NARESH SUNDERLAL CHUG,,PUNE vs. INCOME-TAX OFFICER,,

आदेश / ORDER

PER SUSHMA CHOWLA, JM

The appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-V, Pune dated 24.01.2014 relating to assessment year 2009-10 against order passed under section 143(3) of the Income Tax Act, 1961 ( in short ‘the Act’).

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“1. The learned CIT(A) erred in law and on facts in treating the sale of development rights as adventure in the nature of trade as against capital gains as claimed by the Appellant as also assessed by the Ld. AO as capital gains. 2. The learned CIT(A) erred in law and on facts in not giving an opportunity or any show cause notice while taking such view particularly when the same results into enhancement by the learned CIT(A). 3. The learned CIT(A) erred in law and on facts in not appreciating that in order to treat the income as adventure in the nature of trade, it is the burden of the Department to prove that the same was in the nature adventure and the learned AO has nowhere taken the view. 4. It is prayed that the view taken by learned CIT(A) as to adventure in the nature of trade may kindly be cancelled and the appellant may be granted exemption u/s. 54F as claimed in the return of income. 5. The appellant craves to add, alter, modify or substitute any ground of appeal at the time of hearing.”

Income Tax (Appeals) vis-a-vis enhancement of income. The assessee is aggrieved by

the order of Commissioner of Income Tax (Appeals) in treating the sale of development

rights as adventure in the nature of trade as against capital gains as declared by the

assessee and also assessed by the Assessing Officer.

consideration had furnished return of income declaring total income of Rs.1,15,380/-. The

case of the assessee was picked up for scrutiny. During the assessment year under

consideration, the assessee sold plot at S. No. 165, H No.512 at Pimpri on 20.08.2008

along with two other owners for Rs.2,10,00,000/-. The assessee got share in the said

property at Rs.52,50,000/-. The assessee claimed deduction under section 54 of the Act

at Rs.48,29,176/-. The assessee was asked to furnish purchase/sale deed of the new

property. The assessee furnished agreement of purchase. The Assessing Officer noted

that as per the agreement, assessee purported to have purchased Flat No. 601 and Flat

No. 603, Building B-Wing in the project Parvasaakshi. On perusal of the purchase deed,

the Assessing Officer noted that the sale deed was not registered with the Sub-Registrar

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and the balance amount was also due to be paid. Even till the date of assessment, the

assessee did not furnish registered document in respect of the said property. The

Assessing Officer, thus, denied the deduction claimed under section 54 of the Act.

the issue of denial of deduction claimed under section 54 of the Act with regard to

investment in residential property at Rs.48,29,176/-. In this regard, assessee raised

ground No. 2 and 3 before the Commissioner of Income Tax (Appeals). Before

Commissioner of Income Tax (Appeals), the assessee filed explanation which is

reproduced in Para-9 and furnished the following documents listed in Para-10 of the

appellate order.

i. Copy of agreement for sale dated 05.01.2010 ii. Possession letter dated 10.03.2012 iii. Copy of ledger A/c of the appellant in the books of M/s. Sakshi Constructions. iv. Copy of Registered Sale Deed dated 28.02.2013. v. Copy of Index-II.

The Commissioner of Income Tax (Appeals) forwarded the said documents to the 6.

Assessing Officer to submit his remand report. The remand report is reproduced in Para-

11 at page 6 & 7 of the appellate order. Vide Para-3, facts are narrated and vide Para-4 of

the remand report, the Assessing Officer observed that the land claimed to be sold by

assessee, was sold by the land owner to M/s.Synergy properties vide the sale deed

executed on 14.08.2008. In the said sale deed, the assessee and others two persons

were consenting parties. The assessee along with others received Rs.2.10 Crores as

consenting parties and being the power of attorney holders on rights of the land. The

Assessing Officer vide Para-5 observed that in view of the facts, the assessee was not

the owner of the Asset and only had development rights. Therefore, the question of

capital gains in the case of assessee does not arise at all. He was of the view that the

