Peerless General Finance & Investment Company Limited Vs DCIT (ITAT Kolkata)
It is observed that the issue relating to the assessee’s claim for Long-Term Capital Loss arising from the sale of Government Securities by applying the Cost Inflation Index was disallowed by the Assessing Officer in the assessment completed under section 143(3). However, the set off of such loss to the extent of Rs.86,39,024/- and Rs.1,13,02,064/- being the Long-Term Capital Gain from Bonds and Right to property respectively as claimed by the assessee was allowed by the Assessing Officer and keeping in view this error allegedly committed by the Assessing Officer, the ld. Pr. CIT exercising his power conferred upon him under section 263 revised/set aside the order of the Assessing Officer passed under section 143(3) on this issue. As submitted by the ld. Counsel for the assessee before us, the action of the Assessing Officer in disallowing its Long-Term Capital Loss arising from the sale of Government Securities by applying the Cost Inflation Index was challenged by the assessee in the appeal filed before the ld. CIT(A) against the order passed by the Assessing Officer under section 143(3) and the said appeal was disposed of by the ld. CIT(A) vide his appellate order dated 28.02.2019 allowing the claim of the assessee for Long-Term Capital Loss arising from sale of Government Securities by applying Cost Inflation index. Since the said order was passed by the ld. CIT(A) on 28.02.2019, the order of the Assessing Officer under section 143(3) on this issue was already merged with the order of the ld. CIT(A) on 28.02.2019 itself, i.e. before 25.03.2019 when the impugned order under section 263 came to be passed by the ld. Pr. CIT and it was, therefore, beyond the scope of revision under section 263 in terms of Explanation (1)(c) below sub-section (1) of section 263, which clearly provides that where any order referred to in sub-section (1) of section 263 and passed by the Assessing Officer had been the subject matter of any appeal, the powers of the ld. Pr. CIT under section 263 shall extend only to such matters as had not been considered and decided in such appeal. In the present case, the issue relating to the assessee’s claim for Long-Term Capital Loss arising from the sale of Government Securities had already been considered and decided in the appeal filed against the order of the Assessing Officer passed under section 143(3) and it was, therefore, not permissible for the ld. Pr. CIT to revise the order of the Assessing Officer on this issue by exercising his powers under section 263. The order passed by the Assessing Officer under section 143(3) on this issue stood already merged in the appellate order of the ld. CIT(A) and since the claim of the assessee for Long-Term Capital Gain arising from the sale of Government Securities by applying Cost Inflation Index stood already allowed, we find that there was no error in the order of the Assessing Officer in allowing the claim of the assessee for set off of such loss against the Long-Term Capital Gain of Rs.86,39,024/- arising from the sale of Bonds as well as against the Long-Term Capital Gain of Rs.1,13,02,064/- arising from Right to property.
At the time of hearing before us, the ld. D.R. has alleged that the fact of having passed the appellate order by the ld. CIT(A) on 28.02.2019 disposing of the appeal of the assessee filed against the order of the Assessing Officer under section 143(3) was not brought to the notice of the ld. Principal CIT by the assessee during the course of proceedings under section 263 and the same was intentionally suppressed by the assessee. We are unable to accept this contention of the ld. CIT,D.R. First of all, when the order passed by the ld. CIT(A) on this issue was in favour of the assessee allowing its claim for Long-Term Capital Loss arising from the sale of Government Securities, we find no justifiable reason for the assessee to have suppressed this fact and that too intentionally as alleged by the ld. CIT,D.R. Moreover as clarified by the ld. Counsel for the assessee, notice under section 263 pointing out the error in the order of the Assessing Officer on this issue was issued by the ld. Principal CIT on 20.11.2018 and since the written submission in response to the said notice was filed before the ld. Pr. CIT on 16.01.2019 when the appeal against the order under section 143(3) was pending before the ld. CIT(A) and the order dated 28.02.2019 was yet to be passed by the ld. CIT(A) disposing of the said appeal, the factual position as prevalent then was pointed out by the assessee in the written submission on 16.01.2019. Keeping in view all these facts and circumstances of the case, we find merit in the contention of the ld. Counsel for the assessee that it was the duty of the ld. Pr. CIT to ascertain the actual position of the appeal stated to be filed by the assessee against the order passed by the Assessing Officer under section 143(3) on this issue and had he done that, he would have found that the order passed by the Assessing Officer under section 143(3) on this issue was already merged in the appellate order of the ld. CIT(A) and the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index having been already allowed by the ld. CIT(A), there was no error in the order of the Assessing Officer in allowing the set off of such loss against the Long-Term Capital Gain arising from the Bonds and Right to Property.
