Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’
PER SHRI VIJAYPAL RAO, JUDICIAL MEMBER :
This appeal by the assessee is directed against the revision order dated 7/3/2014 of Commissioner of Income-tax u/s 263 for the asst. year 2009-10.
ITA No.472/B/14 2
The assessee has raised the following grounds:
i) The order of the learned CIT, B’lore-II (CIT), in so far as it is against the appellant is opposed to law, equity, facts, weight of evidence, probabilities and circumstances of the case. ii) The learned CIT is not justified in invoking the provision u/s 263 and holding that the order passed by the AO u/s 143(3) dt 24.10.2011 as erroneous and prejudicial to revenue ignoring the fact that the AO had applied his mind on the issue and had taken the view accepting and following judicial discipline. Therefore, the order u/s 263 does not survive and deserves to be cancelled. iii) The learned CIT is not justified in invoking the provision u/s 263 and passing order u/s 263 of the Income-tax Act, 1961 holding that AO passed an order without application of mind, for the following reasons. a. Once the AO has applied his mind and passed an order u/s 143(3) after fully enquiring into the subject, the order cannot be said to be erroneous. In this regard, reliance is placed in the case of Infosys BPO Ltd., Bangalore Vs. CIT, ITA No.222Bang/2011. b. The learned CIT failed to appreciate that the CIT cannot remand the matter to the AO for
ITA No.472/B/14 3
further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the AO implies that the CIT has not decided whether the order is erroneous but has directed the AO to decide the aspect which is not permissible. Reliance placed in the case of ITO Vs.DG Housing Projects [2012] 343 ITR 329 (Delhi) (HC). c. Order u/s 263 of the IT Act, 1961 has not satisfied the conditions as laid down in the provision of he IT Act, 1961 and fails to appreciate that before passing an order u/s 263, the basis twin conditions namely (I) the order of the AO sought to be revised is erroneous and (ii) it is prejudicial to the interest of the revenue and even one of these is absent, recourse cannot be had to section 263 of the IT Act, 1961. Reliance placed in the case of Malabar Industrial Co. Ltd., (2000_ 243 ITR 83 (SC) d. When the AO made proper enquiry and examined accounts, it could not be said that there was non application of mind by him. Hence, the action u/s 263 was held invalid. Held in the following cases.
ITA No.472/B/14 4
i. Fine Jewellery (India) Ltd., Vs. ACIT [2012] 19 ITR 746 (Mum.) (Trib). ii. Roshan Lal Vegetable Products Pvt. Ltd. Vs. ITO [2012] 51 SOT 1 (URO) (Asr) (Trib) iii. Antala Sanjaykumar Ravjibhai Vs. CIT [2012] 135 ITD 506 (Rajkot) (Trib)
Further, the learned CIT not justified in denying the claim of exemption u/s 54F of the IT Act, 1961 which the investment in house property outside India and that funds invested are not out of the funds realized out of the sale of property and considering the cost of acquisition of the property Rs.6,23,260/- as against the correct cost of acquisition of Rs.9,04,400/-.”
The assessment in the case of the assessee was completed u/s 143(3) on 24/10/2011 accepting the return income. Subsequently, the
CIT noticed from the assessment record that the assessment order passed by the AO was erroneous in so far as it was prejudicial to the interest of the revenue for the reasons that the AO allowed the claim of the deduction u/s 54F, whereas the assessee has acquired the new asset outside India and further the cost of the existing asset was also
ITA No.472/B/14 5
inflated by the assessee and accepted by the AO. Accordingly, the
CIT issued show cause notice on 13/2/2014 u/s 263 of the Act.
In response to the show cause notice, the assessee contended
before the CIT that during the scrutiny assessment proceedings, the
assessee produced all the relevant details and made submissions on
4/11/2011. Therefore, the AO allowed the claim of the assessee after
considering the relevant record and submissions of the assessee.
