THE ACIT, COCHIN vs. DR. RAMESH KUMAR ISWARA, COCHIN

Per GEORGE GEORGE K.,JUDICIAL MEMBER:

These are cross appeals directed against the order of the CIT(A)-II, Kochi dated

16/12/2015. The relevant assessment year is 2006-07.

The assessee is an individual. He is a doctor by profession and was engaged in

the business of running a pathology lab. For the assessment year 2006-07, the

return of income was filed on 30/10/2006, declaring an income of Rs.34,08,116/-.

On the basis of information and documents available with the Department that the

assessee had sold his pathology lab and capital gains liability has arisen in the hands

of the assessee, notice u/s. 148 of the Act was issued. The re-assessment was

completed u/s. 143(3) r.w.s. 147 of the Act vide order dated 14/03/2014. While

completing the re-assessment, the Assessing Officer did not grant exemption

claimed u/s. 54EC and 54F of the Act. The Assessing Officer also levied interest u/s.

234(1) of the Act from 1-4-2006 upto date of re-assessment (order dated 14-3-

2014). Aggrieved, the assessee preferred an appeal to the first appellate authority.

The CIT(A) upheld the order of the Assessing Officer in not granting exemption u/s.

54EC and 54F of the Act. The CIT(A) allowed relief in respect of chargeability of

interest u/s. 234B of the Act. The CIT(A) held that interest is to be charged as per

section 234B (3) of the Act.

3 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 3. We shall first take up for adjudication, the assessee’s appeal in I.T.A.

122/Coch/2016.

I.T.A. No. 122/Coch/2016 (assessee’s appeal)

The effective grounds raised in assessee’s appeal read as follows:-

“2. The Commissioner of Income Tax(Appeals) went wrong in not granting the deduction u/s. 54EC on the ground that the investment in capital gains bonds was made beyond the period stipulated under the said section. The Commissioner of Income Tax(Appeals) failed to note that the appellant could not invest in the bonds within 31st December 2006 but even till 22nd January 2007. Your appellant had subscribed to the bonds on 27th January, 2007, i.e., within five days it became available in the market and the same was allotted on 31st January, 2007. In case the bonds are not available, the time to invest in the bonds gets automatically extended till such bonds become available in the market. Commissioner of Income Tax(Appeals) erred in his conclusion in paragraph 4.4 of the order that the Mumbai High Court decision was not applicable to the appellant.

3.1 The first ground is regarding denial of exemption u/s. 54EC of the Act. The

facts necessary for disposal of the above ground are as follows:

The assessee has sold his pathology lab on 01/01/2006 for a consideration of

Rs.3,37,50,000/-. In the return of income filed on 31/10/2006, the assessee had

disclosed ‘nil’ capital gains. The Assessing Officer however calculated long term

capital gains u/s. 50B of the Act at Rs.2,76,11,908/-. The assessee had claimed

exemption u/s. 54EC of the Act amounting to Rs.50 lakhs. The assessee’s claim of

4 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 exemption u/s. 54EC of the Act was denied by the Assessing Officer. According to

the Assessing Officer last date of investment in 54EC Bond as per CBDT Notification

is 31/12/2006. The assessee in this case has invested in 54EC Bond only on

27/01/2017. Accordingly, he concluded that the assessee was not entitled to

exemption u/s. 54EC of the Act. The relevant observation of the Assessing Officer

reads as follows:

“10. I reiterate here that relief of exemption u/s. 54EC can be granted within the time limit as prescribed by the legislative provision and not beyond that. Hence, I am unable to concur with the assessee’s contention that the time limit for investment which was admittedly extended by notification up to 31/12/2006 can be stretched up to 31.1.2007, by exercising the jurisdiction under the Act.”

3.2 Aggrieved by the order of the Assessing Officer, the assessee preferred an

appeal before the first appellate authority. The CIT(A) confirmed the view taken by

the Assessing Officer. The relevant finding of the CIT(A) reads as follows:

“4.5 It has been observed in paragraph 10 of the Assessing Officer’s order that the assessee has made investment beyond the time limit of six months as envisaged by section 54EC and even beyond the further extended time vide notification of the CBDT up to 31.12.2006. The assessee has not submitted any evidence to have ever applied for investment in bonds from any day up to 1.8.2006. Since the assessee has made investment on 31.1.2007, beyond the extended period i.e., 31.12.2006, the claim of exemption u/s. 54EC, is held to have rightly denied by the Assessing Officer.”

3.3 Aggrieved, the assessee has preferred the present appeal before the Tribunal.

The Authorized Representative reiterated the submissions made before the Income

5 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 Tax authorities. The Ld. DR supported the orders of the Assessing Officer and the

CIT(A).

3.4. We have heard the rival contentions and perused the material on record. The

assessee had sold his pathology lab on 1.1.2006. In the normal course, the assessee

ought to have invested in 54EC bonds on or before 30-06-2006. However the

period of investment in 54EC bonds were extended upto 31/12/2006, by CBDT

Notification dated 30/06/2006. The CBDT in Notification (at para 3) had

acknowledged that old bonds were closed on 29/03/2006 and were not available

from the said date. The non availability of the bonds from 29/03/2006 was the

reason for extension of period for investment in 54EC bonds from 30/06/2006 to

31/12/2006 (in the case of the assessee). The Board’s Notification dated

30/06/2006 is reproduced for ready reference:

“F.No. 142/09/2006-TPL Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, the 30th June, 2006

Section 54EC of the Income-tax Act, 1961 provides that capital gain arising from the transfer of a long term capital asset shall not be charged to tax to the extent such gains are invested in ‘long term specified asset” within a period of six months after the date of such transfer.

6 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 and Rural Development (NABARD), National Highways Authority of India (NHAI), Rural Electrification Corporation Limited (REC), National Housing Bank (NHB), or Small Industries Development Bank of India (SIDBI).

upto 31st December, 2006 in case of persons where the long- (ii) term capital asset was transferred between 01.01.2006 and 30.06.2006 (both dates inclusive).

Sd/- (Sharat Chandra) Director Government of India”

3.5 Though in the Board’s Notification it is mentioned that REC and NHAI bonds

are available from 01/07/2006, according to the assessee, the same was issued only

7 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 on 22/01/2007. The fact of issue of these bonds only from 22/01/2207 is noticed by

the Hon’ble Bombay High Court in the case of CIT vs. Cello Plast (2012) 76 DTR 439

Bom.). The relevant portion of the judgment of Hon’ble Bombay High Court reads

as follows:

“22. In the present case, the bonds were not available from 4/8/2006 to 22/1/2007. The last date for investment in the normal course would have been 21/9/2006 which was extended up to 31/12/2006. The respondents admittedly invested in the bonds on 31/1/2007 i.e. within nine days of their being available once again from 22/1/2007. Considering that the bonds were not available for such a long period, an extension of merely nine days is extremely reasonable in the present facts.”

3.6 The Hon’ble High Court also rejected the Revenue’s contention that the bonds

were available upto 3/8/2006 and respondent assessee should have purchased the

bonds before 3/8/2006. The Hon’ble High Court held that when the assessee was

entitled in law to wait till 21/9/2006 to invest in the bonds, there is no reason to

invest in the bonds prior to the above mentioned date

3.7 The 54EC bonds had it not been available during the month of December,

2006, it would have been impossible for the assessee to have invested in these

bonds. The assessee cannot be compelled to do the impossible. So the question or

the moot point to be examined is whether 54EC bonds were availed during the

month of December, 2006. If the bonds were available during the last dates of the

month of December, 2006 (period of investment ended on 31/12/2006), the claim of

deduction u/s. 54EC of the Act cannot be allowed, since the investment has been

8 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 made beyond the prescribed time limit. We are of the opinion if 54EC bonds were

not available in the market from 01/12/2006 to 22/01/2007, the assessee should be

given a grace period of five days, since the assessee had invested in 54EC bonds on