It is also pertinent to note here that the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index was disallowed by the Assessing Officer in the order passed under section 143(3) for the year under consideration by relying on the order passed in assessee’s own case on the similar issue for A.Y. 2010-11 under section 143(3) read with section 263 of the Act. As pointed out by the ld. Counsel for the assessee, the said order passed by the Assessing Officer for A.Y. 2010-11 was a subject matter of appeal and the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index was allowed by the Tribunal and following this conclusion drawn in A.Y. 2010-11, the Tribunal has already upheld the appellate order of the ld. CIT(A) dated 28.02.2019 for the year under consideration allowing the similar claim of the assessee. This issue thus stands decided by the Tribunal on merit in assessee’s own case for A.Y. 2010-11 as well as for the year under consideration and we, therefore, do not consider it necessary or expedient to deal with the argument sought to be raised by the ld. CIT, D.R. on merit of this issue. Ground No. 3 of the assessee’s appeal is accordingly allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal filed by the assessee is directed against the order of ld. Principal Commissioner of Income Tax-1, Kolkata dated 25.03.2019 passed under section 263 of the Income Tax Act, 1961.
2. The assessee in the present case is a Non-Banking Finance Company. The return of income for the year under consideration was filed by it on 26.11.2014 declaring total income of Rs.1,25,53,07,990/-. Subsequently a revised return was filed by the assessee on 04.03.2016 The Peerless General Finance & Investment Company Limited declaring the same total income but claiming higher amount of Long-Term Capital Loss of Rs.109.80 crores on transfer of Government Securities. During the course of assessment proceedings, the claim of the assessee for such higher amount of Long Term Capital Loss was examined by the Assessing Officer. On such examination, he found that the higher amount of Long Term Capital Loss on the transfer of Government Securities was claimed by the assessee by applying Cost Inflation Index on the cost of the Government Securities. In this regard, he noted that a similar claim of the assessee for the benefit of indexation was initially allowed by the Assessing Officer in the assessment year 2010-11, but the same was finally disallowed by the Assessing Officer in pursuance of the order passed by the concerned ld. CIT under section 263 of the Act. He also noted that an appeal was filed by the assessee against the order passed by the Assessing Officer under section 143(3) read with section 263 of the Act before the ld. CIT(A), but the same was still pending. Following the stand taken in assessee’s own case for A.Y. 2010-11 on a similar issue, the claim of the assessee for Long-Term Capital Loss on the sale of Government Securities by applying Cost Inflation Index was rejected by the Assessing Officer. He also rejected the claim of the assessee for set off of capital gain arising from sale of building against brought forward Long-Term Capital Loss amounting to Rs.2,79,36,337/- on the ground that the said asset being depreciable asset forming part of the block of assets ‘building’ was Short Term Capital Gain in terms of section 50 of the Act and, therefore, the Long Term Capital Loss could not be set off against the same. The Assessing Officer also made further disallowances under sections 14A and 40(a)(ia) of the Act determining the total income of the assessee at Rs.1,35,48,59,800/- in the assessment completed under section 143(3) of the Act vide an order dated 28.12.2016.
3. The records of the assessment made by the Assessing Officer under section 143(3) of the Act subsequently came to be examined by the ld. Principal CIT. On such examination, he found the following errors in the order passed by the Assessing Officer under section 143(3) of the Act:-
“Long term capital loss (without STT) of Rs.109,80,30,873/- was claimed for the relevant year. This loss was due to transaction in Government Securities and Gold ETF and loss of Rs.111,33,28,388/- was from Government Securities.
The loss of Rs.111,33,28,388/- was assessed as LTCG of Rs.16,17,578/-, the LTCG from Bond being Rs.86,39,024/- and the LTCG from Right to property being Rs.1,13,02,064/- remained unavailable for adjustment against the claimed loss of Rs.111,33,28,388/-. Therefore, LTCG (without STT) for Rs.86,39,024/- and Rs.1,13,02,064/ – should have been taxed @20%. The tax effect would be Rs.39,88,218/- without surcharge and cess.
Indexed long term capital loss of Rs.46,43,572/-was claimed from sale of Gold ETF & was allowed as such in assessment. Even though they were all held for less than 36 months. Gold ETF is a non equity fund and prior to 31.05.2015, and as per sec. 2(42A) 1st proviso, STCG tax is applicable if the units are sold within three years of purchase. Thus the indexed LTCL of Rs.46,43,572/- should actually be STCG of Rs.12,58,271/- from the sale of Gold ETF and taxable@30%. The tax effect would be Rs.3,77,481/- without surcharge and cess.