Further the assessee contended that there is no requirement under the
provision of sec. 54F that the assessee should invest in the house
property only in India and not outside India. Apart from this, the
assessee further contended that it is also not required that a new
property is acquired only from the sale proceeds of the capital asset,
otherwise the provision of sec. 54F would not have allowed the
investment in the house property which was prior to the transfer of the
capital asset resulting long term capital gain. The CIT did not accept
the contention of the assessee and held that the order passed u/s
144(3) dated 24/10/2011 is deemed to be erroneous in so far as
prejudicial to the interest of the Revenue. Since the same has been
passed without application of mind and without proper appreciation of
ITA No.472/B/14 6
the provision of law, the AO was directed to redo the assessment after affording an opportunity of being heard to the assessee.
We have heard the learned AR as well as learned DR and considered the relevant material on record. The CIT invoked sec. 263 on three grounds as under: i) That the cost of acquisition claimed by the assessee at Rs.9,04,000/- was cost of registration and stamp duty was not the correct claim in view of the payment made by the
mother of the assessee as per the purchase document which is Rs.6,23,260/-. ii) The investment in the new residential property is in Ireland which is outside India, therefore, the assessee is not eligible for deduction u/s 54F. iii) The amount of capital gain and sale proceeds was not
available with the assessee at the time of purchase of new residential house.
As regards the cost of acquisition of the existing asset which was inherited by the assessee from her mother is concerned, the learned AR of the assessee has submitted that during the course of
ITA No.472/B/14 7
asst. proceedings the assessee furnished the statement of account of
the seller Chamundeshwari Build Tech Pvt. Ltd., wherein all details
of the cost of the asset as well as details of the assets were given. The
AO after considering the said statement of account and explanation of
the assessee accepted the cost of the acquisition of the asset. He has
further pointed out that for giving effect to the 263 order of the CIT,
the AO has accepted the claim of the cost of the acquisition of the
asset vide order dated 31/10/2014. He has filed a copy of the order
passed by the AO in pursuant to the revision order. Thus, the learned
AR of the assessee submitted that when the AO has allowed the claim
of the cost of acquisition by considering relevant evidence then the
CIT was not justified in involving the provision of sec. 263 of that
assessment and consequently revising the assessment order. On the
point of acquisition of the new asset outside India, the learned AR of
the assessee submitted that this issue is covered in favour of the
assessee by the decision of the coordinate bench of this Tribunal dated
12/10/2012 in the case of Vinay Mishra Vs. ACIT, 141 ITD 301.
Therefore, even on the merits of the said issue, it is not sustainable.
Thus the learned AR submitted that when the AO allowing the claim
has taken a possible view then the CIT(A) is not justified in invoking
the provision of sec. 263 merely because he did not agree with the
ITA No.472/B/14 8
view taken by the AO. As regards the acquisition of the new asset by
utilizing the sale proceeds of the existing asset the learned AR
submitted that there is no such requirement under the provision that
the new asset shall be purchased only from the sale proceeds of the
existing asset.
On the other hand, the learned DR submitted that the assessee
has acquired new asset outside India and as per the provision of sec.
54F(3), if the new asset is sold by the assessee within the period of 3
year then the capital gain would be taxable in the year in which the
new asset is sold by the assessee. However, in the case when the new
asset is acquired outside India, the capital gain would not be taxable
in the hands of NRI. He has relied upon the impugned order.
Having considered the rival submissions as well as relevant
material on record, we find that the impugned revision order passed
by the CIT is not sustainable either on merits of the issues involved
or on the jurisdiction exercised by the CIT. As we have mentioned in
foregoing para that the CIT proposed to revise asst. order u/s 143(3)
on 3 grounds on which the CIT was of view that the deduction u/s
54F allowed by the AO ought to have been disallowed. The first
ITA No.472/B/14 9
ground of the CIT is regarding the cost of acquisition of the existing
asset. The CIT recorded in the show cause notice that as per the
purchase document, whereby the mother of the assessee purchased
asset in question, the cost of purchase of the asset is only
Rs.6,23,260/-, whereas the assessee claimed the cost of acquisition
being share of the mother of the assessee is at Rs.9,04,000/-.