27/01/2007 (whereas in the case considered by the Hon’ble Bombay High Court

(supra), the investment was made only on 31/01/2007). For examination of these

aspects, the matter is restored to the Assessing Officer. The Assessing Officer shall

verify whether the bonds eligible for exemption u/s. 54EC were not available in the

month of December, 2006 upto 21/01/2007. If the Assessing Officer finds that the

54EC bonds were not available for the above mentioned period, the benefit of

deduction under section 54Ec should be granted to the assessee since the assessee

had invested in 54EC bonds within the reasonable period of its availability in the market. In taking the above view, we rely on the judgment of the Hon’ble Bombay

High Court in the case of CIT vs. Cello Plast (supra) which is identical to facts of this

case.

3.8 In the result, Ground No. 2 raised by the assessee is allowed for statistical

purposes.

54F of the I.T. Act.

9 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 4.1 The brief facts in relation to the ground are as follows:

The assessee had made a claim of exemption u/s. 54F of the Act. The claim

was denied by the Assessing Officer for the reason that no claim was made in the

return of income but only during the course of assessment proceedings. The

observation of the Assessing Officer for denying the benefit of deduction u/s. 54F

reads as under:

“In the instant case, the AR was unable to produce any proof of such deposit into capital gains account scheme except an extract of payment scheduled dated 12.8.2008 as confirmed by the property developer whereby the assessee was found to have paid amount of Rs.10.50 lakhs before the due date of return of income. Even though the payment of Rs.10.50 lakhs was made within 31.7.2006 which qualifies for deduction u/s. 54F, the deduction was however disallowed on the ground that there was no provision under the income Tax Act to make amendment in the return of income by modifying an application at the assessment stage without revising the return. This was upheld by the Apex Court in Goetze India Ltd vs CIT (284 ITR 323). Therefore the entire exemption u/s. 54F as claimed by the assessee could not be allowed.”

4.2 Aggrieved, the assessee preferred an appeal to the first appellate authority.

The CIT(A) confirmed the view taken by the Assessing Officer. The relevant finding

of the CIT(A) reads as follows:

“It is seen that in the return filed by the appellant no claim of deduction u/s. 54F was made. It is only during the course of assessment proceedings, the assessee brought this issue before the Assessing Officer and under this set of specific facts and circumstances the Assessing Officer has rightfully applied the ratio pronounced by the Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs CIT. In the aforesaid decision, it is only the Income Tax Appellate Tribunal, is interpreted to be the appellate authority to consider the allowance of such claim, if the same has not been claimed originally by the assessee in

10 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 the return of income. Accordingly in view of the ratio pronounced in the case of Goetze India Ltd. the exemption denied by Assessing Officer u/s. 54F is upheld.”

4.3 Aggrieved by the order of the CIT(A), the assessee has preferred the present

appeal before us. The Ld. Counsel for the assessee submitted that the assessee has

actually invested a sum of Rs.34,97,593/- in the construction of residential house

within the time allowed u/s. 54F(1) of the Act. It was submitted that in such cases,

the provisions of section 54F(4) requirement to make deposits in Capital Gains

Accounts Scheme has no application. For the above proposition, the Ld. Counsel for

the assessee relied on the decision of the Hon’ble Karnataka High Court in the case

of CIT vs. K. Ramachandra Rao (120 DTR 72). As regards the Assessing Officer’s

conclusion that no claim of deduction u/s. 54F was made in the return of income

but only during the course of assessment, it was submitted by the Ld. Counsel for

the assessee that the rightful claim of deduction u/s. 54F though not claimed in the

return of income can be claimed in the course of assessment proceedings. It was

contended that the judgment of the Hon’ble Supreme Court in the case of Goetze

(India) Ltd. vs. CIT (284 ITR 323), relied on by the Assessing Officer, does not have

application to the facts of the case. It was submitted that the Hon’ble Supreme

Court only limited the power of Assessing Officer and does not impinge on the

powers of the appellate authority. Therefore, it was contended that the CIT(A)

ought to have considered the grant of exemption u/s. 54F which was otherwise

available under the Act. The Ld. Counsel for the assessee relied on the judgment of

11 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 the Hon’ble Delhi High Court in the case of CIT vs. Pr. CIT vs. Western India

Shipyard Ltd. (379 ITR 289).

4.4 The Ld. DR present was duly heard.

4.5 We have heard the rival contentions and perused the material on record. In

the instant case, the claim of exemption (u/s. 54F of the Act) was denied primarily

for the reason that assessee had not made the said claim in the return of income

filed. The CIT(A) confirmed the view taken by the Assessing Officer and did not

consider whether the assessee is entitled to the benefit of exemption u/s. 54F of

the Act on merits. The Assessing Officer relying on the judgment of the Hon’ble

Supreme Court in the case of Goetze (India) Ltd. vs. CIT (supra) had denied the

claim of exemption u/s. 54F only for the reason that the said claim was made only

during the course of assessment proceedings and not in the return of income. The

Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (supra) in para 5

of the judgment had categorically held that the judgment was to limit the power of

the Assessing Officer and not to impinge on the powers of the appellate authority.

This position has been clarified by the judgment of the Hon’ble Delhi High Court in

the case of Pr. CIT vs. Western India Shipyard Ltd.(supra). The relevant portion of

the same reads as follows:

“The Tribunal was right in holding that while there was a bar on the Assessing Officer entertaining such claim without a revised return being filed by the

12 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 assessee, there was no such restraint on the Commissioner (Appeals) during the appellate proceedings. However, while permitting such a claim he ought to have examined whether in fact the bad debts were written of by the assessee in the first instance in the accounts and then taken into consideration while computing the income. The remand of the matter to the Assessing Officer for that purpose was, therefore, justified.”

4.6 The ITAT, Mumbai Bench in the case of Naptha Jhakri Joint Venture vs. ACIT

(5 ITR Trib. 75) had also considered the above judgment of Hon’ble Apex Court and

held that even if the assessee has failed to make deduction u/s. 54F in the return of

income filed by it, which is otherwise available to it as per law, doors of justice

cannot be closed to the assessee simply for the reason that no revised return was

filed for making such claim of deduction. It was held by the Mumbai Bench of the

Tribunal (supra) that the appellate authority, namely, the CIT(A) or the Tribunal can

consider the rightful claim of the assessee. The relevant finding of the Tribunal

reads as follows:

“The Assessing Officer did not accept the claim of the assessee for the reason that in the absence of the assessee filing any revised return, it was ot open to make any claim for deduction. In support of the Assessing Officer’s stand, the learned Departmental Representative has relied on the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC). It is true that it has been held in this case that the Assessing Officer cannot entertain the claim for deduction otherwise than by filing the revised return. However it is not the end of the matter. The Hon’ble Supreme Court has clarified the position further in para 4 of this judgment which makes it explicitly clear that the mandate of this judgment is limited to the power of the assessing authorities and does ot impinge on the power of the Tribunal under s. 254 of the Act. In this view of the matter there remains no doubt whatsoever that if the assessee has failed to claim deduction in the return filed by it, which is otherwise available to it as per law, the doors of justice cannot be closed to the assessee simply for the reason that no revised return was filed making such a claim for deduction. It is

13 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 simple and plain that the purpose of making assessment is to collect the rightful tax due from the assessee. Filing of revised return by the assessee may be a valid mode of claiming deduction which was omitted to be claimed in the original return. But it is not that if revised return is not filed or the time- limit for the filing of the revised return has expired but the assessment is still pending, that the assessee should be prohibited from making such a claim. Technicalities cannot be allowed to work as speed breakers in the course of dispensation of justice.”

4.7 In the instant case, admittedly, the assessee had incurred cost of

Rs.34,97,593/- in the construction of the residential house. Whether the assessee

was entitled to the claim of exemption u/s. 54F in respect of the amount, has not

been dealt on merits for the reason that the claim of exemption u/s. 54F was not

made in the return of income filed. Whether assessee is entitled to exemption u/s.

54F as per law, ought to have been examined by the CIT(A) and the assessee

cannot be foreclosed from the benefit of exemption merely on account of not

making a claim in the return of income. The assessee had made the claim of

exemption u/s. 54F of the Act in the course of assessment proceedings and also

before the first appellate authority. The Hon’ble Supreme Court has clarified in para

4 of the said judgment that the claim not made in the return of income does not

impinge upon the powers of the first appellate authority to examine the allowability

of the claim. In view of the judgment of the Hon’ble Delhi High Court (supra) and

the Mumbai Tribunal (supra), we are of the view that the CIT(A) has power to

consider the claim of deduction u/s. 54F of the Act. Since on merits, whether the

assessee is entitled to the benefit of the claim u/s. 54F has not been examined by

14 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 the CIT(A), we deem it appropriate to restore the issue to the file of the Assessing

Officer for de novo consideration. It is ordered accordingly.

4.8 In the result, Ground No. 3 of the assessee is allowed for statistical purposes.

I.T.A. No. 61/Coch/2016 (Revenue’s appeal)

u/s. 234B is to be charged as per section 234B(1) or 234B(3) of the Act.

5.1 The Assessing Officer had levied interest u/s. 234B(1) from 1st April, 2006 to

the date of completion of re-assessment, i.e. upto 14.3.2014. According to the

assessee, assessment u/s. 143(1) of the Act was completed on 17/8/2007. Hence,

the assessee is liable for interest only from 17/08/2014 to 14/03/2014 as per section

234B(3) of the Act. The CIT(A) accepted the contention raised by the assessee and

allowed th is ground.

5.2 The Revenue being aggrieved has filed the present appeal before the Tribunal.

The Ld. DR relied on the grounds raised by the Revenue. The Ld. AR on the other

hand submitted that an identical issue was considered by the Hon’ble Jurisdictional

High Court in the case of CIT vs. B. Lakshmikanthan reported in (198 Taxman 485),

the issue was decided in favour of the assessee.

15 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 5.3 We have heard the rival contentions and perused the material on record. On

identical facts, the Hon’ble Jurisdictional High Court had decided the issue in favour

of the assessee. The Hon’ble Kerala High Court has held that when proceedings u/s.

143(1) of the Act has been completed and issued to the assessee, interest is to be

levied as per section 234B(3) of the Act from the date of proceedings u/s. 143(1) of

the Act. The relevant finding of the Hon’ble Jurisdictional High Court reads as follows:

“In this case, the original returns were processed under s. 143(1) of the Act and the proceedings so completed were issued to the assessee. It is only thereafter the Department conducted search and made revised assessments under s.153A of the Act though by accepting returns undisclosed income filed and by issuing proceedings under s. 143(1) r/w s.153A of the Act. We, therefore, hold that the assessments under s. 153A are revised assessments and so much so, interest could be demanded for the period mentioned in s. 234(B)(3) of the Act as held by the Tribunal. In this view of the matter, we uphold the order of the Tribunal and dismiss the Department appeals for both the years.”

5.3 Moreover we notice that section 234B(3) was amended by Finance Act, 2015

with effect from 1.6.2015 whereby interest u/s. 234B is to be calculated from first

day of April to next following such financial year. Therefore, in view of the judgment

of the Hon’ble Jurisdictional High Court (supra) and the amendment with effect from

1.6.2015, we are of the view that the order of the Commissioner is correct and no

interference is called for.

5.4 In the result, the appeal filed by the Revenue is dismissed.

16 I.T.A.Nos.122/Coch/2016 & 61/Coch/2016 6. In the result, the appeal filed by the assessee is allowed for statistical purposes

and the appeal filed by the Revenue is dismissed.

Pronounced in the open court on 08 -06-2017.

sd/- sd/- (ABRAHAM P. GEORGE) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER

Place: Kochi Dated: 08s-06-2017 GJ Copy to: 1. Dr. Ramesh Kumar Iswara, North Square, Paramara Road, Kochi-682 018. 2. The Assistant Commissioner of Income-tax, Circle-1 Non-Corporate, Kochi. The Commissioner of Income-tax(Appeals), Kochi. 4. The Pr. Commissioner of Income-tax, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin