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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
1 ITA No.1466/Kol/2014 Jnanendra Nath Banerjee., AY 2005-06 IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH: KOLKATA [Before Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
I.T.A No. 1466/Kol/2014 Assessment Year: 2005-06
Shri Jnanendra Nath Banerjee Vs. Income-tax Officer, Wd-24(3), Kolkata (PAN: ADMPB5661M) (Appellant) (Respondent)
Date of hearing: 18.11.2016 Date of pronouncement: 02.12.2016
For the Appellant: Shri J.P.Khaitan, Sr. Counsel & Shri S. Jhajharia, FCA For the Respondent: Shri Sallong Yaden, Addl. CIT
ORDER Per Shri M. Balaganesh, AM:
This appeal by assessee is arising out of order of CIT(A)-XIV, Kolkata vide Appeal No. 176/CIT(A)-XIV/2012-13 dated 03.03.2014. Assessment was framed by ITO, Ward- 24(3), Kolkata u/s. 154/143(3)/147 of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2005-06 vide his order dated 26.11.2012.
The only issue to be decided in this appeal is as to whether the exemption granted to the assessee u/s 54 of the Act could be withdrawn in part in the proceedings u/s 154 of the Act in the facts and circumstances of the case.
The brief facts of this issue is that the assessee sold his residential flats in Delhi and Kolkata and made reinvestment in another property and also invested in section 54EC Bonds and claimed exemption u/s 54 and 54EC of the Act. The return of income for the Asst Year 2005-06 was filed on 27.7.2005 which was processed u/s 143(1) of the Act and later the assessment was reopened and reassessment u/s 143(3)/147 of the Act was completed on 30.4.2009 . The capital gain on sale of the two flats was worked out at Rs. 44,09,184/-. The reassessment was completed by the ld AO on 30.4.2009 by observing as under :-
2 ITA No.1466/Kol/2014 Jnanendra Nath Banerjee., AY 2005-06 “The AIR information reported for the sale of Delhi Property for Rs. 33,00,000/- during the FY 2004-05. As requisitioned the assessee produced copy of bank account, copy of conveyance deed both for purchase and sales of the captioned property for verification. It was observed that during FY 2004-05 the assessee had sold two house properties one in Delhi and another in Kolkata as mentioned above and the capital gain pertinent to the above transaction was computed at Rs. 44,09,184/- u/s 50C . As per provision of section 54, the capital gain will be exempted for taxation if the assessee has within a period of one year before and two years after the date on which the transfer took place ‘purchased’ or has within a period of three years after the date constructed a residential house then instead of the capital gain being charged to income tax it will be exempted. The assessee has invested the sum of capital gain of Rs. 9,00,000/- in National Housing Bank Capital Gain Bond on 31/12/2004 u/s 54EC. The balance sum of Rs. 42,72,000/- (Rs. 37,00,000/- + Rs 5,72,000/-) was invested for purchase of flat at premise No. 238B, AJC Bose Road, Kol-700020 within the stipulated time mentioned in section 54 of the IT Act. The assessee has filed copy of possession certificate from the developer M/s Centre Point Estates (P) Ltd and copy of conveyance deed.”
In the said reassessment, the exemption u/s 54 and 54EC of the Act claimed by the assessee was granted by the ld AO.
3.1. On 29.3.2012, the ld AO issued a notice u/s 154 of the Act seeking to rectify the reassessment by mentioning as follows:- Mistake in computation of total income. To be produced details of proof of evidences claiming exemption u/s 54F of the IT Act in respect of capital gain during the FY 2004-05 relevant with AY 2005- 06.
3.2. The assessee vide letter dated 17.4.2012 requested the ld AO to inform the reason for initiating proceedings u/s 154 of the Act. The ld AO vide letter dated 25.7.2012 informed the reason for initiating proceedings u/s 154 of the Act as below:- “As per subsection 2 of section 54 of IT Act the amount of capital gain of Rs 35 lakhs which should be utilized or deposited by you for the purchase of new flat within the stipulated period i.e before the due date of furnishing of IT Return was 31.07.2005 in any branch of a public sector bank in accordance with the capital gain account scehme, 1988 (date of agreement for sale 29.07.2005). Now you are hereby requested to appear before me either you or your legal representative on 31.08.2012 at 2 P.M. of the aforesaid address along with the proof of evidence of claiming u/s 54F of the IT Act. Failure to comply of this letter from your part the rectified order wil be passed as per IT Act.”
3.3. The assessee vide letter dated 28.8.2012 represented to the ld AO that section 154 of the Act cannot be invoked for launching an investigation into facts or calling for evidence, particularly in a case where assessment was made u/s 143(3) / 147 of the Act and prayed for dropping of section 154 proceedings.