Accordingly the CIT concluded that this aspect of the matter has not
been examined by the AO and, therefore, the assessment order was
passed by the AO was without application of mind. It is pertinent to
note that the claim of Rs.9,04,000/- being cost of acquisition of the
asset by the mother of the assessee was based on details and
document produced by the assessee during the course of asst.
proceedings.
We have carefully gone through the statement of account
produced by the assessee before the AO and found that the assessee
had explained the cost of acquisition towards the cost of site, club
membership registration charges and leveling charges. The payment
details were also explained in the said statement of account. This
statement of account is a confirmation by the seller and therefore, the
AO allowed the claim of the assessee by considering the relevant
ITA No.472/B/14 10
evidence in this respect. Even otherwise the CIT has not given
concluding finding of this issue and remitted the issue to the record
with AO with a direction to redo the same after giving an opportunity
to the assessee. In giving effect order dated 31/10/2014, the AO
again accepted the claim of the assessee being cost of acquisition of
the asset at Rs.9,04,000/-. Thus it is clear that the impugned revision
order is not sustainable as far as this issue of cost of acquisition of
asset is concerned when the AO even in giving effect order has
examined this issue and found that the claim of the assessee is correct.
As regards the issue of acquiring the asset outside India, we
find that an identical issue has been considered and decided by the
coordinate bench of the Tribunal in the case of Vinay Mishra Vs.
ACIT (Supra), in para 14 to 18 as under:-
“14. We have heard both the parties and carefully perused and considered the order of assessment, the impugned order of the learned CIT(A) and the rival written submission made. The provisions of sec. 54F of the Act reads as under:
“….where in the case of an assessee being an individual or a Hindu undivided family, the capital
ITA No.472/B/14 11
gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head ‘Income from house property’ (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years, after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section.”
According to the AO, the assessee has complied with all the conditions stipulated in sec. 54F of the Act, except that the new asset, the residential house acquired, is situated outside India. The Ahemdabad Bench of the Tribunal while deciding the case of the Leena J Shah (Supra) held that when the residential house is situated outside India, the assessee would not be eligible for exemption u/s 54 of the Act. The Bench felt that there is some ambiguity in the wordings of sec. 54F of the Act and, therefore, the Tribunal resorted to taking the help of external aid to interpret the provisions.
ITA No.472/B/14 12
Subsequently, the Mumbai Bench of the Income-tax Appellate Tribunal in the case of Mrs. Prema P Shah and Sanjiv P Shah (Supra) relied on by the assessee which was subsequently followed by the another Bench of the Income-tax Appellate Tribunal. Mumbai in the case of Dr. Girish M Shah (Supra), was of the view that the applicability of exemption u/s 54 is not excluded in case new property is purchased in a foreign country, the assessee having acquired a residential property on lease in the UK after selling residential property in India exemption u/s 54 was allowable since the lease is valid for 150 years and the assessee is as good as absolute owner of property; claim for exemption could not be denied even on the ground that the assessee had utilized borrowed funds for investment in the said property. In accordance with this view, the Hon’ble Tribunal in para 27 of its order held as under (page 223):
“27. In short, we are of the considered view, for the reasons stated hereinabove, the assessee is entitled to the benefit u/s 54 of the Act. It does not exclude the right of the assessee to claim the property purchased in a foreign country, if all other conditions laid down in the section are satisfied, merely because the property acquired is in a foreign country.”
ITA No.472/B/14 13
Subsequently, another Bench of the Mumbai, ITAT in the case of Dr. Girish M Shah (Supra) following the decision in the case of Mrs. Prema P Shah and Sanjiv P Shah (Supra) held that the assessee was not to be denied exemption u/s 54F of the Act merely on the ground that the purchase/construction of the residential house must be in India and not outside India if all other conditions laid down in the section are satisfied. The latter decision of the Mumbai ITAT in the case of Girish M Shah noted the order of the Ahmedabad Bench of the Tribunal in the case of Leena J Shah [2006] 6 SOT 721 (Ahd) but still preferred to follow the order of the Mumbai ITAT in the case of Mrs. Prema P Shah & Sanjiv P Shah (Supra).
