SH. DEVENDER KUMAR AGGARWAL,NEW DELHI vs. CIT, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No.3104/Del/2014 (Assessment Year: 2009-10)

Devender Kumar Aggarwal, CIT 1533, Ranu Bagh, New Delhi Delhi-IX, New Delhi Vs. PAN:AAAPA1974F (Appellant) (Respondent)

Assessee by : Sh. Satish Khosla, Adv Revenue by: Ms. Mitali Madhusmita, CIT DR Date of Hearing 22/08/2016 Date of pronouncement 25/10/2016

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A)-IX New Delhi dated 11.03.2014 for the Assessment Year 2009-10. 2. The assessee has raised the following grounds of appeal:- “1. On the facts and circumstances of the case the order u/s 263 passed by the learned Commissioner of Income Tax is bad in law. 2. The ld Commissioner of Income Tax has erred in law and on facts of the case by denying to allow the deduction u/s 54EC of the Income Tax Act, 1961 amounting to Rs. 4368767/- and passing an order u/s 263 of the Income Tax Act 1961.”

Page 2 of 11 on sale of the plot. The assessment was made under section 143( 3) of the income tax act wherein the Ld. assessing officer has noted the fact that assessee has claimed exemption under section 54EC on sale of the property and he has obtained the copies of the same for the purpose of verification. Consequently, the assessment under section 143 (3) of the income tax act, 1961, was passed on 29/09/2011. Subsequently the Commissioner of income tax passed an order under section 263 of the income tax act wherein it was held that the claim of the deduction under section 54EC amounting to Rs. 4368767/– was erroneously allowed and therefore the order is prejudicial to the interest of revenue. The main reason given by the Commissioner was that that the assessee has received the payment which was credited in his account on 17 February 2009 and the sale deed was tendered for registration on 02/04/2009, whereas the amount of investment made by the assessee on 31st of March 2009. Therefore, it was the contention of the Commissioner that even before the agreement to sell entered into by the property for the sale of property, the assessee has made investment in the bond and claimed the exemption. According to him for claiming the exemption the investment has to be made after the date of transfer of the property. Therefore according to him. In this case the assessee has made investment prior to the date of the transfer and therefore the claim under section 54 EC made by the assessee is not tenable and erroneous. 4. The Ld. authorized representative submitted before us that the possession letter of the property was given to the buyer on 28th of March 2009, all the payments have been received by the assessee before 28th of March 2009. Merely the date of registration of the property is 2nd of April 2009. He further submitted that circular No. 359 dated 10 to May 1983 covers the issue squarely in favour of the assessee wherein it has been held that if the assessee invest the earnest money or the advance received in specified assets before the date of transfer of asset the amount so invested will qualify for exemption under section 54E of the income tax act. He submitted that the provisions of section 54E and section 54 EC are Pari materia the same provisions. He further relied on the decision of the Nagpur bench of the tribunal wherein 126 TTJ 545 wherein on the identical facts and circumstances of the case, this circular as well as the identical issue was

Page 3 of 11 considered by the coordinate bench and claim was allowed. Therefore he submitted that even if the bond investment is falling prior to the date of the sale deed the provisions of section 54EC allow the deduction to the assessee of investment made in specified bonds. 5. Ld. departmental representative relied upon the provisions of section 54EC of the income tax act and submitted that if the investment is made after the date of transfer of the property then only the claim of exemption can be allowed to the assessee. He therefore strongly submitted that order passed by the Ld. assessing officer is erroneous and prejudicial to the interest of the revenue and therefore the provisions of section 263 of the income tax act has been correctly invoked by the Commissioner of income tax. He strongly relied on the provisions of the section 54EC wherein it is stated that if the investment is made after the date of such transfer, then only the deduction is allowable. In the present case, it is made before the transfer of the said asset and therefore no deduction should be allowed to the assessee. 6. We have carefully considered the rival contentions. The brief facts noted above, shows hat the assessee has entered into the sale deed on 2nd of April 2009, whereas the amount, which is invested in the bond on 31st March 2009, was received by the assessee prior to the date of deposit in these bonds. This is clear from the possession letter wherein it has been stated that the total sale consideration of Rs. 96 Lacs the payments have been made to the assessee on 16. February 2009 and 28th of March 2009, completely. From the above facts it is apparent that the assessee has received the money towards the sale of the property on or before 28th of March 2009. The investment made by the assessee was on 31st of March 2009. The circular submitted by the appellant before us is with respect to the provisions of section 54E of the income tax act. However, we could also note that the provisions of section 54 E and section 54EC have the similar provisions of making investment in specified securities after the date of the transfer. The CBDT has issued the circular No. 359 dated 10/05/1983 wherein it is stated that if the advance has been received on account of sale of the assets and if such amount is also invested that will qualify for exemption under section 54E of the income tax act. The CBDT has further stated that the above interpretation is considering the purpose and spirit of the sections. And the specific issue that has been considered by the CBDT.

