Allahabad H.C : The assessee’s claim for being assessed as per second proviso to section 112 (1) could not have been considered and allowed from the stage of the first Appellate Authority

High Court Of Allahabad

Smt. Raj Rani Gulati vs. CIT

Assessment Year : 2001-02

Section : 112

Devi Prasad Singh And Dr. Satish Chandra, JJ.

IT Appeal No. 54 Of 2007

October 19, 2011

JUDGMENT

Dr. Satish Chandra, J. – This appeal under section 260-A of the Income Tax Act has been filed by the assessee against the judgment and order dated 29.12.2006 passed by the Income Tax Appellate Tribunal in I.T.A.No.187/Luc/2006 for the assessment year 2001-2002.
2. On 24.07.2007, a Coordinate Bench of this Court has admitted the present appeal on the following substantial questions of law:

“1. Whether on true and correct interpretation of the provisions to section 250 of the Act the Tribunal was legally correct in holding that the assessee’s claim for being assessed as per second proviso to section 112 (1) could not have been considered and allowed from the stage of the first Appellate Authority?

2. Whether there existed any basis for the Tribunal to hold that there arose no cause of action from the order passed by the Assessing Officer and the first Appellate Authority was not legally correct in allowing the relief to which the assessee was undisputedly entitled in law?”

3. The brief facts of the case are that during the assessment year under consideration, the assessee had sold 16,000 equity shares of M/s Viraj Credit Capital Ltd. on 15.09.2000 for a consideration of Rs.14,91,320/- which was purchased for Rs.88,168/- on 03.07.1999. The sales resulted in long term capital gain of Rs.12,34,006/-. At the rate of 20%, which was shown by the assessee on the basis of indexation, the A. O. accepted long term capital gain and passed assessment order on 25.03.2004. However, being aggrieved, the assessee has filed an appeal before the first Appellate Authority, where a legal ground was raised that the long term capital gain will have to be computed at the rate of Rs.10% as per the proviso of section 112(1) of the Income Tax Act. The assessee also submitted an application dated 04.04.2005 under Rule 46 A (1) (c)/(d) of the I.T. Rules to this effect. Finally, the first Appellate Authority has accepted the plea of the assessee and directed the A.O. to compute the long term capital gain at the rate of 10% in accordance with the circular No.14 (XL-35) dated 11.04.1955 read with proviso to section 112 (1) of the Act.

4. Not being satisfied, the department has filed an appeal before the Tribunal, who observed in its impugned order that the assessee has shown the long term capital gain at the rate of 20%. The assessee has not filed any revised return, so assessee can not raise the ground before the first appellate authority. By relying the ratio laid down by Hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1, the appeal of the department was allowed. Being not satisfied, the assessee has knocked the door of this Court by filing the present appeal.

5. With this background, Sri Asish Bansal, holding brief of Sri S.K. Garg, learned counsel for the assessee submits that as per proviso of section 112 (1), the long term capital gain will have to be computed at the rate of 10%. This is a statutory right of the assessee which was raised before the first Appellate Authority. For this purpose, he relied on the ratio laid down in the following cases:-

  1. National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC);

2.CIT v. Jai Parabolic Springs Ltd. [2008] 306 ITR 42/172 Taxman 258 (Delhi);

3. CIT v. Ramco International [2009] 180 Taxman 584 (Punj. & Har.);

4. Abdul Qayume v. CIT [1990] 184 ITR 404/50 Taxman 171 (All.);

5. CIT v. Mahalaxmi Sugar Mills Co. Ltd. [1986] 160 ITR 920/27 Taxman 267 (SC);

6. Mahalaxmi Sugar Mills Co. Ltd. (supra). Lastly, he made a request to uphold the order of the CIT (A).

6. On the other hand, Sri D.D. Chopra, learned counsel for the department has relied the impugned order passed by the Tribunal. On specific query raised by the Bench, he accepted that the transaction in question is not disputed as A.O. has verified the same.

7. After hearing both the parties at length and on perusal of record, it appears that the assessee has sold 16,000 shares of M/s Viraj Credit Capital Ltd. The A.O. got the conformation from the purchaser vide letter dated 16.03.2004. The payment was received through banking channel, so the transaction in question is not disputed.

8. Needless to mention that proviso of section 112(1) was introduced with effect from 01.04.2000 by the Finance Act, 1999. In other words, it was introduced during the assessment year under consideration and assessee was not aware about latest amendment introduced by the Finance Act, 1999 w.e.f. 01.04.2000. Though ignorance of law has no excuse, but it can be excused in tax matter as per the ratio laid down in the case of P.V. Devassy v. CIT [1972] 84 ITR 502 (Ker.). It is not expected that the Department shall take the advantage of assessee’s ignorance as per C.B.D.T. Circular No. 14 (XL-35)1955 dated 11 April 1955. Even under the bonafide belief, the assessee has shown the long term capital gain at the rate of 20%, but it was expected from the A.O. to know the latest amendment. The mistake might have been corrected by passing an order under section 154 of the Act. In the case of Mahalaxmi Sugar Mills Co. Ltd. (supra), it was observed that:

“There is a duty cast on the Income-tax Officer to apply the relevant provisions of the Indian Income-tax Act for the purpose of determining the true figure of the assessee’s taxable income and the consequential tax liability. That the assessee fails to claim the benefit of a set-off cannot relieve the Income-tax Officer of his duty to apply section 24 in an appropriate case.”

9. In the instant case, assessee wants to take advantage of amended provision. The said amended provision is reproduced as under:-

Proviso to section 112(1)

“Provided that where the tax payable in respect of any income arising from the transfer of a long-term capital asset, being listed securities exceeds ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee.”

10. Moreover, as per C.B.D.T. circular No.794 dated 09.08.2000, 162 CTR (St) 9], it was explained that:

“42.1 Under the existing provisions contained in the proviso to the sub-section (1) of section 112 of the Income-tax Act, tax on long-term capital gains arising out of transfer of listed securities shall not exceed 10 per cent of the capital gains before allowing adjustment for Cost Inflation Index. The definition of securities follows the definition given in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956.

42.2 The Act amends the proviso to sub-section (1) of section 112 to provide that long-term capital gains arising from transfer of units of Unit Trust of India and units of Mutual Funds specified under section 10 (23D) of the Income-tax Act shall also not exceed 10% of the capital gains before allowing adjustment for Cost inflation Index.

42.3 This amendment takes effect retrospectively from the 1st day of April, 2000 and shall accordingly apply in relation to the assessment year 2000-2001 and subsequent years.”

11. In the instant case, the Tribunal heavily relied on the ratio laid down in the case of Goetze (India) Ltd. (supra), where a Division Bench of Hon’ble Supreme Court observed that:

“The decision in question is that the power of the Tribunal under section 254 of the Income- tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs.”

Further, in the case of Goetze (India) Ltd. (supra) observed that:

“Deduction claimed by way of a letter before the Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of the assessing authority to entertain claim for deduction otherwise than by a revised return, and did not impinge on the power of the Tribunal.”

[These are observations made by the Delhi High Court in the case of Jai Parabolic Springs Ltd. (supra), with reference to Goetze (India) Ltd. -Ed.]

From the above, it is clear that Hon’ble apex court has discussed the power of A.O. only but made that no comment regarding the power of ITAT. So, the said ratio is not applicable in the instant case.

12. Further, a Larger Bench of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra) observed that the question of law which arose from the fact has found by the Income Tax Authority and legal issue can be raised at any stage. Hon’ble Supreme Court observed that:

“Where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.”

13. Similarly, in the case of Jai Parabolic Springs Ltd. (supra). it was observed that:

“There was no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arose in the matter and for the just decision of the case. There was no infirmity in the order of the Tribunal.”

14. It is also pertinent to mention that in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688/[1990] 53 Taxman 85 (SC) it was observed that:

“An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.”

15. In the light of above discussion, we are of the view that the assessee is entitled to raise the legal issue before the first Appellate Authority, which possessed co-terminus powers similar to the A.O. as per ratio laid down by Hon’ble Supreme Court in the case of Jute Corpn. of India Ltd. (supra). Hence, CIT (A) has rightly adjudicated the statutory right of the assessee and directed to allow the long term capital gain at the of 10%. The justice must not only be done but seem to have been done as observed by Lord Hewart C.J. in R. v. Susses Justices [1924] 1 KB 256.

16. Therefore, we set aside the impugned order passed by the Tribunal and restore the order of the CIT(A).

17. The answer to the substantial question of law is affirmative in favour of the assessee and against the revenue.

18. In the result, appeal is allowed. No cost.

[Citation : 346 ITR 543]

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