On a plain reading of the provision of sec. 54F of the Act, we do not find anything therein to suggest that the new residential house acquired should be situated in India. The jurisdictional high court in the case of Mrs. Jennifer Bhide (Supra) had held that introducing a word which is not there into a section amounts to legislation when parliament has not used these words in the said section. In view of this decision, we are precluded from reading the words ‘in India’ into sec. 54F of the Act, when the parliament in its legislative wisdom has deliberately not used the word’ in India’ in sec. 54F of the Act.
ITA No.472/B/14 14
Therefore, in view of the discussion above, we follow the latter decisions fo the Mumbai Benches of the ITAT in the cases of Mrs. Prema P Shah and Sanjiv P Shah (Supra) and Dr. Girish M Shah (Supra). The provisions of sec. 54 of the Act which was considered by the Mumbai Benches of the ITAT in the cases of Mrs. Prema P Shah and Sanjiv P Shah (Supra) and Dr. Girish M Shah (Supra) are in pari material with sec. 54F of the Act and, therefore, these two decisions of the Mumbai Benches of the Tribunal are equally applicable while considering the exemption u/s 54F of the IT Act and hence would be applicable to the present case of the assessee. In this view of the matter, we allow the assessee’s claim for exemption u/s 54F of the Act since all conditions laid down in this section are satisfied for availing of the said exemption.”
The learned DR argued that as per the sub sec. 3 of sec. 54F if the new asset is transferred within a period 3 years from the date of
purchase, the amount of capital gain will be taxed in the year of sale but in the case of the asset purchased outside India the said amount of capital gain cannot be taxed. We do not agree with the said
ITA No.472/B/14 15
contention of the learned DR because in the case of transfer of the new asset within the period of 3 years from the date of purchase, the
consequences would be taxing the capital gain arising from the transfer of original asset not charged to tax u/s 45 of the Act and, therefore, it makes no difference as far as the consequential chargeability of capital gain arising from the transfer of original asset whether the new asset is purchased in India or outside India. For ready reference we quote sub sec. (3) of sec. 54F Section 54F(3) -
Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged u/s 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head ‘capital gain’ relating to long term capital assets of the previous years in which such new asset is transferred.”
The plain language of the sub sec. 3, no where contemplate taxing of the capital gain arising from transfer of the new asset but it is only taxing of the capital gain arising from transfer of the original
ITA No.472/B/14 16
asset, and therefore, the status of the assessee being a resident or non-
resident India is not at all relevant for the purpose of sub sec. 3 of sec.
54F.
In view of the above discussion and by following the decision
of the coordinate bench, we hold that the CIT(A) is not justified in
invoking the provision of sec. 263 on the issue of investment made in
the new asset outside India for the year under consideration.
The next ground raised by the CIT is regarding the
insufficiency of the fund from the sale proceeds of the existing asset
for acquiring the new asset. If this view of the CIT is accepted then
the provision of sec. 54F cannot be given effect in its totality. As per
sub sec. 1 of sec. 54F the requirement of investing in new residential
house is within period of one year before or two years after the date
on which the transfer took place or construction of a house within a
period of 3 years after the date of transfer. Therefore, if new
residential house is purchased within a period of one year before the
transfer of existing asset then the question of availability of sale
proceeds of the existing asset at the time of acquisition does not arise.
Accordingly, we do not find any substance in the view of the CIT on
ITA No.472/B/14 17
this point which is contrary to the provision of sec. 54F(1). Hence CIT was not justified in invoking the provision of sec. 263 on this
point.
In view of the above discussion, we set aside the impugned revision order passed under sec. 263 of the Income-tax Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 16th Sept, 2015. Sd/- Sd/- (JASON P BOAZ) (VIJAYPAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Vms. Bangalore Dated : 16/9/2015 Copy to : 1. The Assessee 2. The Revenue 3.The CIT concerned. 4.The CIT(A) concerned. 5.DR 6.GF By order
Asst. Registrar, ITAT, Bangalore.