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said income had to be brought to tax under the head ‘income from other sources’ and not

under the head ‘long term capital gains’. The Assessing Officer further observed that

without prejudice, the claim of the assessee regarding 54F could not be accepted in the

light of the new evidence produced by the assessee. Since the agreement for sale of flat

was entered into on 28.02.2013 which was later than the period of two years as

envisaged in the provisions of the Act and even where the possession of the said flat was

given to the assessee on 10.03.2012 which was also later than the period of two years

from the date of sale of original asset on 20.08.2008. The assessee filed his comments

vide letter dated 04.01.2014 regarding investment in the new flat and vide para 4 stated

that other points of the remand report were not relevant to the assessment order since all

the documents were provided at the time of original assessment.

entered into by the assessee was in the line of business firm where the assessee was

partner. The CIT(A) also noted that the agreement dated 22.09.2004 was entered into by

the assessee with the intention to develop the plot and not to hold the same as capital

asset and later development rights were resold on 14.08.2008 where the assessee along

with other two persons were the consenting parties. The CIT(A) thus held that income on

sale of development rights was to be treated as ‘business income’ and the Assessing

Officer was directed to adopt the same after allowing cost of acquisition without benefit of

indexation which worked out to Rs.49,41,225/-. Since, the income was held to be

‘business income’, the CIT(A) held the question of deduction under section 54F becomes

academic. It was further held on merit that the assessee was entitled to claim deduction

under section 54F of the Act in case profit on sale of development rights in the land was

held to be taxable under the head Long Term Capital Gain. The CIT(A) noted that the

claim of assessee under section 54F of the Act could not be rejected on the ground of

registration of document being effected after two years and possession being received

later was, held to be non requirement of the section.

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sale of development rights was adventure in the nature of trade, as against the claim of

assessee that the same was income from capital gain, which fact is accepted by the

Assessing Officer. The assessee is aggrieved by the order of enhancement of CIT(A)

without giving any show cause notice in this regard.

Term Capital Gain but deduction under section 54F of the Act was denied to the

assessee. Before CIT(A), additional evidence was filed for claiming aforesaid deduction

under section 54F of the Act. Remand report was called from the Assessing Officer, who

in the remand report stated that the income is not to be assessed as Long Term Capital

Gain but as income from other sources. The CIT(A) vide Para 12 of the appellate order

considered the reply of assessee wherein as per point No. 4, it was mentioned that other

points of the remand report do not arise. However, without giving any notice to the

assessee, the CIT(A) vide Para 13 and 14 held the income to be adventure in the nature

of trade. Vide Para 15 and 16, the CIT(A) further decided that in case income is being

assessed as Long Term Capital Gain, the assessee is entitled to claim deduction under

section 54F of the Act. The Ld. AR pointed that the Revenue was not in appeal against

the same and hence, the claim of the assessee is to be allowed under section 54F of the

Act.

pointed out that reasonable show cause had to be issued. But there was no show cause

notice by CIT(A). The Ld. AR for the assessee placed reliance on the following decisions:

i) CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria [66 ITR 443 (SC)]

ii) CIT Vs. Sardari Lal & Co. [ 251 ITR 864.(Del.)]

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income by discovering new source of income. Further, reliance was placed on the

decision of Delhi High Court in the case of Gedore Tools Pvt. Limited vs.

Commissioner of Income-Tax [ 238 ITR 268 (Del.)]

assessee. Referring to the section, the Ld. DR pointed out that it talks of reasonable

opportunity and Assessing Officer in the remand report clearly stated it was not to be

assessed as income from Long Term Capital Gain but as ‘income from other sources’.

The CIT(A) thus held it to be adventure in the nature of trade. He stresses in the facts of

the present appeal that there was only change in the head of income where additional

amount was also assessable and accordingly, the ratio on which the Ld.A.R. for the

assessee placed his reliance is not applicable to the facts of the case.

present case, the assessee had declared income under the head Long Term Capital Gain

and claimed deduction under section 54F of the Act. The assessee had purchased

development rights of plot of land. Since the same could not be developed by the

assessee, the said rights were transferred by way of deed which was executed by land

owner in the name of buyer, with the assessee as consenting party. The assessee had

declared gain arising on the said transfer as Long Term Capital Gain. Further, the

assessee had made investment in new asset and had claimed deduction under section

54F of the Act. The Assessing Officer accepted the computation of Long Term Capital

Gain in the hands of assessee; however, denied the deduction claimed under section 54F

of the Act on the ground that the new asset was not purchased through registered

documents and even till date of assessment order, the sale deed was not executed and

balance consideration was still payable. The assessee filed appeal against the said order

of Assessing Officer and made claim for allowing deduction under section 54F of the Act.

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In this regard, additional evidences of payment of balance consideration and sale deed

being registered in the year 2013 was filed. The aforesaid additional evidence was

confronted to Assessing Officer and he was asked to submit remand report. In the said

report, the Assessing Officer was of the view that the development rights which have

been sold by assessee does not imply that the assessee was the owner of the said land.

The Assessing Officer was of the opinion/ view that gain arising from transaction had to

be assessed as income from other sources and such proposition was made in the

remand report. The Assessing Officer also held that the assessee, in such circumstances,

was not entitled to claim deduction under section 54F of the Act. The CIT(A) gave a copy

of remand report to the assessee and asked for his comments. The assessee commented

on non-allowance of claim of deduction under section 54F of the Act and in respect of

other points raised by Assessing Officer, the assessee stated that “other point of the

remand report were not relevant to the assessment order since all the documents were

provided at the time of original assessment.”

Assessing Officer and comment of assessee, went on to decide the issue as to

assessibility of gain arising on transfer of development rights. It may be pointed out herein

itself, the said issue of assessibility of capital gain was completed before the Assessing

Officer who accepted the stand of assessee that the said gain was to be assessed as

income from capital gains. There was no dispute about the assessibility of gains as

income from Long Term Capital Gain. The only dispute was that whether against such

gains, the assessee could claim deduction under section 54F of the Act on account of

investment in new asset. In this regard, action of the CIT(A) in holding that the said

income on sale of development rights was to be treated as adventure in the nature of

trade/ business income, was not correct as per provisions of the Act. The powers of

CIT(A) are coterminous with the power of Assessing Officer. In other words, the CIT(A)

has wide power while deciding the appeal. However, as per Clause (2) of Section 251 of

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the Act, it is provided that the CIT(A) shall not enhance an assessment or a penalty or

reduce the amount of refund, unless the appellant has had a reasonable opportunity of

showing cause against such enhancement or reduction. The Explanation talks about the

power of CIT(A) in deciding the appeal and stresses that he may consider and decide any

matter arising out of the proceedings in which the order appealed against was passed,

notwithstanding that such matter was not raised before the CIT(A) by the appellant. In

view of the said provisions, the CIT(A) has power to decide any matter arising out of the

proceedings but the said power has to be exercised after giving reasonable opportunity to

the assessee to show cause against such enhancement or reduction. The CIT(A) was

not only changing the head of income but was also enhancing the assessment, since

income which is assessed in the hands of assessee as per direction of CIT(A) had

worked out at Rs.49,41,225/- as against income assessed by the Assessing Officer under

the head Long Term Capital Gain at Rs.48,75,610/-. The second aspect is rate of tax. In

case income is assessed under the head Long Term Capital Gain, the rate of tax is lower

than the rate applied when the income is being assessed as business income. In view

thereof in not giving an opportunity or any show cause notice of enhancement as

required under section 251(2) of the Act, the order of CIT(A) suffers from infirmity and the

same cannot be sustained.

Long Term Capital Gain, then rate of tax was lower than the rate applied when the

income was being assessed as business income. Regarding second aspect, the Ld. DR

for the Revenue submitted that where issue of different head of income had arisen,

assessibility was done by the Assessing Officer, then notice had to be issued by

Assessing Officer, when remand report was called for his comments. It may be pointed

out herein in itself that after assessing income as Long Term Capital Gain, Assessing

Officer proposed to assess income as income from other sources, as per his comment in

the remand report, which was confronted to the assessee; but when the income was

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assessed as business income, no notice whatsoever, was given by CIT(A). Accordingly, we hold that the enhancement made by CIT(A) does not survive. Thus, we reverse the order of CIT(A). The income was assessed in the hands of assessee as income from Long Term Capital Gain. The CIT(A) vide Para15 and 16 has decided the issue of entitlement of claim under section 54F of the Act and held the assessee to be eligible for said claim. The Revenue is not in appeal against the order of CIT(A). Accordingly, we direct the Assessing Officer to allow claim of assessee under section 54F of the Act. The grounds of appeal raised by assessee are thus, allowed.

Order pronounced on this 12th day of April, 2018.

Sd/- Sd/- ( ANIL CHATURVEDI) (SUSHMA CHOWLA) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 12th April, 2018 SB 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)-V, Pune. 4. The CIT-V, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” 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.