Tca/286/2012 Of Smt Renuka Philip v. The Income Tax Officer

1. IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 14.11.2018 CORAM: THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MR.JUSTICE N.SATHISH KUMAR Tax Case Appeal No.286 of 2012 Smt.Renuka Philip ...Appellant-vs- The Income Tax Officer,Business Ward - XV (2)Chennai. .... Respondent Tax Case Appeal filed under Section 260-A of the Income TaxAct, 1961 against the order of the Income Tax Appellate Tribunal"D" Bench, Chennai dated 13.07.2012 in I.T.A.No.900/Mds/2012 forthe assessment year 2005-06. For Appellant : Mr.A.S.SriramanFor Respondent : Mrs.R.Hemalatha This appeal by the assessee is directed against the orderpassed by the Income Tax Appellate Tribunal, "D" Bench, Chennai,dated 13.07.2012 in I.T.A.No.900/Mds/2012 for the assessmentyear 2005-06 against the order of the Commissioner of IncomeTax, Chennai-X, dated:14/03/2012 made in C.No.10113/10/CIT-X/2011-12 against the Income -Tax, Officer ( Business ward XV(2)Chennai-34. Dated:31/12/2009 made in PAN.NO. AAGPP9696MAssessment year-2005-2006. 2. The appeal has been admitted on 12.03.2013 on thefollowing substantial questions of law:-" 1.Whether the Appellate Tribunal is correctin law in sustaining the assumption ofjurisdiction by the CIT under Section 263 of theIncome Tax Act, 1961 for revising the re-assessment framed by the respondent in accepting https://hcservices.ecourts.gov.in/hcservices/ the claim of exemption/deduction under Section54F of the Act in the computation of long termcapital gains even though there was apparentjurisdictional error in the attempt to review theorder of assessment framed to bring to tax theescaped income within the scope of Section 147 ofthe Act? 2.Whether the Tribunal is correct in law insustaining the assumption of jurisdiction by theCIT under Section 263 of the Income Tax Act, 1961for revising the re-assessment framed by therespondentinacceptingtheclaimofexemption/deduction under Section 54F of the Actin the computation of long term capital gainseven though there was no requirement for furtherinvestigation into facts with regard to the saidclaim of exemption/deduction in view of therespondent's thorough enquiry into the relevantfacts in relation thereto in the passing of theincome escaping assessment?". 3. The assessee filed return of income for the assessmentyear under consideration viz., 2005-06 on 31.07.20015 admittinga total taxable income of Rs.1,11,107/-. In the said return ofincome, the Long Term Capital gains arising or accruing as aresult of sale of the property situated at Chennai was reportedto the extent of Rs.24,01,859/- and the assessable capital gainswas invested in another property situated at Bangalore. 4. The said return of income filed by the assessee wasinitially proceeded under Section 143(1) of the Income Tax Act,1961 (in brevity the "Act"). The assessment was re-opened byissuance of notice under Section 147 of the Act dated 06.05.2008for bringing to tax escaped income and in response to the saidre-opening notice, a letter dated 16.07.2008 was filed by theassessee in the office of the Assessing Officer requesting tocomplete the assessment in the re-opened proceedings as per theoriginal return of income filed. The re-assessment wascompleted by order dated 31.12.2009 under Section 147 r/w 143(3)of the Act and while doing so, the Assessing Officer grantedexemption under Section 54F of the Act to the extent ofRs.1,15,67,790/- and in the re-computation of Long Term CapitalGains accepting the claim of re-investment in house property.The assessee's case was that the property in question wasinherited by her in the year 2007 pursuant to a Deed ofPartition and the cost of construction of the building was to anextent of Rs.42 lakhs, which cost of construction formed thecost of acquisition was omitted to be taken into considerationin the re-computation of Long Term Capital Gains. 5. The assessee filed appeal against the order of re-assessment dated 31.12.2009 and the appeal was numbered asI.T.A.No.58/2010-11 and was pending on the file of Commissionerof Income Tax (Appeals) XII, Chennai. 6. Simultaneously, the Assessing Officer initiated penaltyproceedings under Section 271(1)(c) of the Act. Challenging thesaid penalty proceedings, the assessee preferred appeal beforethe CIT (A) III, Chennai on 23.07.2010. 