SHANTILAL H. KARANI,MUMBAI vs. CIT 22, MUMBAI

The assessee challenged the order of the ld. CIT on two counts:- (1) The ld. CIT erred in coming to the conclusion that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue; (2) The ld. CIT erred in directing the Income Tax Officer for further verification of income from two flats under ‘income from house property’, even though, assessee agreed for the addition. The ld. CIT directed the Assessing Officer to restrict the set off of long term capital loss of Rs.3,81,404/- against the long term capital gain of Rs. 22,46,414/- for the Assessment Year 2009-10.

The assessee’s submissions are in two-fold. Firstly, it is the submission of the Authorized Representative of the assessee that the assessment order passed under section 143(3) of the Act by the Assessing Officer is not erroneous and prejudicial to the interest of the revenue for the reason that the Assessing Officer has examined the details called for during the course of assessment proceedings. The Authorized Representative of the assessee invited our kind attention to page No. 158 of the paper book and clauses (e) & (f) therein and submitted that copy of returns for the preceding years were filed before the Assessing Officer. The assessee also furnished assessment orders passed for the Assessment Years 2007-08 & 2008-09 before the Assessing Officer. Insofar as set off of brought forward losses are concerned, it is the submission that the requisite details were furnished during the course of assessment proceedings and the Assessing Officer after examining the same, set off of brought forward loss as claimed by the assessee was allowed. Insofar as, income from two flats are concerned, the Authorized Representative of the assessee submitted that in the course of proceedings before the ld. CIT, assessee has accepted for assigning notional rent in respect of any one of the flats and working was also submitted to the ld. CIT.

Coming to the merits, the Authorized Representative of the assessee submitted that losses relating to Assessment Years 2007-08 & 2008-09 were correctly worked out and adjusted in the Assessment Year 2009-10. It is submitted that all the three assessments were scrutiny assessments. The Authorized Representative of the assessee further submitted that income on sale of shares is completely exempt under section 10(38), so the question of set off of the said income against sale of land does not arise for Assessment Year 2007-08. Referring to paper book at page Nos. 46 & 47, which are the details relating to long term capital gain / loss for the year 2006-07, the Authorized Representative of the assessee submitted that it was specifically submitted that long term capital gain of Rs. 5,35,375/- on sale of shares in respect of which Security Transaction Tax (STT) was paid is exempt under section 10(38) of the Act. The Authorized Representative of the assessee further submitted that the income is completely exempt and such income will not enter the computation of income. For this proposition, he placed reliance on the decision of the Punjab & Haryana High Court in the case of CIT Vs. ANG Securities Ltd. [(2013) 217 Taxman 210 (P & H)(HC)].

The ld. Departmental Representative by supporting the order of the ld. CIT submits that the Assessing Officer has not applied his mind while completing the assessment with regard to notional value of the flats to be assessed under the head ‘income from house property’ and similarly with regard to set off of carry forward losses. Thus, he submitted that the direction given by the ld. CIT is appropriate as the assessment order passed under section 143(3) is erroneous and prejudicial to the interest of the revenue as the Assessing Officer has not verified the claims, not applied his mind while completing the assessment.

We have heard rival contentions, perused the orders of the authorities below and the case-law relied on. The ld. CIT, insofar as the annual ratable value in respect of one of the flats is concerned, directed the Assessing Officer to verify and calculate the fair market value of one of the house property of the assessee. We also find the assessee himself agreed that he has not computed the rented value in respect of one of the flats, but in the course of proceedings before the ld. CIT, the assessee submitted statement computing the notional income from one of the flats which is not self occupied under the head income from house property at Rs. 362/-, which according to the assessee is the annual ratable value. On careful examination, we find that since the Assessing Officer has not examined this aspect of the matter nor the assessee has shown the ratable value in the return filed, the direction given by the ld. CIT in this respect is affirmed.

Coming to set off of brought forward losses of Rs. 9,16,779/- against the long term capital gain of Rs. 22,46,414/-, we find that the assessee has furnished all the details in the course of assessment proceedings before the Assessing Officer. We also find that specific information was called for by the Assessing Officer to furnish copies of returns, assessment orders to verify the claim made by the assessee in respect of set off of loss. We also find that in the course of assessment proceedings, the assessee has given reply stating as under:-