Brief facts of the case relating to section 45 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) –
Shri Chandrashekhar Bahirwani (hereinafter referred to as the “Assessee” or the “Appellant”) was engaged in the business of trading of tractors and machineries spare parts and accessories. For the year under consideration, the Assessee declared the income under the head ‘Business income’, ‘capital gains’ and income from ‘other sources’. In the assessment proceedings, the Assessee submitted before the Assessing Officer (hereinafter referred to as the AO) that an amount of Rs. 14,50,000/- received on surrender of transferable development rights (TDR) from the builder through the co-operative society was wrongly declared as income from capital gains as the same was exempt in the hands of the Assessee. The AO, however, assessed the returned income and thereby also taxed the capital gains. The Assessee preferred appeal before the Ld. CIT(A) who confirmed the order of AO. The Ld. CIT(A), however, observed that the Assessee himself had voluntarily offered the said amount as capital gains in the return of income. The AO has not noted in the assessment order that the taxation on the said capital gains was contested by the Assessee. The Ld. CIT(A) thereafter observed that the Assessee, if, was of the view that he had mistakenly offered the income for taxation, the proper course for him was to make the claim by way of filing a revised return of income. He further held that the AO cannot assess the income below the returned income. Even on merits, he held that it was an afterthought version of the Assessee that the amount of Rs.14,50,000/- was not taxable at all.
Aggrieved by the order of AO and Ld. CIT(A) the Assessee filed appeal before Mumbai Tribunal raising the following question of law –
“1.1 The Learned CIT (Appeals)-30 erred in dismissing the appeal of the appellant as not maintainable.
1.2 On merits, the learned CIT (Appeals) erred in confirming the action of A.O. in taxing Rs.14,50,000/- as long term capital gain in the hands of the appellant.”
Contention of Assessee/ Appellant –
Before the Ld. CIT(A) the Assessee contented that the society and its members received certain amount from the builder for transfer of development rights/additional FSI. The said amount was distributed among the members of the society. The said amount was taxed in the hands of the society and therefore it was claimed that the amount received is not taxable in the hands of the Assessee. He further relied on the decision of Gujarat High Court in case of Gujarat Gas Ltd vs. JCIT (2000) 245 ITR 84 which has considered the CBDT circular no. 549 dated 31 Ocotber 1989 providing that the assessed income shall not be less than the returned income and directed the AO to make the assessment without keeping in mind the said Circular.
At the outset the Ld. AR of the Assessee submitted that the matter in relation to levy of capital Gains Tax on society had been taken to the Income Tax Appellate Tribunal by the society. The Tribunal vide order dated September 14, 2012 reported as (2013) 21 ITR Trib. 467 (Mum.) held that though the transferrable development right amounts to transfer of capital asset by the society, however, the same could not be subjected to tax under the head ‘Capital Gains’ for the reasons that there was no cost of acquisition in acquiring the right which had been transferred and therefore the computational mode given in section 48 thus fails. The Tribunal therefore deleted the addition made in the hands of the society in respect of the above stated capital gains. The matter was carried by way of appeal by the Revenue to the Hon’ble Bombay High Court. The Hon’ble jurisdictional High Court vide order dated 11.03.2015 passed in ITA No.334/2013 styled as “CIT vs. Land Bridge Co-operative Housing Society Ltd.” while relying upon the another decision of the Hon’ble High Court in the case of “CIT vs. Shambaji Nagar Co-operative Housing Society Ltd.” 370 ITR 325 upheld the order of the Tribunal.
Contention of Revenue/Respondent –
The Revenue relied on the order passed by the Assessing Officer and further contended that the assessed income cannot be lower than the returned income.
Decision of Hon’ble Mumbai Tribunal –
Having heard the Appellant as well as the Respondents the Hon’ble Mumbai Tribunal held that “Since the Hon’ble Bombay High Court has already held in the case of the society that the said receipt in lieu of transfer of TDR rights cannot be subjected to capital Gains Tax, hence, the same analogy will also apply to the case of the assessee and no different treatment can be given to the amount received by the assessee because the same was received by way of a common agreement on the basis of which the court has passed the decree determining amount receivable by the society and its members individually. Respectfully following the decision of the Hon’ble Bombay High Court, it is held that the TDR receipts in the hands of the assessee are not taxable.
It may be further observed that the Hon’ble Bombay High Court in the case of ‘Pruthvi Brokers & Shareholders Pvt. Ltd.’ ITA No.3908 of 2010 decided on 21.06.12, while relying upon the various decisions of the Hon’ble Supreme Court and other Hon’ble High Courts has held that even if a claim is not made before the AO, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon’ble High Court has further observed that the decision of the Hon’ble Supreme Court in the case of ‘Goetze (India) Limited v. CIT’ (2006) 157 Taxman 1, relating to the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Even otherwise, the Ld. CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations, it is held that the assessee is not liable to pay Capital Gains Tax, though originally he had subjected himself to the said tax as per his return of income.”
Your kind attention is drawn to taxguru’s posting dated 15 June, 2015 at link https://taxguru.in/income-tax-case-laws/assessee-bound-quantum-admission-assessment-proceedings-offered-roi.html analysing decision of Hon’ble Bombay High Court in case of Everest Kanto wherein a question was raised in the conclusion paragraph as to Whether the said decision can be relied upon by the Revenue for incorrect inclusion of certain income in the return of income and its consequent withdrawal during the course of assessment proceedings. In my opinion the said question seems to be answered by the Mumbai Tribunal in the above decision in favour of Assessee which can be referred for claiming before the income tax authorities for assessment of correct income and levy of legitimate taxes even if the return of income inadvertently includes wrong income which is otherwise exempt.
(Compiled by our team member CA Chirag Jobanputra)