Section 54F – AO having accepted the returned income despite the fact that the assessee neither admitted capital gains on sale of property nor claimed exemption under any of the provisions and the CIT having given direction to the AO in his revisional order to verify the facts and to redo the assessment as per law, the claim for exemption u/s. 54F could not be denied in the fresh assessment

9.  [2018] 195 TTJ 630 (Hyd
– Trib.)

Manohar Reddy Basani vs. ITO

ITA No.: 1307/Hyd/2017

A. Y.: 2010-11.                                   

Dated: 30^th May, 2018.

Section 54F – AO having accepted the returned
income despite the fact that the assessee neither admitted capital gains on
sale of property nor claimed exemption under any of the provisions and the CIT
having given direction to the AO in his revisional order to verify the facts
and to redo the assessment as per law, the claim for exemption u/s. 54F could
not be denied in the fresh assessment 

FACTS

The assessee filed its return
declaring certain taxable income. In course of scrutiny assessment, the AO
noticed that the assessee made transaction of sale of property. The assessee
had neither admitted capital gains on sale of property nor claimed exemption
under any of the provisions of the Act. In response to show-cause notice, the
assessee furnished the information called for and stated that he was entitled
to exemption u/s. 54F on the capital gains since his share of sale
consideration of the property was utilised for construction of a residential
property. Having considered the stand of the assessee, AO accepted the returned
income.

The Commissioner, however, opined
that in the absence of disclosure of capital gains in the return of income, the
assessee was not entitled to get any deduction u/s. 54F for investment in new
residential house. He thus passed a revisional order setting aside the
assessment.

Consequent to the directions of the
Revisional Authority, the AO passed an order u/s. 143(3) r.w.s. 263 holding
that the assessee neither declared the transaction of sale of property nor made
any claim of deduction u/s. 54F of the Act in the return of income and, in the
absence of any claim the assessee was not entitled to get any deduction u/s.
54F of the Act.

HELD

The Tribunal held that even if it
was assumed that the assesse could not make any new claim at later stage but
the fact remained that the assessee had not even disclosed capital gains and in
the absence of offering the capital gains to tax, the AO should have strictly
confined to the return filed and would not have made any addition and if once
he took the issue of capital gains for the first time, the claim of the
assessee regarding deduction u/s. 54F of the Act should also be considered and
in fact, the AO had fairly considered the same in the original assessment and
completed the assessment without making any addition. Presumably, because of
this the Revisional Authority did not give much stress to this aspect but
limited his direction by stating that the AO should reconsider the matter in
accordance with law. Thus, there was a categorical direction of the
Commissioner, to verify the facts and to redo the assessment as per law, and in
such an event it was a duty of the AO to consider the issue afresh. As the
assessee neither disclosed the capital gains in the return of income nor
claimed any deduction u/s. 54F, the assessee was not entitled to get any
deduction u/s. 54F, in the same way the AO should not have added the capital
gains to the income of the assessee since there was no disclosure of the same
in the return of income.

The first appellate authority ought
to have considered the issue on merits since the decision of the Supreme Court
in the case of Goetze (India) Ltd., would not debar the first appellate
authority to consider the fresh claim, if any, so as to arrive at the correct
taxable income. The High Court, in the case of CIT vs. Indian Express
(Madurai) (P.) Ltd. [1983] 13 Taxman 441/140 ITR 705, observed that unlike
a law suit in civil appeals, in tax litigation, it could not be treated as a
“lis”
between two rival parties but the job of the AO was to arrive at the correct
taxable income.

Therefore, merely on account of
fact that the assessee had not claimed exemption in return of income, the same
could not have been denied. In the result, the Tribunal directed AO to allow
the claim of deduction u/s. 54F of the Act.