3 ITA No.1466/Kol/2014 Jnanendra Nath Banerjee., AY 2005-06
3.4. The ld AO vide letter dated 6.9.2012 informed the assessee that it was not his intention to launch any investigation into facts or to call for any evidence. It was stated that the assessee had not deposited the unused amount of capital gains in the capital gain account scheme as required u/s 54(2) of the Act but had kept the money in his savings account and due to the said failure, exemption u/s 54 of the Act is not entitled for the assessee and thereby proceedings initiated to rectify the said mistake is very much valid.
3.5. The assessee vide letter dated 10.10.2012 informed the ld AO that the capital gains if invested even before the time limit stipulated u/s 139(4) of the Act is to be construed as substantial compliance with the provisions of section 54(2) of the Act and for which, he placed reliance on the decisions of Hon’ble Gauhati High Court in the case of CIT vs Rajesh Kumar Jalan reported in (2006) 286 ITR 274 (Gau). Further reliance was placed on the decision of the Bangalore Tribunal in the case of Nipun Mehrotra reported in (2008) 297 ITR (AT) 110 (Bangalore). It was pleaded that the assessee had time to reinvest in another property upto time limit specified u/s 139(4) of the Act i.e 31.3.2007 and the assessee had invested a sum of Rs. 35,48,000/- on or before the said date and accordingly eligible for exemption u/s 54(2) of the Act. Accordingly, it was pleaded that the order of reassessment did not suffer from any mistake warranting any rectification. It was also pleaded without prejudice to the aforesaid argument that a mistake apparent from the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. A decision on a debatable point of law is not a mistake apparent from the record and accordingly proceedings u/s 154 of the Act deserves to be dropped.
The ld AO dismissing all the contentions of the assessee proceeded to disallow the claim of exemption u/s 54 in the sum of Rs. 35,09,184/- in the section 154 proceedings, which was also upheld by the ld CITA. Aggrieved, the assessee is in appeal before us on the following grounds:- “(A) For that the CIT(A) erred in upholding the order dated November 26,2012 which was passed by the ITO under sections 154/143(3)/147 of the Income Tax Act, 1961 wholly without jurisdiction.
4 ITA No.1466/Kol/2014 Jnanendra Nath Banerjee., AY 2005-06 (B) For that the purported findings of the CIT(A) that investment was made beyond three years and upholding the withdrawal of exemption granted under section 54 in proceedings under section 154 are wholly arbitrary, erroneous, unreasonable and perverse. (C) For that the proceedings under section 154 were not initiated on the aforesaid ground and in any event the issues raised were beyond the purview of section 154.”
The ld AR argued that the assessee had proved that the monies of Rs. 35,48,500/- had been paid by the assessee before 31.3.2007 which is not disputed by the revenue. The decision of Hon’ble Gauhati High Court clearly supports the case of the assessee that if the capital gain amount is reinvested within the due date stipulated u/s 139(4) of the Act, then the same should be construed as substantial compliance u/s 54(2) of the Act. In any case, he argued that the issue is highly debatable in as much as it has reached the corridors of various judicial forums on the following aspects :- a) Whether the reinvestment in another house property to be built would amount to purchase or construction of a house which would have relevance with the time limit within which the same is to be complied with ? b) Whether the assessee is entitled to claim exemption u/s 54 or 54F of the Act if the assessee had reinvested the capital gains within the time limit stipulated u/s 139(4) of the Act ? c) Whether the matter requiring investigation into facts could be sought to be rectified in the proceedings u/s 154 of the Act ?
He argued that with regard to the extension of time limit for reinvestment in new property to the date stipulated u/s 139(4) of the Act, he also placed reliance on the decision of the co- ordinate bench of this tribunal in the case of Smt Saroj Aggarwal vs ITO in ITA No. 885/Kol/2013 dated 20.1.2016.
He argued that all these aspects are highly debatable and hence the same cannot be done in section 154 proceedings and for which he placed reliance on the decision of the Hon’ble Calcutta High Court in the case of Oriental Cotton Corporation and Mills Ltd vs CIT reported in (1993) 202 ITR 370 (Cal) .