The assessee held 4 depreciable assets as house property which were sold during relevant year and STCG of Rs.3,16,04,127/- was declared. The stamp duty value of the properties was Rs.9,91,43,740/-, which for the purpose of section 48, shall be deemed to be the full value of the consideration received or accruing as a result of such transfer, as per section 50C. While assessing the STCG from these four properties, the sale value should have been deemed to be Rs.9,91,43,740/-, which would result in STCG of Rs.5,05,46,267/-. This omission had resulted In underassessment of income of Rs.1,89,42,140/- and the tax effect would be Rs.65,67,201/- without surcharge and cess ”.
The ld. Principal CIT accordingly issued a show-cause notice to the assessee on 20.11.2018 pointing out the above errors and seeking explanation as to why the assessment made by the Assessing Officer under section 143(3) of the Act should not be revised by invoking the provisions of section 263. Thereafter another notice was issued by the ld. Principal CIT on 19.02.2019 under section 263 of the Act pointing out the further error allegedly committed by the Assessing Officer in the assessment completed under section 143(3) of the Act as under :-
“During the course of assessment of Return of AY 2015-16 it was found that Right on Property being 37 flats of different configurations, having an approximate total area of 50051 sqft, in a then upcoming housing project named 4 Sight Manor at Kolkata – 700084, was acquired by the assessee upon execution of the Agreement for Sale and MOU on 26.08.2011 and the same Right was transferred to the third party individuals by execution of Tripartite Agreement for Sale in FY 2011-12, 2012-13, 2013-14 and 2014-15. Since the assessee followed a mercantile method of accounting, the full value of sale to the third-party buyers accrued as a receipt to the assessee as and when the Tripartite Agreement for Sale with the 37 third party buyers happened during the FY 2011-12, 2012-13, 2013-14 and 2014-15, in the same manner as the right on the 37 flats were acquired by the assessee on 26.08.2011. Thus business income accrued to the assessee from the sale of “Right” to the 37 buyers on the day of signing of the Tripartite Agreement with the 37 buyers in successive assessment years covering AYs 2012-13, 2013-14, 2014-15 and 2015-16 as per dates given in Annexure 10H filed during the course of assessment of AY 201516. During the assessment of AY 2015-16, it was found that the motive of the assessee was always to sell at profit, which was penned in the MOU very clearly. It more looked like a financial transaction having all connotation of business or venture in the nature of trade. The relevant factors and circumstances determined the distinctive character of the transactions in this case as was held by the Apex Court in the case of G. Venkataswami Naidu & Co vs. The Commissioner of Income Tax. The intention of acquiring the flats in the Property was not present in this case from the very beginning and this was evident in the MOU executed at the time of deploying the fund of the assessee in the development activity of the Owner/Developer. It was thus held that profits earned by the assessee by sale of ‘Rights’ on the property was business profit in the regular course of its financial business and other similar ventures.
ii) The assessee failed to offer such income in those years, as found during the assessment of AY 2015-16. Thus there was escapement of business income of Rs.1,52,78,585/- during AY 2014-15, which the assessee failed to disclose truly and fully, as extracted and reproduced below from annexure 10h”.
4. In response to the notices issued by the ld. Principal CIT under section 263 on 20.11.2018 and 19.02.2019, the following written submissions, inter alia, were made by the assessee in respect of each and every error allegedly pointed out by the ld. Principal CIT in the order of the Assessing Officer passed under section 143(3):-
“Set off of LTCG of Rs.86,39.024/- from Sale of Bonds and LTCG of Rs.11,302,064/- from sale of Right to Property against LTCL of Rs.111,33,28,388!- from sale of Government Securities not permissible to the assessee.
During the year the assessee has earned Long Term Capital Gains (LTCG) of Rs.86,39,024/- from Sale of Bonds and L TCG of Rs.1,13,02,064/- from sale of Right to Property, totalling to Rs.1,99,41,088/-. The said LTCG of Rs.1,99,41,088/- was set off by the assessee against Long Term Capital Loss of Rs.1,11,33,28,388/- from sale of Government Securities in the current year.
In the notice issued u/s 263 of the Act, your goodself has mentioned that as per the return of income filed by the assessee, indexation benefit on sale of Government securities was taken which resulted in Long Term Capital Loss (LTCL) of Rs.1,11,33,28,388/-. However, indexation benefit should not have been allowed on Government Securities as the same are ‘bonds and debentures’ and instead, gains of Rs.16, 17,578/-, before indexation benefit, should be subjected to tax. The same is tabulated follows:
