled and the mistake in mentioning the section was inadvertent. The Tribunal upheld the CIT(A)'s decision, relying on Supreme Court judgments that allow appellate authorities to consider fresh claims.
Key Issues
Whether the CIT(A) was justified in allowing deduction under Section 54F when the claim was not made in the original return and was changed multiple times, despite the Assessing Officer disallowing it based on the Goetze (India) Ltd. judgment.
Sections Cited
54EC, 54, 54F, 250, 143(3), 43B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
[ Per Rahul Chaudhary, Judicial Member:
The present appeal preferred by the Revenue is directed against the order, dated 20/02/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had allowed the appeal against the Assessment Order, dated 20/12/2018, passed under Section 143(3) of the Act for the Assessment Year 2016-17. 2. The Revenue has raised following grounds of appeal :
“1. Whether on the facts and circumstances of the case and in law, Assessment Year 2016-2017
the Ld. CIT(A) is justified in allowing the deduction u/s.54F of the Act without appreciating that the assessee neither claimed the said deduction in original return of income filed nor has filed any revised return of income claiming the deduction u/s.54 of the Act.
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deduction u/s.54F of the Act, without appreciating that the Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 824 ITR 323 (SC) held that the assessee could make claim of deduction by filing a revised return and the assessing officer cannot allow the deduction claimed by way of a letter from the assessee?.
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the claim made under wrong section is inadvertent, without appreciating the fact that the assessee changed the claim of deduction from Section 54EC to Section 54 of the Act and later from Section 54 to Section 54F of the Act, which clearly shows that the change in claim of deduction is deliberate and not inadvertent?”
The relevant facts are in brief that the Assessee filed return of income for the Assessment Year 2016-17 on 31/01/2017 declaring income of INR.74,77,900/-. The case of the Assessee was selected for regular scrutiny. During the assessment proceedings, the Assessing Officer noted that the Assessee had transferred tenancy rights of a Flat No.7B, admeasuring 1000 sq.ft of carpet area on the Ground Floor of Mohammad Building during the relevant previous year for a consideration of INR.6,00,00,000/- and had offered to tax Long Term Capital Gain of INR.50,00,000/- after claiming exemption of INR.5,50,00,000/- under Section 54EC of the Act. When the Assessee was asked to substantiate the claim of deduction of INR.5,50,00,000/- under Section 54EC of the Act, the Assessee claimed that the Assessee was entitled to deduction under Section 54 of the Act and had incorrectly mentioned Section 54EC in the return of income. Subsequently, vide notice dated 05/11/2018, the Assessee was asked to show caused why deduction claimed by the Assessee under Section 54 of the Act should not be disallowed since
2 Assessment Year 2016-2017
the above said deduction was available in case of sale of residential property and not for sale of tenancy rights. In reply to the said notice, the Assessee claimed deduction under Section 54F of the Act. It was submitted on behalf of the Assessee that the tenancy rights were held by the Assessee for more than three years and therefore, the tenancy rights constituted Long Term Capital Assets. The sale consideration from transfer of aforesaid tenancy rights was deposited in the Capital Gain Account and was subsequently, utilized for the purchase of a residential house property within the time specified under Section 54F of the Act. Since all the conditions specified under Section 54F of the Act were satisfied, the Assessee was entitled to claim deduction under Section 54F of the Act. However, the Assessing Officer was not convinced with the explanation furnished by the Assessee and rejected the claim of deduction under Section 54F of the Act on the ground that the Assessee had failed to file revised return of income and had only made claim of deduction under Section 54F of the Act by way of filing a letter during the assessment proceedings. Thus, vide an Assessment Order, dated 20/12/2018, passed under Section 143(3) of the Act, the Assessing Officer made an addition of 5,50,00,000/- in the hands of the Assessee as taxable Long Term Capital Gains.
Being aggrieved, the Assessee preferred the appeal against the Assessment Order, dated 20/12/2018 before the CIT(A). During the appellate proceedings, the Assessee reiterated the submissions made before the Assessing Officer. After examining the claim of deduction under Section 54F of the Act, the CIT(A) concluded that the Assessee was entitled to claim deduction under Section 54F of the Act and therefore, addition of INR.5,50,00,000/- made by the Assessing Officer was deleted.
Being aggrieved, the Revenue has now preferred the present appeal before this Tribunal on the grounds reproduced at paragraph 2
3 Assessment Year 2016-2017
above.
The Departmental Representative submitted that it is admitted position that the Assessee had failed to claim the deduction under Section 54F of the Act in the return of income filed by the Assessee for the Assessment Year 2016-2017, and had claimed the benefit of Section 54EC of the Act by filing a letter during the assessment proceedings. The Assessing Officer had noted that in the return of income the Assessee had claimed deduction under Section 54EC of the Act which was admittedly not available to the Assessee. During the assessment proceedings the Assessee revised the claim of deduction from Section 54EC of the Act to claim of deduction under Section 54 of the Act and thereafter, to the claim of deduction under Section 54F of the Act. Since no revised return was filed by the Assessee, the Assessing Officer could not have entertain the claim made by the Assessee during the assessment proceedings by merely filing a letter in view of the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT [2006] 284 ITR 323 (SC). Thus, the Learned Departmental Representative supported the order passed by the Assessing Officer and submitted that the addition of INR.5,50,00,000/- made by the Assessee holding the same to be taxable Long Term Capital Gain be restore.
Per contra the Learned Authorised Representative for the Assessee relied upon the submissions made before the CIT(A). Placing reliance upon the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Pruthvi Brokers & Shareholders Pvt. Ltd.: 349 ITR 336, the Authorized Representative for the Assessee submitted that the CIT(A) was permitted to entertain the claim of deduction under Section 54F of the Act even though no revised return was filed by the Assessee. Even if the claim of deduction under Section 54F of the Act is considered to be additional claim of deduction made during the appellate proceedings before the Tribunal, the CIT(A) had 4 Assessment Year 2016-2017
the juri iction/power to entertain the same as all the facts were on record and pleaded during the assessment proceedings. As per the judgemnet of Hon’ble Supreme Court in the case of Goetze (India) Ltd. (Supra), only the Assessing Officer was barred from entertaining a fresh claims during the assessment proceedings except by way of revised return, whereas no such embargo was placed upon the appellate authorities. He submitted that the CIT(A) had after examining all the relevant documents and details accepted the claim for deduction under Section 54F of the Act made by the Assessee and the Revenue has no disputed this on merits.
We have considered the rival submissions and perused the material on record.
We note that vide order, dated 20/02/2024, impugned by Revenue by way of the present appeal, the CIT(A) has granted relief to the Assessee holding as under:
“6. 0. I have perused the assessment order, appeal documents and submissions of the assessee. In the impugned year the assessee sold the tenancy rights for a consideration of Rs.6,00,00,000/- resulting in capital gains of Rs.5,50,00,000/- In the return of income, the assessee claimed deduction u/s.54EC of the Act. During the assessment proceedings, the assessee submitted that due to an inadvertent mistake the claim of deduction was wrongly made u/s 54EC instead of 54F of the Act. The AO denied the claim stating that the assessee did not claim any deduction u/s.54F in the return of income. Now, the issue is whether the AO was right in denying the claim. In the instance case, there is no dispute that the assessee claimed the deduction u/s.54EC of the Act instead of claiming it u/s.54F of the Act. Therefore, it is not a case wherein the assessee failed to make any claim of deduction in the return. Rather, there was a claim of deduction of Rs.5,50,00,000/- in the return of income albeit u/s.54EC of the Act. The assessee clarified during the scrutiny proceedings that the claim pertained to Section 54F and justified the claim with relevant documents like sale agreement, deposits of the sale
5 Assessment Year 2016-2017
consideration in the capital gains account and deed for purchase of new asset within the stipulated time. Therefore, the claim of deduction was intended u/s.54F and the assessee fulfilled the necessary requirements. Under such circumstances, a mere inadvertence in mentioning a wrong section in the return cannot be reason for denial of benefit of deduction u/s.54F. In light of the above facts, the AO is directed to allow the deduction u/s.54F of the Act and ground of appeal filed by the assessee are allowed. In result, the appeal is allowed.”
Thus, the CIT(A) has accepted the claim of the Assessee that the Assessee is entitled to claim deduction under Section 54F of the Act. On perusal of the grounds raised by the Revenue we find that no infirmity has been pointed out by the Revenue in the claim of deduction under Section 54F of the Act on merits. It is not the case of the Revenue that the conditions specified in Section 54F of the Act are not satisfied in the case of the Assessee. The case set up by the Revenue is that the Assessing Officer could not have entertained or allowed the claim of the Assessee for deduction under Section 54F of the Act since the same was not made by way of the revised return.