5 ITA No.1466/Kol/2014 Jnanendra Nath Banerjee., AY 2005-06 6. In response to this, the ld DR argued that the assessee had filed his return of income on 27.7.2005 at which point of time, he had practically invested only a sum of Rs. 15 lakhs including the sum of Rs 9 lakhs invested in section 54EC bonds. Admittedly, the agreement of sale for the new flat was entered into by the assessee only on 29.7.2005 and hence the assessee ought to have deposited the capital gains amount in capital gains account scheme on or before the due date of filing the return of income u/s 139(1) of the Act and the same cannot be extended to the date specified u/s 139(4) of the Act. He relied on the recent decision of the Hon’ble Bombay High Court in the case of Humayun Suleman Merchant vs CCIT dated 16.8.2016 wherein it was held that the failure to deposit the amount of consideration not utilized towards the purchase of new flat in the specified bank account before the due date of filing return of income u/s 139(1) is fatal to the claim for exemption. He also argued that this judgement was rendered after considering the judgement relied upon by the ld AR in the instant case on the decision of Hon’ble Gauhati High Court in the case of Rajesh Kumar Jalan supra. He also placed reliance on the following judgements to understand the meaning of ‘due date’ prescribed u/s 54(2) of the Act :- Prakash Nath Khanna & Anr vs CIT & Anr reported in (2004) 266 ITR 1 (SC) CIT vs V.R.Desai reported in (2011) 197 Taxman 52 (Ker)
We have heard the rival submissions and perused the materials available on record including the paper book comprising of pages 1 to 92. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. The short point that arises for consideration is as to whether the subject mentioned claim of exemption u/s 54 of the Act could be disturbed in the rectification proceedings u/s 154 of the Act or not in the facts and circumstances of the case. We find that the ld AO had sought to disturb the claim of exemption u/s 54 of the Act in the proceedings initiated u/s 154 of the Act by resorting to verification of all the facts , investigation into the said facts vis a vis the relevant dates prescribed in the section, whether the reinvestment in AJC Bose Road Property made by the assessee would amount to purchase or construction so as to reckon the time limit prescribed in the statute. All these issues are highly debatable in nature which in our considered opinion, could not be done u/s 154 of the Act. There are both favourable and adverse decisions on the subject mentioned issue for and against the assessee respectively
6 ITA No.1466/Kol/2014 Jnanendra Nath Banerjee., AY 2005-06 by various high courts as stated supra. These disputes had reached the corridors of various judicial forums and had been debated extensively and hence cannot be construed as a mistake apparent from the record warranting rectification within the meaning of section 154 of the Act. We find that the Hon’ble Calcutta High Court in the case of Oriental Cotton Corporation and Mills Ltd vs CIT reported in (1993) 202 ITR 370 (Cal) had held as below:-
“It is well-settled that section 154 has a very limited application. It enables rectification of a mistake which is apparent from the record. The power under section 154 can be exercised by the Income-tax Officer to correct obvious errors of law and those mistakes which are apparent from the record. A decision on a debatable point of fact and the failure to apply the law to a set of facts which remain to be investigated, cannot be corrected by way of rectification. True, in the instant case, for the assessment years 1967-68 to 1972-73, rental income was accepted as business income. It will, however, appear that from the assessment year 1973-74 to the assessment year 1978-79, the Income-tax Officer did not treat the rental income as business income. For the assessment years 1973-74 and 1974-75, the assessee did not assail the order of the Income-tax Officer on the point in appeal. The assessee, however, agitated the issue in appeal for the assessment years 1976-77, 1977-78 and 1979-80. It appears that income from letting out of the factory unit was held taxable under the head " Business " and income arising from the leasing out of the land was held taxable under the head " Other sources ". It will be evident that from the assessment year 1973-74 onwards the Income-tax Officer has been assessing the rental income under the head " Income from house property ". It, therefore, appears, as has also been found by the Commissioner of Income-tax ( Appeals ), that the Income-tax Officer has proceeded with conscious mind on the assumption that there is cessation of business and as such, rental income is not business income. The answer to the question whether rental income in the instant case should be treated as business income depends on the existence of certain facts, whether letting of the assets is exploitation of commercial assets in the course of carrying on of business has to be decided in the light of the facts and circumstances of each case, and each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. For doing so, the Income-tax Officer would be required to investigate the facts and then apply the law to those facts. In our opinion, the power under section 154 cannot be exercised by the Income-tax Officer in such a situation. The question is a debatable one. For the foregoing reasons, we are of the view that on the facts of this case the mistake that was sought to be rectified was not a mistake apparent from the record and the Tribunal was justified in confirming the orders of the authorities below.” 7.1. Respectfully following the said Jurisdictional High Court decision, we hold that the proceedings initiated u/s 154 of the Act to disturb the claim of exemption granted u/s 54 of the Act as bad in law. Accordingly, the Grounds (A) , (B) and (C) raised by the assessee are allowed.
The Ground Nos. (D) & (F) are general in nature and does not require any adjudication.
7 ITA No.1466/Kol/2014 Jnanendra Nath Banerjee., AY 2005-06
The Ground No. (E) raised by the assessee is with regard to chargeability of interest u/s 234B of the Act which is only consequential in nature and does not require any adjudication.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 02.12.2016
Sd/- Sd/- (S.S. Viswanethra Ravi) (M. Balaganesh) Judicial Member Accountant Member Dated :2nd December, 2016
Jd.(Sr.P.S.) Copy of the order forwarded to:
Appellant – Shri Jnanendra Nath Banerjee, C/o, Salarpuria Jajodia & Co., 1. 7, Chittaranjan Avenue, 3rd floor, Kolkata-700 072. Respondent – ITO, Ward-24(3), Kolkata. 2 The CIT(A), Kolkata 3. 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,
Asstt. Registrar.