SUMAN KADAM,THANE vs. ITO WD 2(4), THANE

O R D E R Per Sanjay Arora, A. M.: These are cross Appeals, i.e., by the Assessee and the Revenue, arising out of the Order by the Commissioner of Income Tax (Appeals)-2, Thane (‘CIT(A)’ for short) dated 27.2.2014, partly allowing the Assessee’s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y.) 2008-09 vide order dated 31.12.2010.

3 & 3256/Mum/2014 (A.Y. 2008-09) Suman Kadam vs. ITO In their view the gain had been correctly returned in-as-much as the assessee could not show as to why the sale proceeds had not been received during the relevant year (i.e., the previous year relevant to A.Y. 1995-96) or, per contra, why was the relevant property handed over to the buyer without receiving full consideration in its’ respect. The relief u/s. 54-F has also been restricted qua capital gain arising on only one plot of land (i.e., single capital asset), while the provision carries no such restriction.

3. We have heard the parties, and perused the material on record. It shall be relevant to, before we proceed to adjudicate the issues arising, recount the background facts of the case. The assessee returned her income for the relevant assessment year (A.Y.) on 23.03.2009, disclosing long-term capital gain (LTCG) on three plots of land, as under, claiming exemption u/s. 54F on the last two: (refer pg. 2 of the assessment order) (Amount in Rs.) Capital Asset LTCG Exemption u/s. 54F Shown in return Plot No.375/6 315270 - 315270 Plot No. 99 2429117 774217 1654900 Plot No. 688 4493702 4493702 - Total 7238089 5267919 1970170 The assessee subsequently, i.e., vide her letter dated 27.12.2010, furnished during the assessment proceedings, sought to withdraw her disclosure of capital gain on plot number 99. The same was considered not acceptable by the Assessing Officer (A.O.) in-as-much as the assessee had not done so per a revised return, i.e., as prescribed by law. How could the assessee have given possession of the plot without receiving full consideration in its’ respect? If the possession had indeed been given, why is that the assessee did not return the capital gain for the relevant year, i.e., A.Y. 1995-96. The property, in fact, continued to be shown in the assessee’s balance-sheet till 31.3.2007 (i.e., up to A.Y. 2007-08). The claim for exemption u/s. 54F was also disallowed as, as it appeared, the assessee owned more than one residential house at 4 & 3256/Mum/2014 (A.Y. 2008-09) Suman Kadam vs. ITO the relevant time, violating s. 54F(1). Further, no details of the investment of capital gain had been furnished, which (capital gain) had admittedly not been deposited, as required by law, in a separate capital gains account with a scheduled bank, i.e., to the extent not utilized up to the date of filing the return of income for the relevant year. The commencement and completion dates of the residential house were also not furnished and, in any case, not established. In appeal, the ld. CIT(A) found the assessee eligible for her claim for exemption u/s. 54F as, on the basis of evidences furnished and admitted, the same were found by him as non-residential. Further, even if considered residential, the same are only partly owned, which could not be equated with absolute ownership, relying for the purpose on the decision in ITO vs. Rasiklal N. Satra [2006] 98 ITD 335 (Mum). Further, the ld. CIT(A), following Rajesh Keshav Pillai vs. ITO [2011] 44 SOT 617 (Mum), restricted the exemption u/s. 54F to the capital gain on the sale of plot number 688, so that that qua plot number 99 was to be excluded. As regards the investment in the new residential house, reliance was placed for the purpose on the sum reflected in the assessee’s books in its respect. The total investment up to 31.3.2010 (Rs.44.05 lacs), i.e., the last date for filing the return of income u/s. 139(4) for the current year, was taken into account for the purpose. Reliance toward the same was placed on CIT vs. Jagriti Aggarwal [2011] 339 ITR 610 (P&H); Kishore H. Galaiya vs. ITO [2012] 137 ITD 229 (Mum); and Jagtar Singh Chawla vs. Asst. CIT (in ITA No. 4923/Del/2010 dated 30.6.2011), since affirmed in CIT vs. Jagtar Singh Chawla (in ITA No. 71 of 2012 dated 20.3.2013/copy on record). The proportionate capital gain, at 87.35%, applied, with reference to which exemption u/s. 54F is to be allowed, worked to Rs.39.25 lacs, to which extent relief there-under was, accordingly, directed to be allowed. Aggrieved, both parties are in appeal, the assessee raising the following grounds: 1. The Hon'ble Commissioner of Income Tax(A) -II, Thane has erred in law and in facts by disallowing the claim of Rs.13,42,670/- u/s.54F of the Income-tax Act, 1961 out of the total claim of Rs.52,67,919/-.