We note that the Hon’ble Supreme Court had, in the case of National Thermal Power Co. Ltd. v. CIT: [1998] 229 ITR 383, held that the failure to make a claim in the return of income does not take away the power of the appellate authorities to consider a fresh claim, which is otherwise tenable in law, if the relevant material is available on record. In the case of Goetze (India) Ltd. Vs. Commission of Income Tax: [2006] 284 ITR 323 (SC), relied upon by the Learned Departmental Representative, the Supreme Court had negated the reliance by the assessee in that case on the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra) by observing that the said judgment did 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 case of 6 Assessment Year 2016-2017
Pruthvi Brokers & Shareholders Pvt. Ltd (supra), after considering both the aforesaid judgments of Hon’ble Supreme Court, the Hon’ble Bombay High Court concluded that the judgment of the Hon’ble Supreme Court in the case Goetze (India) Ltd. (supra) does not impinge upon the power of the appellate authorities as the issue in that case was limited to the power of the assessing authority and that the appellate authorities could consider additional claims raised before them as per the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra). The relevant extract of aforesaid judgment reads as under:
“18. In the case before us, the CIT(A) and the Tribunal have held the omission to claim the deduction of Rs.40,00,000/- to be inadvertent. Both the appellate authorities held, after considering all the facts, that the assessee had inadvertently claimed a deduction of Rs.20,00,000/-paid after the end of the year in question. We see no reason to interfere with this finding. We see less reason to interfere with the exercise of discretion by the appellate authorities in permitting the respondent to raise this claim. That the respondent is entitled to the deduction in law is admitted and, in any event, clearly established. In the circumstances, the respondent ought not be prejudiced.
The orders of the CIT(A) and the Tribunal clearly indicate that both the appellate authorities had exercised their juri iction to consider the additional claim as they were entitled to in view of the various judgments on the issue, including the judgment of the Supreme Court in National Thermal Power Corpn. Ltd. (supra). This is clear from the fact that these judgments have been expressly referred to in detail by the CIT(A) and by the Tribunal.
We wish to clarify that both the appellate authorities have themselves considered the additional claim and allowed it. They have not remanded the matter to the Assessing Officer to consider the same. Both the orders expressly direct the Assessing Officer to allow the deduction of Rs. 40,00,000/- under section 43B of the Act. The Assessing Officer is, therefore, now only to compute the respondent's tax liability which he must do in accordance with the orders allowing the respondent a deduction of Rs. 40,00,000/- under section 43B of the Act.
The conclusion that the error in not claiming the deduction in the return of income was inadvertent cannot be faulted for more
7 Assessment Year 2016-2017
than one reason. It is a finding of fact which cannot be termed perverse. There is nothing on record that militates against the finding. The appellant has not suggested, much less established that the omission was deliberate, mala-fide or even otherwise. The inference that the omission was inadvertent is, therefore, irresistible.
It was then submitted by Mr. Gupta that the Supreme Court had taken a different view in Goetze (India) Ltd ( supra). We are unable to agree. The decision was rendered by a Bench of two learned Judges and expressly refers to the judgment of the Bench of three learned Judges in National Thermal Power Comp. Ltd. (supra). The question before the Court was whether the appellant-assessee could make a claim for deduction, other than by filing a revised return. After the return was filed, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The claim, therefore, was not before the appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Act to make an amendment in the return of income by modifying an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal. The Tribunal, however, allowed the department's appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal Power Co. Ltd. (supra) contending that it was open to the assessee to raise the points of law even before the Tribunal. The Supreme Court held :
"
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." [Emphasis supplied]
It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The juri iction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the 8 Assessment Year 2016-2017
Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254.” (Emphasis Supplied)
In view of the above, we do not find any infirmity in the decision of the CIT(A) to entertain and allow claim of deduction under Section 54F of the Act. The order passed by the CIT(A) is in line with the abovesaid binding judgments of the Hon’ble Supreme Court and the Hon’ble Bombay High Court. The order passed by the CIT(A) does not call for any interference on this issue. Therefore, all the grounds raised by the Revenue are dismissed.
In result, the present appeal preferred by the Revenue is dismissed.
Order pronounced on 07.11.2024. (Amarjit Singh) Judicial Member मुंबई Mumbai; िदनांक Dated : 07.11.2024 Milan,LDC
आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""थ" / The Respondent. आयकर आयु"/ The CIT 3. 4. "धान आयकर आयु" / Pr.CIT 5. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण ,मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file.
आदेशानुसार/ BY ORDER, स"ािपत "ित //// उप/सहायक पंजीकार /(Dy./Asstt.