7. While the facts stood thus, the Commissioner issued anotice under Section 263 of the Act dated 09.02.2012 statingthat the grant of exemption under Section 54F of the Act forfour residential units purchased by utilising the assessablecapital gains is incorrect and the re-assessment order waserroneous and prejudicial to the interest of revenue. Theassessee was directed to show cause and accordingly, a reply wassent by the assessee on 28.02.2012. The Commissioner passed anorder dated 14.03.2012 rejecting the reply given by the assesseeand confirmed the proposal in the show cause notice and setaside the re-assessment order dated 31.12.2009 and directed theAssessing Officer to enquire into the matter and accordingly,revised the proceedings. The assessee filed appeal before theTribunal. The Tribunal by the impugned order has confirmed theorder passed by the CIT(A) and this is how the assessee isbefore us. 8. We have heard Mr.A.S.Sriraman, learned Counsel for theassessee and Mrs.R.Hemalatha, learned Standing Counsel on behalfof the Revenue. 9. Before we consider as to whether the assumption ofjurisdiction by the Commissioner under Section 263 of the Actwas justified or not and before we proceed to answer thesubstantial questions of law, we may note the followingdevelopments which have taken place during the pendency of thisappeal before this Court. 10. As noticed above, as against the re-assessmentproceedings dated 31.12.2009, the assessee had filed appeal tothe Commissioner in I.T.A.No.58/2010-11. The said appeal waspending when the Commissioner issued show cause notice dated09.02.2012 under Section 263 of the Act. We will go into theaspect as to whether the assumption of jurisdiction by theCommissioner under Section 263 of the Act was justified andwhether was permissible, especially when appeal against re-assessment proceedings was pending as on the said date. 11. The appeal which was filed by the assessee against re-assessment proceedings in I.T.A.No.58/2010-11 was re-numbered as https://hcservices.ecourts.gov.in/hcservices/ ITA No.32/2010-11 on account of change of jurisdiction and theCommissioner, Income Tax (Appeals) XII have passed the finalorder dated 14.03.2013, wherein, it was held that the AssessingOfficer's action of rejecting the assessee's claim of deductionunder Section 54 of the Act is justified and as per law.However, taking note of the fact that notice under Section 263of the Act was issued and orders have been passed, theCommissioner observed that the merits of allowing the deductionunder Section 54F of the Act cannot be looked into, but however,directed the Assessing Officer to restrict the deduction underSection 54F of the Act on a proportionate basis rather thanallowing the entire investment in the new property as such.Accordingly, the appeal was partly allowed. 12. The Revenue preferred appeal against the said orderbefore the Tribunal, which was taken on file as I.T.A.Nos.1418and 1419 of 2013. The Tribunal was aware of the fact that thisappeal is pending before this Court and also about theproceedings initiated under Section 263 of the Act, where theCommissioner found fault with the Assessing Officer in grantingrelief under Section 54F of the Act. However, observed thatpursuant to the orders passed under Section 263 of the Act, theAssessing Officer has passed consequential revision order dated31.03.2013 giving effect to the direction excluding deductionunder Section 54F of the Act and therefore, opined that the CIT(A) was correct in his order to make observations andaccordingly, dismissed the ground raised by the assessee. Aspointed out by the Tribunal, giving effect to order dated31.03.2013 was also put to challenge and ultimately, the matterreached the Tribunal in I.T.A.No.1134/Mds/2017 dated 31.01.2018.The Tribunal while allowing the assessee's appeal forstatistical purposes observed that in the interest of justice,it deems fit that the issue should be remitted back to theAssessing Officer for fresh examination and the assessee shallfurnish the required documents obtained under the appropriateprovisions or under the Right to Information Act, as the casemay be. The Assessing Officer was directed to afford anopportunity to the assessee and determine the issue inaccordance with law. 13. In the light of the above developments, we would havebeen well justified in closing this appeal stating that the samehas become academic on account of the fact that re-assessmentorder dated 31.12.2009 does not exist in the same form. In thisregard, we are supported by the decision of the Hon'ble SupremeCourt in the case of Commissioner of Income Tax v. NTPC [2017392 ITR 0426], wherein, the Hon'ble Supreme Court whileconsidering the appeal arising out of a judgment of the DelhiHigh Court in the matter pertaining to exercise of revisionaljurisdiction under Section 263 of the Act held that it is not necessary to go into the question whether at the relevant pointof time exercise of jurisdiction under Section 263 of the Act bythe Commissioner of Income Tax was justified in view of thesubsequent events, which clearly demonstrated that there hasbeen no leakage of revenue and the matter has become academic.However, considering the fact that the assessee is an individualand the assessment for the year under consideration, 2005-06,has not attained finality and matters have been repeatedlyremanded to the authorities, we thought fit to take a decisionon the merits of the appeal, that is, with regard to theassumption of jurisdiction of the Commissioner under Section 263of the Act. 14. The leading case with regard to the exercise of powersunder Section 263 of the Act is the decision of the Hon'ble ApexCourt in Malabar Industries Vs. CIT(A) [2000 243 ITR 83]. Thisdecision was referred to and clarified by the Hon'ble SupremeCourt in the case of Commissioner of Income Tax Vs. Max IndiaLimited [(2007) 295 ITR 0282]. The clarification was with regardto paragraph 10 of the judgement in the case of MalabarIndustrial Company Limited Vs. Commissioner of Income Tax[(2000) 243 ITR 83] and it was held that every loss of Revenueas a consequence of an order of the Assessing Officer cannot betreated as prejudicial to the interest of the Revenue. By way ofillustration, it was stated that when the Assessing Officeradopted one of the courses permissible in law and it hasresulted in loss of Revenue; or where two views are possible andthe Assessing Officer has taken one view with which the CIT(A)does not agree, it cannot be treated as an erroneous orderprejudicial to the interest of Revenue, unless the view taken bythe Assessing Officer is unsustainable in law. 15. The above decision was relied on in the case of AgasthyaVs. Assistant Commissioner of Income Tax in TCA No. 450 of 2007dated 16.04.2018 and it was held that when two views existed,the Commissioner of Income Tax would not be justified to invokethe power under Section 263 of the Act, as the Assessing Officerhad adopted one of the two views which was possible. 16. The assessee while filing return claimed exemption underSection 54 of the Act. Section 54 of the Act falls in ChapterIV of the Act, which deals with computation of income fromCapital gains. There were several Sections in Section 54 namelySub-Sections 54A to 54H. The assessee sought to invoke Section54. The Assessing Officer was of the view that the assessee wasnot entitled to claim relief under Section 54 of the Act, butanalysed the case and assigned reasons and held that theassessee was entitled to relief under Section 54F of the Act. https://hcservices.ecourts.gov.in/hcservices/ assessee never claimed relief under Section 54F of the Act,therefore, the Assessing Officer, transgressed his powers andgranted the relief which was not asked for. The said submissionmade by the Revenue should be out rightly rejected.There is duty cast upon the Assessing Officer to compute thecorrect rate of tax to be collected under the correct head.Anything which is unauthorisedly levied and collected will beillegal and without sanction of law. Therefore, the AssessingOfficer while completing the assessment is bound to grant reliefto the assessee, if in his opinion, it is found that aparticular provision of law can be applied in the assessee'scase. Therefore, we cannot find fault with the AssessingOfficer in the exercise of such jurisdiction. Nevertheless, theassessee was not satisfied with the relief granted in the re-assessment order dated 31.12.2009. Therefore, he filed regularappeal before the CIT(A). When the appeal was pending, noticewas issued under Section 263 of the Act. We have perused thesaid notice dated 09.12.2012. The Commissioner was of theopinion that the re-assessment order granting claim ofdeduction under Section 54 of the Act was an order erroneous andprejudicial to the interest of the Revenue warranting invocationof Section 263 of the Act. The notice does not state as to howsuch an order is erroneous and prejudicial to the interest ofRevenue. The show-cause notice does not explicitly state thesame except quoting the words in the Section. The assessee fileda detailed reply dated 28.02.2012, questioning the assumption ofjurisdiction under Section 263 of the Act on the ground thatappeal against the re-assessment was pending. Secondly, it wascontended that no prejudice has been caused to the interest ofthe Revenue and the assessment order was not erroneous. 18. Further, the assessee stated that the Assessing Officerhas given reasons as to why the assessee is entitled to therelief under Section 54F of the Act. The Commissioner whilepassing the order dated 14.03.2012 under Section 263 of the Actopined that the deduction claimed under Section 54F of the Actwas erroneously allowed in the re-assessment order and theAssessing Officer neither applied his mind nor had made anyverification/enquiry on the statement made by the assessee.Thus, he was of the opinion that the Assessing Officer has toverify with evidence as to the nature of the property; whetherit was commercial or residential. 19. We have perused the re-assessment order dated31.12.2009, wherein, the following reasons has been assigned bythe Assessing Officer as to why he was of the opinion that theassessee is entitled for claim for deduction under Section 54Fof the Act. The finding is as follows: "During the course of assessment proceedings theassessee authorised representative had claimed t 19. We have perused the re-assessment order dated31.12.2009, wherein, the following reasons has been assigned bythe Assessing Officer as to why he was of the opinion that theassessee is entitled for claim for deduction under Section 54Fof the Act. The finding is as follows: "During the course of assessment proceedings theassessee authorised representative had claimed t hat the commercial property purchased convertedinto a residential property and approved by theBangalore Development Authority. The saidconversion was made within the stipulated timeprescribed u/s 54F. For that, evidence by way ofre-assessment order from the Brhat BangaloreMahanagara Palika and the photos showing theproperty was utilised for residential purposewas also filed by the assessee." 20. On a reading of the above, it is evidently clear thatthe assessee had produced documents to show that the propertywas utilized for residential purpose. On being satisfied, theAssessing Officer has extended the benefit of deduction underSection 54F of the Act. The Assessing Officer is not expectedto write a judgement and his order should reveal application ofmind, which in our opinion is writ large on the face of theorder. Therefore, we do not approve the finding rendered by theCommissioner in his order dated 14.03.2012 that the AssessingOfficer did not apply his mind. Unfortunately, when the matterwas taken up before the Tribunal, the Tribunal also failed totake into consideration, as to the claim made by the assesseeand the exercise undertaken by the Assessing Officer. 21. With regard to the merits of the case, the learnedcounsel for the assessee referred to a decision of the DivisionBench of this Court in Dr.P.K.Vasanthi Rangarajan v.Commissioner of Income Tax [(2012) 252 CTR 0336], wherein, theHon'ble Division Bench held that there is no inhibition in theassessee claiming the benefit of investment made in four flatsthereby gaining the benefit under Section 54F of the Act. TheCourt took note of the decision in TCA No. 656 of 2005 dated04.01.2012. However, we are not examining the merits of thematter at this juncture since, we are only called upon to answerthe Substantial Question of Law with regard to the assumption ofjurisdiction of the Commissioner under Section 263 of the Act.The power under Section 263 of the Act is not exercisable undercertain circumstances. In this regard, we refer to Section 263(1) explanation 1(c), which reads as follows: “Revision of orders prejudicial to revenue263(1)...(a)...(b)... (c)Where any order referred to in this sub-sectionand passed by the Assessing Officer had been thesubject matter of any appeal [filed on or before orafter the 1[st] day of June, 1988], the powers of theCommissioner under this Sub-section shall extend andshall be deemed always to have extended to suchmatters as had not been considered and decided inand passed by the Assessing Officer had been thesubject matter of any appeal [filed on or before orafter the 1[st] day of June, 1988], the powers of theCommissioner under this Sub-section shall extend andshall be deemed always to have extended to suchmatters as had not been considered and decided in such appeal.” 22. The above explanation makes it clear that when theappeal is pending before the Commissioner, the exercise ofjurisdiction under Section 263 of the Act is barred. TheCommissioner in the order dated 14.03.2012 states that theappeal pertains to the claim made by the assessee under Section54 of the Act and it has got nothing to do with the order passedby the Assessing Officer under Section 54F of the Act. The saidfinding rendered by the Commissioner is wholly unsustainable,since the assessee went on appeal against the re-assessmentorder dated 31.12.2009 stating that his claim for deductionunder Section 54 of the Act should be accepted. such appeal.” 22. The above explanation makes it clear that when theappeal is pending before the Commissioner, the exercise ofjurisdiction under Section 263 of the Act is barred. TheCommissioner in the order dated 14.03.2012 states that theappeal pertains to the claim made by the assessee under Section54 of the Act and it has got nothing to do with the order passedby the Assessing Officer under Section 54F of the Act. The saidfinding rendered by the Commissioner is wholly unsustainable,since the assessee went on appeal against the re-assessmentorder dated 31.12.2009 stating that his claim for deductionunder Section 54 of the Act should be accepted. 23. Therefore, in the process of considering as to whatrelief the assessee is entitled to, the Assessing Officer heldthat the assessee is entitled to claim deduction under Section54F of the Act and assigned certain reasons for that.Therefore, the larger issue was pending before the Commissionerof Appeals, and in such circumstances, the Commissioner couldnot exercise power under Section 263 of the Act on account ofthe statutory bar. Therefore, on this ground also, theassumption of jurisdiction under Section 263 of the Act waswholly erroneous. 24. As noticed above, the Assessing Officer while completingthe re-assessment proceedings has assigned certain reasons forcoming to a conclusion that the assessee is entitled fordeduction under Section 54F and not under Section 54 of the Act.This reason assigned by the Assessing Officer has been found byus to show due application of mind. As observed, we cannotexpect an Assessing Officer to write a judgment. In suchcircumstances, the view taken by the Commissioner in his orderunder Section 263 of the Act has to be termed as a change ofopinion, or in other words, the Assessing Officer adopted one ofthe two views possible and in such circumstances, it cannot bestated that the order is prejudicial to the interest of theRevenue as well as erroneous. For the purpose of exercise ofjurisdiction under Section 263 of the Act, the twin tests are tobe satisfied and even assuming, the re-assessment order is to beheld as erroneous, it cannot be stated to be prejudicial to theinterest of Revenue as every erroneous order cannot be subjectmatter of Revision under Section 263 of the Act. Further more,if the order passed by the Commissioner under Section 263 of theAct as confirmed by the Tribunal is allowed to stand, then thevery purpose of the remand order against the original re-assessment proceedings would become a fait accompli. 25. Thus, for the above reasons we are fully satisfied thatthe assumption of jurisdiction by the Commissioner under Section 263 of the Act was wholly without jurisdiction as the twin testshave not been satisfied and consequently, the order dated14.03.2012 as confirmed by the Tribunal by order dated13.07.2012 calls for interference. 26. In the result, the appeal filed by the assessee isallowed and the order passed by the Commissioner dated14.03.2012, under Section 263 of the Act as confirmed by theTribunal by order dated 13.07.2012 are set aside, and it is leftopen to the assessee to pursue her claim before the AssessingOfficer. Accordingly, the Substantial Questions of Law areanswered in favour of the assessee. Since, the matter has beenpending for a quite long number of years and there has beenrepeated orders of assessment, we direct the Assessing Officerto give effect to the re-assessment order dated 31.12.2009,wherein the Assessing Officer had granted the benefit of Section54F of the Act to the assessee. No costs. Sd/- Assistant Registrar(CS IV) //True Copy// Sub Assistant Registrarsvki/mrm To 1.The Income Tax Officer, Business Ward - XV (2) Chennai-34 Business Ward - XV (2) Chennai-34 2.The Income Tax Appellate Tribunal "D" Bench, Chennai. Sd/- Assistant Registrar(CS IV) //True Copy// Sub Assistant Registrarsvki/mrm To 1.The Income Tax Officer, Business Ward - XV (2) Chennai-34 Business Ward - XV (2) Chennai-34 2.The Income Tax Appellate Tribunal "D" Bench, Chennai. 3.The Commissioner of Income Tax,X Chennai, New 13black VI, Floor, 121, Mahatma Gandhi Chennai-34 +1cc to Mr.T.RaviKumar, Advocate, S.R.No.77741 VGII(CO)GSP(06/12/2018)