5 & 3256/Mum/2014 (A.Y. 2008-09) Suman Kadam vs. ITO 2. The Hon'ble Commissioner of Income Tax (A) -II, Thane has erred in law and in facts by confirming the additions of long term capital gain made by the assessing officer amounting to Rs.24,29,117/-- on sale of one fourth share in the land bearing survey no 99 in earlier assessment year 1995-96 erroneously offered for taxation in A.Y. 2008- 09, an year under appeal, although none of the ingredients of Section 45 read with Section 2(47) were fulfilled and thus the capital gain thereof did not pertain to the year in question.

The Revenue’s appeal agitates the part relief u/s. 54F allowed by the ld. CIT(A) in-as- much as the same was done by admitting new evidences without observing the mandatory procedure prescribed under rule 46A (of the Income Tax Rules, 1962) and seeking A.O.’s report thereon. We shall take up the assessee’s appeal first. The first issue, raised per Grounds 2 and 3, is whether the capital gain on the transfer of plot no. 99 arises to the assessee during the current year, or does it so for any other year, as (say) A.Y. 1995-96. The second issue arising in the instant appeal is the restriction of the claim for exemption u/s. 54F to Rs.39,25,249/-, i.e., as against the claimed sum of Rs.52,67,319/-. In respect of the first issue, as explained by the Hon’ble Apex Court in CIT vs. Shelly Products [2003] 261 ITR 367 (SC), the liability to tax does not depend upon assessment, but arises as soon as the Finance Act prescribes the rate/s for the relevant year, i.e., u/s.4 of the Act. As such, even where the assessment does not survive or is held as void ab-initio, the tax paid by way of self-assessment tax could not be refunded to the assessee. However, just because the assessee has filed the return, he cannot be saddled with a tax liability in-as-much as there is no estoppel against law (refer: CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC)), and it is only the correct 6 & 3256/Mum/2014 (A.Y. 2008-09) Suman Kadam vs. ITO income, assessable for a year, which could be brought to tax for that year (CIT vs. British Paints India Ltd. [1991] 188 ITR 44 (SC)). The purview of the A.O. is to assess the total income for the relevant year. As such, where the assessee is able to show that the income as returned is not assessable for that year, i.e., as per law; each year being an independent unit of assessment, we see no reason as to why the same could not be excluded. The onus, however, to show that it is not so, as where the return as furnished carried an omission or a wrong statement is squarely on the assessee. In the context of the present case, admittedly a legal dispute/s led to the withholding of the payment of Rs.58.25 lacs (out of the total consideration of Rs.105 lacs), and which stands resolved during the current year (refer assessee’s reply, reproduced at para 2 of the assessment order), so that it is prima facie indicative of the income (by way of capital gain) arising during the current year. The assessee claims that the possession was allowed forthwith, i.e., on the execution of the sale and development agreement dated 15.12.1994 and, in fact, the development rights stood further assigned by the developer, Anil Patel and Others, on 18.1.1996, so that capital gain u/s.45 r/w s. 2(47)(v) arose for A.Y. 1995-96. Without doubt, only Rs.46.75 lacs was received, even as the amount was to be received within 12 months, with in fact further transfer taking place soon afterwards, in January, 1996. The withholding of the balance was thus only on account of some dispute/s, and which was, as stated, subject to long drawn litigation. What was the dispute/s, i.e., its nature? When was the balance amount (Rs.58.25 lacs) received, and by whom? The same, as it appears, is received without any compensation for time, even as funds have opportunity and time cost, and the same stands presumably received after over 13 years. Why? That apart, how could the assessee’s share (Rs.26.25 lacs) be given to, as stated, Ramakant Kadam, her brother-in-law, she being a separate and distinct person, an owner (to the extent of 1/4th) in her own right.

