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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI ANIL CHATURVEDI, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM
These cross appeals by the assessee and Revenue are directed against
the order of Commissioner of Income Tax (Appeals)-13, Pune dated 30.06.2015
for the assessment year 2009-10.
The brief facts of the case as emanating from records are : The assessee sold residential property situated at Sindh Co-operative Housing Society Ltd.,
Aundh, Pune on 11.02.2009 (during the period relevant to assessment year
2009-10) for a consideration of Rs.7,20,75,000/-. The assessee purportedly
inherited the aforesaid property from his father in the period relevant to assessment year 2002-03. Since the property was acquired by the father of
assessee prior to 01.04.1981, the cost of acquisition as on 01.04.1981 was
determined at Rs.35,50,000/- by the approved valuer. The assessee also
claimed cost of improvement amounting to Rs.70,46,978/-. After deducting cost of acquisition and cost of improvement, the assessee computed long term
capital gain at Rs.4,43,67,022/-. The assessee invested Rs.4,50,00,000/- in
Capital Gain Account Scheme and claimed exemption u/s. 54 of the Income
Tax Act, 1961 (hereinafter referred to as ‘the Act’) in assessment year 2009-10. Subsequently, on 12.12.2009 i.e. in the period relevant to assessment year
2010-11, the assessee withdrew the amount deposited in the Capital Gain
Account Scheme and offered the capital gain to tax in the return of income for
the assessment year 2010-11.
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2.1 The Assessing Officer on the basis of capital gain offered in the
assessment year 2010-11, reopened the assessment for assessment year
2009-10 and made addition of capital gains in the assessment year 2009-10.
The Assessing Officer further disturbed the cost of acquisition on the basis of
data procured from the office of Registrar Office and computed the capital gain
at Rs.6,76,12,581/-. The Assessing Officer vide order dated 30.03.2014
passed u/s.143(3) r.w.s. 147 of the Act assessed the capital gain on sale of
residential property in assessment year 2009-10 and also enhanced the
capital gain by Rs.2,32,45,559/-. The Assessing Officer further disallowed
assessee’s claim of cost of improvement Rs.70,46,978/-.
Aggrieved by the assessment order, the assessee filed appeal before the
Commissioner of Income Tax(Appeals) challenging re-opening of assessment,
as well as addition on merits. The Commissioner of Income Tax (Appeals)
rejected the contentions of assessee with respect to re-opening and upheld the
findings of the Assessing Officer. However, the Commissioner of Income Tax
(Appeals) granted part relief to the assessee with respect to cost of acquisition.
Against the findings of Commissioner of Income Tax (Appeals), the assessee
and the Revenue, both are in appeal before the Tribunal.
The assessee in appeal has assailed the findings of the Commissioner of
Income Tax (Appeals) by raising following grounds:
“1. The learned CIT erred in law and on facts in upholding the validity of reassessment u/s 147 which was initiated without any tangible material or information so as to form a reason to believe that income has escaped assessment. The reasons recorded by the learned AO do not reflect any escapement of income in the hands of the appellant for the relevant year. 2. The learned CIT(A) erred in law and on facts in upholding the reassessment so as to assess the capital gains which was accepted for A.Y.2010-11 as also the cost of acquisition, indexation and cost of improvement. The reopening of assessment for change of opinion for the year under consideration is bad in law without reference to any fresh facts or material.
4 ITA Nos.1236 & 1263/PUN/2015 A.Y.2009-10
The learned CIT(A) erred in law and on facts in confirming the assessment of capital gains from sale of residential house at Rs.7,11,82,328/- without appreciating the facts and circumstances of the case. 4. The learned CIT(A) erred on facts and circumstances of the case in riot accepting the valuation of the house property as on 1.4.81 as cost of acquisition which was supported by a registered valuer's report. 5. The learned CIT(A) erred in law and on facts in not allowing the cost of improvement as claimed by the appellant which was fully supported. The learned CIT(A) erred in law and on facts in not giving proper opportunity for proving the cost of improvement as claimed by the appellant. 6. The appellant craves to add, alter, modify or substitute any ground of appeal at the time of hearing.”
The Revenue has impugned the findings of the Commissioner of Income
Tax(Appeals) by raising following grounds :
“1. Whether the learned Commissioner of Income-tax(Appeals)-13, Pune, erred in law and in facts by directing the Assessing Officer to adopt the cost of acquisition as on 1-4-1981 at three times the then prevailing Government rate on the basis of current sale instances. 2. Whether the learned Commissioner of Income-tax(Appeals)-13, Pune, erred in law and facts by disregarding the information received from the Registrar's office. 3. The appellant craves leave to add, amend, alter, delete or modify all or any of the above grounds of appeal or raise new grounds of appeal.”
Smt. Deepa Khare appearing on behalf of the assessee submitted that
the Authorities below have erred in coming to the conclusion that capital gains
arising from sale of property is liable to be assessed to tax in assessment year
2009-10. The ld. Counsel pointed that the property was sold in the period
relevant to the assessment year 2009-10, and the entire capital gain was
invested in Capital Gain Account Scheme. Thus, the assessee had claimed
exemption u/s.54 of the Act in assessment year 2009-10. The ld. Counsel
further submitted that the assessee is a non-resident Indian. Initially,
assessee had planned to return to India and had intended to purchase house.
Later on, his plan changed and he decided to stay abroad. The assessee
withdrew the amount deposited in Capital Gain Account Scheme in December,
5 ITA Nos.1236 & 1263/PUN/2015 A.Y.2009-10
2009 and offered the same to tax in the return of income for assessment year
2010-11. The ld. Counsel pointed that the proviso to section 54 provides that
the amount not utilized within the period specified in sub section (1) of section
54 shall be charged to tax u/s.45 as income of the previous year in which the
period of three years from the date of transfer of original asset expires. Since
the amount was withdrawn prematurely, the same was offered to tax in the
year of withdrawal.
6.1 The ld. Counsel challenging the re-opening of assessment for
assessment year 2009-10 submitted that a perusal of the reasons for
reopening would show that there was no fresh tangible material available with
the Assessing Officer to reopen the assessment. The only ground for reopening
the assessment for assessment year 2009-10 is the return of income filed by
the assessee for assessment year 2010-11. The return of income filed by the
assessee for the subsequent year cannot be considered as independent
tangible material for reopening the assessment of earlier year. The ld. Counsel
asserted that reopening is bad in law therefore the assessment proceedings
are liable to be set aside on this ground alone.
6.2 The ld. Counsel for the assessee further submitted that the Assessing
Officer has disallowed the cost of acquisition. The assessee acquired the
property from his father in the period relevant to the assessment year 2002-
The father of assessee had acquired the property prior to 01.04.1981. The
assessee had taken indexed cost of acquisition as on 01.04.1981 at
Rs.35,50,000/- as per valuation report. The Assessing Officer on the basis of
some information received from Office of Sub-Registrar determined the index
cost of acquisition at Rs.8,92,672/-. The ld. Counsel submitted that in the
first instance, the Assessing officer could not have substituted guideline value
for fair market value by calling report from the office of Sub-Registrar. To
6 ITA Nos.1236 & 1263/PUN/2015 A.Y.2009-10
support her submissions, the ld. Counsel placed reliance on the decision of
Hon'ble Madras High Court in the case of CIT Vs. K.A. Fathima reported as 98
CCH 107. Secondly, as per the provision of section 55A of the Act as they
were applicable during the assessment year under appeal. The assessee could
have made reference for the valuation of capital asset to Valuation Officer only
in case where the value claimed by the assessee is less than the fair market
value. The provisions of section 55A of the Act have been amended by the
Finance Act, 2012 w.e.f. 01.07.2012. The Hon'ble Jurisdictional High Court in
the case of CIT Vs. Puja Prints reported as 360 ITR 697 has held that the
amendment is not applicable prospectively and is effective only from
01.07.2012. Therefore, amended provisions of section 55A are not attracted in
the case of assessee. The Assessing Officer in order to circumvent the
provisions of the Act has directly approached the Sub-Registrar Office which is
against the spirit of law.
On the other hand, Shri Mukesh Jha representing the Department
vehemently defended the order of Commissioner of Income Tax (Appeals) in
confirming the addition and upholding the re-assessment proceedings. The ld.
DR submitted that the capital gain had accrued to the assessee in the year in
which the property has been sold. The ld. DR submitted that by investing
capital gain in Capital Gain Account Scheme and by withdrawing the same
prematurely in the next assessment year, the assessee has merely postponed
his tax liability. The ld. DR further submitted that the provisions of section
55A are not attracted as the Assessing Officer has not sought valuation report
from the District Valuation Officer (DVO). The ld. DR submitted that valuer of
the assessee had adopted the rate at Rs.1940/- per square metre on ad-hoc
basis, whereas, the Assessing Officer had adopted comparable rate on the
basis of sale instance in the year 1981. Therefore, the rate applied by the
Assessing Officer has more prudence as compared to the ad-hoc rate applied
7 ITA Nos.1236 & 1263/PUN/2015 A.Y.2009-10
by the approved valuer. The ld. DR prayed for dismissing the appeal of the
assessee.
7.1 The ld. DR further submitted that the order of the Commissioner of
Income Tax (Appeals) deserves to be modified qua the valuation of the
property. The Commissioner of Income Tax (Appeals) has erred in directing
that the cost of acquisition should be taken as three times more than that has
been determined by the Assessing Officer. The Assessing Officer had
determined the cost of acquisition on the basis of actual sale instance
whereas, the Commissioner of Income Tax (Appeals) has directed to increase
the value three folds merely on presumptive basis.
We have heard the submissions made by representatives of rival sides
and have perused the orders of Authorities below. The assessee in appeal has
assailed the order of Commissioner of Income Tax (Appeals) on the legal issue
of re-opening of assessment as well as on merits of addition. One of the core
issue which has emerged from the submissions of the representatives of both
the sides and documents on record is the year of taxability of long term capital
gains. Whether the capital gains earned on sale of residential property is
taxable in the year of sale of such property i.e. assessment year 2009-10 or in
the year when the amount invested in approved Capital Gain Account Scheme
to claim exemption u/s. 54 is prematurely withdrawn i.e. before the elapse of
three years period as specified in sub section (1) to section 54 of the Act.
It is an undisputed fact that the assessee has invested long term capital
gain arising from sale of residential property in Capital Gain Account Scheme
within the prescribed period. However, the amount invested in Capital Gain
Account Scheme was withdrawn by the assessee in the period relevant to the
next assessment years i.e. assessment year 2010-11. Admittedly, the assessee
8 ITA Nos.1236 & 1263/PUN/2015 A.Y.2009-10
has offered capital gain arising from sale of residential property to tax in the
assessment year 2010-11. The contention of the Revenue is that the capital
gain is liable to be assessed to tax in the year in which the assessee has sold
the property i.e. assessment year 2009-10. Before proceeding further, it would
be relevant to refer to the provisions of section 54(2) of the Act which provides
the manner in which the capital gain is to be invested in Capital Gain Account
Scheme:
“[(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilized wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount not so utilized shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.”
A bare perusal of the proviso to section 54 of the Act makes it clear that
the amount invested in Capital Gain Account Scheme not utilized wholly or
partly shall be charged to tax u/s.45 as the income of the previous year in
which the period of three years from the date of the transfer of the original
asset expires. In other words, unutilized part of the capital gains is liable to be
taxed in the year in which the period of three years as provided in section (1)
of section 54 comes to an end. In the present case, we find that the assessee
9 ITA Nos.1236 & 1263/PUN/2015 A.Y.2009-10
has invested capital gain in Capital Gain Account Scheme and has withdrawn
the same prematurely i.e. before the expiry of three years period.
In the facts of the present case and as per the proviso to section 54 of
the Act, the capital gains withdrawn by the assessee from Capital Gain
Account Scheme are liable to be taxed in the assessment year relevant to
previous year in which the same was withdrawn i.e. assessment year 2010-11.
The Assessing Officer has erred in holding that the capital gains accrued to
the assessee on sale of residential property is liable to be taxed in assessment
year 2009-10. Accordingly, we are of considered view that the Assessing
Officer has wrongly invoked the provisions of section 147 of the Act to re-open
the assessment for assessment year 2009-10 to tax the capital gains. Since
the Assessing Officer has erred in assessing capital gains in assessment year
2009-10, the re-opening of assessment is bad in law and thus, is liable to be
set aside. We hold and direct accordingly. Resultantly, the appeal of the
assessee is allowed.
Since, we have held the re-opening of assessment to be bad in law, the
appeal by the Revenue is dismissed.
In the result, appeal of the assessee is allowed and appeal of the
Revenue is dismissed.
Order pronounced on Monday, the 18th day of June, 2018
Sd/- Sd/- (अ�नल चतुव�द� /ANIL CHATURVEDI) (�वकास अव�थी /Vikas Awasthy) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER
पुणे / Pune; �दनांक / Dated : 18th June, 2018 SB
10 ITA Nos.1236 & 1263/PUN/2015 A.Y.2009-10
आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-13, Pune. 4. The CIT-IT/TP, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.