Appeal to CIT(A): Additional ground: A.Y. 2001-02: Claim for benefit of proviso to section 112(1) not made in the return: Could be accepted by CIT(A): Assessee is entitled to raise the legal issue before the first Appellate Authority, which possessed co-terminus powers similar to the AO.

For the A.Y. 2001-02, the assessee had not made the claim for the benefit of proviso to section 112(1) , while computing the capital gains tax. The claim was first time made before the CIT(A). The CIT(A) allowed the assessee’s claim. By relying on the ratio laid down by the Supreme Court in the case of Goetze India Ltd. v. CIT, (2006) 204 CTR 182 (SC); (2006) 284 ITR 323 (SC) the Tribunal allowed the appeal filed by the Department and set aside the order of the CIT(A).

On appeal by the assessee, the Allahabad High Court reversed the decision of the Tribunal and held as under: “

(i) Needless to mention that the proviso to section 112(1) was introduced w.e.f. 1-4-2000 by the Finance Act, 1999. In other words, it was introduced during the assessment year under consideration and the assessee was not aware about latest amendment introduced by the Finance Act, 1999 w.e.f. 1-4-2000.

(ii) Though ignorance of law has no excuse, but it can be excused in tax matters. It is not expected that the Department shall take the advantage of the assessee’s ignorance as per CBDT Circular No. 14(XL-35) of 1955, dated 11- 4-1955. Even under the bona fide belief, the assessee has shown the long-term capital gain @ 20%, but it was expected from the Assessing Officer to know the latest amendment.

(iii) The mistake might have been corrected by passing an order u/s.154. The question of law which arose from the fact as found by the IT authority and legal issue can be raised at any stage. The assessee was entitled to raise the legal issue before the first Appellate Authority, which possessed co-terminus powers similar to the Assessing Officer.

(iv) The CIT(A) has rightly adjudicated the statutory right of the assessee and directed to allow the longterm capital gain at 10%.”