7 & 3256/Mum/2014 (A.Y. 2008-09) Suman Kadam vs. ITO In our view, the issue shall have to be determined on the anvil and touch stone of section 2(47)(v) of the Act r/w s. 53A of the Transfer of the Property Act, 1882. The assessee having returned capital gains (for the current year) despite having not received her share even during the current year (refer para 6 of the assessment order), is thus aware that the income by way of capital gains is assessable on accrual basis, stating resolution of the legal dispute during the current year as the reason for considering the same as having accrued/arisen thereat. If not during the current year, when did the same get resolved and, further, what is the basis or the evidence to consider it as so? No details with regard thereto stand furnished at any stage; the assessee ‘changing’ her stand to claim that no gain in fact arose during the current year. The complete details need to be brought forth, and its’ impact considered in light and in the context of the provisions of law, while there is nothing on record toward the same, with, rather, even most of the ‘facts’ stated by the ld. counsel being not borne out by the record. Then there is the question of whether the transferee has performed or was willing to perform his part of the contract (sec. 53A of the TP Act). If so, why is it that the payment was withheld, and for years, or given, as stated, to the assessee’s brother-in-law, and when? Answers to these and other related questions would decide whether the capital gain had indeed arisen to the assessee during the relevant previous year and, if not, when. The matter is accordingly restored to the file of the assessing authority for fresh adjudication with regard to whether any part of the capital gains on transfer of plot no. 99 arise to the assessee during the relevant year. The AO shall decide issuing definite findings of fact. We decide accordingly. As regards the question of exemption u/s. 54F, the second issue, assessee has not brought forth any reason to disturb the findings and determination by the ld. CIT(A), i.e., in-so-far as it is adverse to the assessee, being in fact based on judicial precedents, binding on the Revenue authorities. We, accordingly, confirm the same. The Revenue’s grievance is with regard to the ld. CIT(A) relying on the additional evidences without observing the mandate of rule 46A. We find the 8 ITA Nos. 2777 & 3256/Mum/2014 (A.Y. 2008-09) Suman Kadam vs. ITO Revenue’s objection valid, being squarely covered by r. 46A(3), even as we uphold his decision with regard to the admission of additional evidences. The same, we observe, are in relation to: a) Nature of the house properties owned by the assessee – residential or non- residential; b) Nature of ownership – absolute or partial; and c) Investment in new residential house on time scale (up to 31/3/2010)

The relief by the ld. CIT(A) shall therefore be subject to the verification by and the satisfaction of the AO with regard to the assessee’s claims made qua the same. With regard to part or (co-) ownership, we may though clarify that the same has been held in CIT v. M.J. Siwani [2014] 366 ITR 356 (Kar.) to bar eligibility u/s. 54F, SLP against which stands dismissed in 232 Taxman (St.) 335 (SC). Further, there being no finding by the ld. CIT(A) with regard to the commencement and completion dates of the new residential house, the AO shall examine the said aspect also, represent as it does a primary condition for exemption u/s. 54-F. Needless to add, it having been decided and, further, endorsed by us that there can be no aggregation of capital gains arising on different capital assets for the purpose of claim u/s. 54F, i.e., qua a particular residential property, the exemption u/s. 54F shall be only with reference to the capital gain on the transfer of plot # 688. The AO shall decide in accordance with law, issuing definite findings of fact, rendered of-course after hearing the assessee, as well as allowing her an opportunity to substantiate her claims. Subject to the AO returning positive findings, we confirm the relief as allowed qua section 54F by the ld. CIT(A), whose order we thus approve in principle, i.e., save qua the co-ownership as not barring exemption u/s.54F, as noted above. We decide accordingly. We may before parting add that lest one considers us as having travelled outside the scope of the instant appeals, i.e., while issuing the directions with which the matter is restored to the file of the assessing authority, we may advert to the 9 & 3256/Mum/2014 (A.Y. 2008-09) Suman Kadam vs. ITO decisions, inter alia, in the case of Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC) and Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351 (Bom)(FB).