Page 4 of 11 While issuing the above, circular that if the part of the consideration is invested prior to the date of execution of the sale deed as the investment whether the deduction on exemption can be granted to the assessee or not. In the present case the assessment has been made under section 143 (3) of the income tax act and wherein the assessee has submitted the copy of the bonds that shows that on the date on which the amount of investment has been made. The issue of capital gain was also before the assessing officer. The application of the circular No. 359 has been considered by the Hon’ble Bombay high court in case of Praveen P Bharucha versus DCIT in 348 ITR 325, albeit with reference to the provisions of section 148 of the income tax act wherein it has been held as under:- “5. It is a well settled position in law that the power to reopen a completed assessment within the period of 4 years from the end of the relevant assessment year is very wide. Nevertheless this power to reopen an assessment within a period of 4 years does not permit review of an assessment Order. This is settled by the Supreme Court in the matter of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/ 187 Taxman 312 wherein it has been held as under: "However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessment on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But, assessment has to be based on fulfillment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place." The Supreme Court further held that there must be tangible material to come to the conclusion that there has been an escapement of Income. The Apex Court in fact upheld the Full Bench decision of the Delhi High Court in matter of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 / 123 Taxman 433 wherein it has been held that the power to reopen an assessment cannot empower an Officer of the Department to reopen the proceeding on the ground that an earlier order was passed without application of mind. An exercise of power in such a manner would amount to a review of an order which is not permissible under the law. Consequently, when jurisdiction is exercised to reopen the assessment even in respect of period of less then 4 years the authorities under the Act have to strictly satisfy the conditions which permit them to reopen the assessment under section 147 of the said Act. This Court in the matter of Cartini India Ltd. v. Addl. CIT [2009] 314 ITR 275/ 179 Taxman 157 has taken a view that reopening of assessment on the basis of material already on record at the time assessment was completed cannot be the basis of reopening the assessment even within the normal period of 4 years. 6. In the present case it is not disputed that during the course of assessment proceeding under Section 143(2) and (3) of the said Act, the Petitioner was asked by a letter dated 05.08.2008 of Respondent No.1 to submit details of investment made under Section 54EC of the said Act. It is also an admitted position as is evident in the assessment order dated 28.11.2008 that in response to the questionnaire dated 05.08.2008, the Petitioner had filed the required details called for.

Page 5 of 11 7. Consequently, the basic/primary document showing investment in terms of Section 54EC of the said Act was on record before Respondent No.1 when he passed his order dated 28.11.2008 granting the benefit of deduction under Section 54EC even in respect of the investment made of Rs.90.84 lacs in NABARD Bonds and National Housing Bonds prior to the sale/conveyence of land to the buyer by the Petitioner. Consequently, it follows that Respondent No. 1 while granting the above benefit to the Petitioner took a view that investment made out of earnest money/advance received as a part of the sale consideration before the date of the transfer of the assets would also be entitled to the benefit of Section 54EC of the said Act. This view was a possible view in view of the Circular No. 359 dated 10.05.1983 and the decision of the Tribunal in the matter of Ramesh Narhari Jakhadi (supra). The Circular No.359 dated 10.05.1983 inter alia provides as under: "1. Section 54E provides for exemption of long term capital gains if the net consideration is invested by the assessee in specified assets within a period of six months after the date of such transfer. A technical interpretation of section 54E could mean that the exemption from tax on capital gains would not be available if part of the consideration is invested prior to the date of execution of the sale deed as the invest cannot be regarded as having been made within a period of six months after the date of transfer. 2. On consideration of the matter in consultation with the Ministry of Law, it is felt that the foregoing interpretation would go against the purpose and spirit of the section. As the section contemplates investment of the net consideration in specified for a minimum period and as earnest money or advance is a part of the sale consideration, the Board has decided that if the assessee invest the earnest money or the advance received in specified assets before the date of transfer of asset, the amount so invested will qualify for exemption under section 54E." 8. The Tribunal in the case of Ramesh Narhari Jakhadi ( supra) while construing Section 54B of the said Act applied the Circular No.359 dated 10.5.1983 to hold that an investment made in Bonds out of advance received for transfer of land before the actual date of transfer would be entitled to the benefit of exemption under Section 54B of the said Act. Therefore, the view taken by Respondent No.1 in the order dated 28.11.2008 is a possible view in law and the notice issued to reopen the assessment is only on account of change of opinion. In fact in the affidavit in reply dated 19.12.2012 the Respondent No. 1 has stated that reassessment proceedings within a period of 4 years can be initiated on account of change of opinion. This is in the face of the decision of the Apex Court in the matter of Kelvinator of India Ltd. (supra). The reasons recorded for reopening the assessment refer only to facts which were already on record at the time when assessment order dated 28.11.2008 was passed. 9. Further, at the hearing Mr. Vimal Gupta contended that Respondent No.1 while passing the order of the assessment dated 28.11.2008 did not apply his mind and/or consider the fact that Rs. 90.84 lacs had been invested in terms of Section 54EC prior to the completion of sale. The basis of his aforesaid submission is that the same is not discussed in the order dated 28.11.2008. This ground urged by Mr. Gupta during the hearing is a new ground which does not find mention in the reasons recorded for reopening of assessment. As held by this Court in the matter of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332 / 137 Taxman 479 , it is not open to improve upon the reasons recorded at the time of reopening the assessment by filing an affidavit and/or making oral submissions at the hearing of the Petition. The Court very categorically held that the reasons recorded must clearly establish some facts or material which lead to escapement of income. In any view of the matter the aforesaid submission is not sustainable for the reason that if a query is raised during assessment proceedings and the assessee meets the query and/or supplies the information called for, it must be presumed that the officer was satisfied before

Page 6 of 11 allowing the claim and there is no need to discuss the matter in his assessment order. As observed by the Gujarat High Court in the matter of CIT v. Nirma Chemicals Works (P.) Ltd. [2009] 309 ITR 67 / 182 Taxman 183 . "The contention on behalf of the Revenue that the assessment order does not reflect any application of mind as to the eligibility otherwise under section-80-I of the Act requires to be noted to be rejected. An assessment order cannot not incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and secondly the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with". 10. Further the reasons recorded by Respondent No.1 for reopening the assessment do not state that the deduction under Section 54E was not considered in the assessment proceedings. In fact from the reasons, it appears that all facts were available on record and according to the respondents was only erroneously granted. This is a clear case of review of an order. The application of law or interpretation of a statue leading to a particular conclusion cannot lead to a conclusion that tax has escaped assessment for this would then certainly amount to review of an order which is not permitted unless so specified in a statue. The order dated 14.11.2011 disposing of the Petitioner's objection to initiation of proceedings under section 147 of the said Act also proceeds on the view that there has been non application of mind during the original proceedings for assessment. This is unsustainable and as held this court in Asian Paints Ltd. v. Dy. CIT [2009] 308 ITR 195 a fresh application of mind by the Assessing officer on the same set of facts amounts to a change of opinion and does not warrant reopening. In fact our court followed the Full Bench decision of the Delhi High Court in the matter of Kelvinator of India Ltd. (supra) wherein it has been held as under: "We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under Section 147 of the Act. The said submission is fallacious. An order of assessment5 can be passed either in terms of sub section (1)of section 143 or sub- section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong". 11. One more point very strenuously urged by Mr. Gupta for the Revenue was that the court should not at this stage quash the proceedings as the only obligation of the Revenue is to establish that prima facie material exists to show that income has escaped assessment and the party can thereafter establish in reassessment proceedings that the deductions as allowed in the original assessment proceedings are valid. 12. The issue here is one of jurisdiction to issue notice and not sufficiency of reasons in issuing a notice for reassessment. We are considering the jurisdiction to issue a

Page 7 of 11 notice under Section 148 to reopen proceedings. In view of what is stated earlier, we do not find any merit in this contention. 13. In view of the above, the notice under Section 148 dated 31.03.2011 is without jurisdiction and we set aside the same. Similarly, the order rejecting the objections raised by the Petitioner dated 14.11.2011 is also set aside as Respondent No.1 has not satisfied the jurisdictional requirement to issue notice under Section 148 of the said Act.”

Page 8 of 11 Shriram Nagar, Indore, for the sale of survey no. 1465 measuring 1.49 acres situated at Keshar Bagh Road, Indore, property for a consideration of Rs. 7 crores. As per the terms clause (2) of agreement, the consideration has to be paid as under Cheque No.501186 dated 22.1.2008 95,00,000/-Cheque No. 501182 dated 24.1.2001 80,000/-Payment to be made till 01.05.2008 as per convenience Rs. 5,25,00,000/- 11. Subsequently, the possession letter was executed on 25.03.2008 and as per clause (2) of the possession letter, the copy of which is available from pages 51 to 56. As notarized, it was mentioned that as on that date each of the owner has delivered possession to the buyer as on 25.2.2008. As on that date, the consideration was paid by issuing the following cheques in favour of the respective co-owners (i) Shri Hemant Kumar Nema : by cheuqe no. 573711 dated 25.3.2008 of Union Rs. 50,00,000/ Bank received from Deepak Kalra. by cheque no. 573727 dated 10.04.08 of Union Rs. 75,00,000/ Bank received from Deepak Kalra. by cheque no. 573728 dated 10.04.08 of Union Rs. 50,00,000/ Bank received from Deepak Kalra. Rs. 1,75,00,000-00 (ii) Shri Vijay Kumarji Nema : by cheuqe no. 573712 dated 27.3.2008 of Union Rs. 50,00,000/ Bank received from Deepak Kalra. by cheque no. 573729 dated 10.04.08 of Union Rs. 75,00,000/ Bank received from Deepak Kalra. by cheque0 no. 573730 dated 10.04.08 of Union Rs. 50,00,000/ Bank received from Deepak Kalra. Rs. 1,75,00,000-00 (iii) Shri Gopaldas Ji Nema : by cheuqe no. 501186 dated 22.1.2008 of Union Rs. 75,00,000/- Bank by cheque no. 573725 dated 10.04.08 of Union Rs. 50,00,000/- Bank received from Deepak Kalra. by cheque no. 573728 dated 10.04.08 of Union Rs. 50,00,000/- Bank received from Deepak Kalra Rs. 1,75,00,000-00 (iv) Shri Subhashchandra Ji Nema : by cheque no. 573704 dated 04.03.2008 of Union 1,75,00,000/- Bank received from Deepak Kalra. Rs. 1,75,00,000-00 12. In view of the aforesaid possession letter executed as on 25.3.2008, it is apparent that each of the coowner had received more than Rs. 50 lakhs on 25.3.2008. The each

Page 9 of 11 of the coowner had received more than Rs. 50 lakhs on 25.3.2008. The each of the coowner has issued the cheque for purchase of the bond. Out of the part of the consideration received each of the seller. The bonds were ultimately allotted to each of the coowner on 31.3.2008. Therefore, this remains an undisputed fact that the investments are made in the REC Bond. Out of the part of the consideration received for the sale of the aforesaid property. This is also fact that the Revenue has assessed the capital gains in respect of the said property in the hands of the each of the coowner in the aforesaid assessment year in view of the provisions of Section 2(47). The only contention of the Revenue before us is that since the provisions of Section 54EC specifically provides that the deduction u/s 54EC has to be made if the investments are made within a period of six months after the date of such transfer. In this regard, the assessee has relied on the following circular issued by the Department, which reads as under :— "Circular No. 359 dated 10th May, 1983. Sub : Section 54E - Whether the investment of earnest money or advance received in specified assets before the date of transfer vitiates claim for exemption - Clarification regarding. Section 54E of the Income-tax Act, 1961, provides for exemption of long-term capital gains if the net consideration is invested by the assessee in specified assets within a period of six months after the date of such transfer. A technical interpretation of Section 54E could mean that the exemption from tax on capital gains would not be available if part of the consideration if invested prior to the date of execution of the sale deed as the investment cannot be regarded as having been made within a period of six months after the date of transfer. 2. On consideration of the matter in consultation with the Ministry of Law, it is felt that the foregoing interpretation would go against the purpose and spirit of the section. As the Section contemplates investment of the net consideration in specified assets for a minimum period and as earnest money or advance is a part of the sale consideration, the Board have decided that if the assessee invests the earnest money or the advance received in specified assets before the date of transfer of assets, the amount so invested will qualify for exemption under Section 54E of the Income-tax Act, 1961. Yours faithfully, Sd/- P.Saxena Secretary, CBDT ( F.No.207/8/82-ITA.II) " 13. From this circular, although it is with reference to the interpretation of the provisions as are stipulated u/s 54E, it is apparent that although the wording in the section are similar to the provisions of Section 54EC that the investment in the specified assets has to be made within period of six months after the date of such transfer but the Board has clearly laid down in the circular under para (2) that in its option it is felt that if statutory interpretation is taken that the investment has to be made after the date of transfer, this interpretation would go against the purpose and spirit of the section. The Section contemplates investment of the net consideration in the specified assets for the minimum period and as earnest money or advance is a part of the sale consideration. Therefore, the Board have decided that if the assessee invests the earnest money on the advance received in the specified assets before the date of the transfer of the assets, the amount so invested will qualify for exemption u/s 54E of the Income-tax Act, 1961. Even though this circular has been issued for the purpose of availing of the exemption u/s 54E, but if we see the logic and the language of both the sections, the purpose of allowing the exemption to the assessee for making the investment in specified assets is that the assessee should invest in the specified assets out of the part of the consideration received by him. On the facts of this, it is apparent that each of the assessee has invested into the REC Bond even though prior

Page 10 of 11 to the transfer but out of the part of the consideration received on the sale of the assets in respect of which the capital gain has been assessed. 14. We noted that the similar issue has arisen before the Pune Bench B of I.T.A.T. in I.T.A.No. 1672/PN/2011 and I.T.A.No. 152/PN/2012 dated 28-6-2013 in the case of Subhash Vinayak Supnekar v. Dy. CIT, Pune, in which the Hon'ble Tribunal while allowing the relief to the assessee held as under :— "We find the CBDT vide Circular No.359 (F.No.207/8/82-IT(A-ll) dated 10-05- 1983 has held that earnest money or advance is a part of the sale consideration and therefore if the assessee invests the earnest money or the advance received in specified assets before the date of transfer of the asset, the amount so invested will qualify for exemption u/s. 54E. Although in the instant case the issue is u/s.54EC, however, we find the language in the above section is similar to that of section 54. Therefore, we find force in the arguments of the Ld. Counsel for the assessee that earnest money or advance money is a part of sale consideration. 8.2 We find the Nagpur Bench of the Tribunal in the case of Bhikulal Chandak (HUF) V s. ITO 126 TTJ 545 has held that assessee cannot be treated as defaulter in making investment in bonds as required u/s. 54EC on receipt of advance as per the agreement to sell property and claiming exemption u/s. 54EC. So far as the decision of the Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. (Supra) relied on by the Ld. CIT(A) is concerned we find the same is distinguishable and not applicable to the facts of the present case. The Hon'ble Court in the said case has held that for the purpose of claiming deduction under the provisions of section 54EC, the date of investment by the assessee must be recorded as the date on which payment was made and received by the National Housing Bank. Since in that case the investment was within a period of 6 months from the date of transfer of the asset the Hon'ble Court held that the provisions of section 54EC were complied with by the assessee. However, in the instant case, the issue is regarding advance money received on the basis of agreement to sale and the applicability of section 54EC on account of investment in specified bond out of advance money but before the date of actual sale. Therefore, the said decision is not applicable to the facts of the present case. We also do not find force in the submission of the Ld. Departmental Representative that the Act does not contemplate any advance and that the CBDT Circular No. 359, dated 10- 5-1983 is not applicable to the facts of the present case." 15. Respectfully following the aforesaid decision and in view of our discussion, in the preceding paragraphs, we set-aside the order of the CIT(A) on this issue and allow the ground taken by the assessee and direct the Assessing Officer to allow deduction to all the assessees u/s 54EC. Thus, all the appeals filed by the assessees are partly allowed.”

Page 11 of 11 11/03/2014 is hereby set aside. In the result appeal of the assessee is allowed. Order pronounced in the open court on 25/10/2016. -Sd/- -Sd/- (C.M.GARG) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 25/10/2016 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi