Income Tax Appellate Tribunal - Mumbai
Baljit Singh Gambhir, Powai vs Acit Cir 21(3), Mumbai on 25 July, 2018
आयकर अपीलीय अधिकरण "L " न्यायपीठ मब
ुं ई में ।
IN THE INCOME TAX APPELLATE TRIBUNAL " L" BENCH, MUMBAI
श्री महावीर स हिं , न्याययक दस्य एविं श्री जी. मंजनु ाथ लेखा दस्य के मक्ष ।
BEFORE SRI MAHAVIR SINGH, JM AND SRI G MANJUNATHA, AM
Aayakr ApIla saM . / ITA No. 2099/Mum/2017
(inaQa- a rNa baYa- / Assessment Year 2011-12)
Aayakr ApIla saM . / ITA No. 6048/Mum/2017
(inaQa- a rNa baYa- / Assessment Year 2011-12)
Baljit Singh Gambhir The Asst. Comm issioner of
1701, 1702, Shimmering Income Tax, Circle 21(3),
Vs.
Heights, A W ing, Powai, Mumbai
MH-400 076
(ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent)
स्थायी ले खा िं . / PAN No. AMGPG9637H
अपीलाथी की ओर े / Appellant by : Shri Dr. K shivaram,
Shri Aditya R. Aigamkar, AR
प्रत्यथी की ओर े / Respondent by : Shri M.V. Rajguru, Sr. DR
ुनवाई की तारीख / Date of hearing: 17-07-2018
घोषणा की तारीख / Date of pronouncement : 25-07-2018
AadoSa / O R D E R
PER MAHAVIR SINGH, JM:
Out of these two appeals of assessee, one appeal is arising out of the order of Commissioner of Income Tax (Appeals)-55, Mumbai [in short CIT(A)], in appeal No. CIT(A)-55/IT-42/ACIT.Cir.21(3)/2016-17 dated 2 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 30.12.2016. The other appeal is arising out of the rectification order of Commissioner of Income Tax (Appeals)-55, Mumbai [in short CIT(A)], in appeal No. CIT(A)-55/IT-42/ACIT.Cir.21(3)/2016-17 passed under section 154 of the Income Tax Act, 1961 (hereinafter 'the Act') dated 10.07.2017. The Assessment was framed by the Asst. Commissioner of Income Tax, 21(3), Mumbai (in short 'ACIT/ AO') for the A.Y. 2010-11 vide order dated 31.12.2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act').
2. The first issue in both the appeals of assessee is interconnected and is arising out of the same facts i.e. enhancement of assessment without issuing statutory notice by the CIT(A) on account of not allowing carry forward and set off of long term capital gains incurred on sale of property at Netherland and to allow adjustment of the same against long term capital gains. For this assessee has raised the following grounds in ITA No. 2099/Mum/2017:- "1. The learned CIT(A) has erred in law in making an enhancement of the Assessment done by the Assessing Officer without issuing statutory notice upon the Appellant and has therefore violated the principles of Natural Justice by not providing the Appellant with a proper opportunity of being heard.
2. The learned CIT(A) has erred in law and in facts erred in not allowing the Appellant to carry forward and set off of the long term capital loss incurred on sale of the property in Netherlands and to adjust the same against Long term capital gains.
3. The learned CIT(A) has erred in law and in facts in making arbitrary ad-hoc disallowance of 3 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 50% of Professional fees, 25% of Business promotion expenses and 25% of other expenses (Car expenses. mobile expenses etc.) on presumption and conjuncture u/s 370 of the Income Tax Act without rejecting books of accounts."
3. At the outset, the learned Counsel for the assessee drew our attention to the order of CIT(A) against the original assessment order passed under section 143(3) of the Act, whereby the CIT(A) vide Para 2.5 has noted that there is mistake in law which is apparent from record in allowing the claim of carry forward of long term capital loss in respect of flat in Netherland. The CIT(A) recorded the following findings in Para 2.5 as under: -
"2.5 It is worth mentioning here that the assessee has shown and disclosed the Long Term Capital loss of Rs.2,56,43,744/- alter claiming benefits of indexation in respect of sale of Flat in Netherlands in the two revised returns of income filed on 30/3/2013 irrespective of the status of "resident" shown first revised return of income tiled on 30/3/013 and the status of "non-resident" shown and filed by the assessee in second revised return of income on 30/3/2013. Thus it is very flinch evident that when it comes to claiming benefits of beneficial sections of showing losses under the head "capital gains' under section 45 to 53 of IT. Act, 1961 including the benefit of indexation under section 45 to 47 of l.T. Act, 1961 , the same is claimed irrespective of the status of "resident" OR "non-resident" under the I.T. Act 1961 and/or under the DTAA between India and USA and whether such it claim is admissible or not 4 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 when the Second Revised Return Of Income was filed in the status of Non-Resident by the assessee. The AO has not made any adverse comments and drawn any adverse inference on the issue of allowability of carry forward of long term capital losses of Rs.2,56,43,744/ in respect of the flat in Netherlands, however, the AO appears to have accepted. We same even though the computation of long term capital loss tinder the head "capital gains"
was shown in the return of income for the first time in the first Revised Return Of Income filed oil Prima fade this carry forward of long term capital loss of Rs.2,55,43,744/- in respect of sale of flat in Netherlands is not allowable under the provisions of section 80 read with section 139(1) or l.T. Act, 1961 irrespective of the status Of the assessee being treated as resident or not ordinarily resident" or "non
-resident" under the provisions of section 6 of IT. Act, 1961 and/or read with article 4(2) of DTAA between and the USA. Prima facie this is a mistake in law which is apparent front records crystal clear and there is no ambiguity about it and since the AO appears to have also not allowed the same in the assessment order since no mention is made in the assessment order and even the assessee has not taken tip any ground of appeal. Even if it is assumed to have been allowed, it is held that this is mistake of law which is apparent from the records and hence assessee's claim for carry forward of long term capital loss of ₹2,56,43,744/- in respect of flat in Netherlands is not allowable since it was patently 5 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 erroneous under section 80 read with section 139(1) of l.T. Act, 1961."
4. The assessee has challenged the very findings and the learned Counsel for the assessee argued that these comments are made for practically making enhancement of assessment framed by the AO under section 143(3) of the Act dated 31.12.2013. According to the learned Counsel for the assessee, who took us through the appeal field by assessee in ITA No. 6048/Mum/2017 against the order of CIT(A) passing rectification order under section 154 of the Act dated 10.07.2017. The learned Counsel for the assessee first of all drew our attention to the grounds which reads as under: -
"1. The learned CIT(A) has grossly erred, in law and in fact, in order under section 154 in observing that "intelligibility of the assessee to carry forward loss sustained in forward cannot be set off against Long Term Capital Gain arising in the transaction from properties in India.
2. The learned CIT(A) has grossly erred, in law and in fact, in making this observation without giving any opportunity of being heard for enhancement under section 251(2).
3. the honorable ITAT is requested to direct the CIT(A) to delete the observation and to allow the adjustment of Netherlands loss against Long Term Capital Gain arising in the transaction from properties in India."6
ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7
5. The learned Counsel for the assessee stated that finally by rectification order passed by CIT(A) under section 154 of the Act dated 10.07.2017 directing the AO by observing as under: -
"A) Carry forward of Capital Losses During financial year 2010-11, the assessee had claimed carry forward of capital loss of Rs.2,56,43,744/- arising on account of sate of House Property in the Netherlands. The said capital losses were allowed by the Assessing Officer with the specific mention thereof on Page 8 Para 11 of assessment order which, on translation, reads as under.
"11. Assessee is allowed to carry forward Long Term Capital Loss of Rs. 2,56,43,744/."
However, in your order, Para 2.5 Page 18, you have observed as under:
"Prima facie, this is a mistake in law which is apparent from the records crystal clear and there is no ambiguity about it and since the AO appears to have also not allowed the same in the assessment order, since no mention is made in the assessment order and even the assessee has not taken up any ground of appeal. Even of it is assumed to have been allowed, it is held that this is a mistake of law which is apparent form the records and hence assessee's claim for carry forward of long term capital loss of ₹ 2,56,744/- in respect of flat in Netherland is 7 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 not allowable since it was patently erroneous under section 80 read with section 139(1) of the I.T. Act, 1961.
The appellant has filed his original return or income in time allowed under section 139(1). Revised return was also filed within time allowed under section 139(4). Held by Honorable ITAT, Mumbai Bench in the case of Asst. CIT 20(2), Mumbai vs. Ramesh R. Shah in the ITAT Mumbai Bench 'D' once the original return is filed in time, any claim arising from revised return filed under section 139(4) has not to be allowed.
Decision on objection mentioned at Sr. No. A. The appellant has pointed out that in the Assessment order, the AO has mentioned on page 8 in Para 11 that cared forward of Long Term Capital Los of ₹ 2,56,43749/-.was allowed. This long term capital loss was on account of transactions of property in the Netherlands. The appellant has also pointed out that the issue was not raised in the appeal, as he was not aggrieved on the finding given by the AO. However, while passing the appellate order the undersigned mentioned that the loss should not have been allowed to be carried forward by the Assessing Officer. The assessee objected to this comment of the undersigned while passing the appellate order. The objection of the assessee has been considered therefore, 8 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 it is hereby clarified that the comment in the appellate order has been made in the context of ineligibility of the assessee to carry forward of loss sustained in the transaction in the Netherland Property, as the same, though allowed to be carried forward cannot be set off against long term capital gain arising in the transaction form the properties in India.
3.1 In view of the above facts and circumstances of the case, the AO is directed to verify the facts of the case once again and allow carry forward of loss as per the provisions of the Act. Subject to this verification, the objection raised by the assessee is disposed of."
6. Hence, the assessee has challenged the first appellate order passed by the CIT(A) dated 30.12.2016 and subsequently, passed a rectification order under section 154 of the Act dated 10.07.2017.
7. Briefly sated facts are that the assessee filed his origin return of Income on 22.09.2011 declaring total Income of ₹ 2,40,36,590/-. This does not include any capital gain / loss in the computation of Income. Subsequently, the assessee filed a revised return of Income on 30.03.2012 declaring a total income of ₹. 2,40,36,590/- which included the loss on sale of capital asset as computed under the Act, at ₹ 2,56,43,744/- as per the computation of Income. On the same day, on 30.03.2012, the Assessee filed another revised return of Income showing a residential status of Non-resident, declaring a total income of Rs. 96,24,680/- in the computation of income. This computation includes the loss on sale of capital asset as computed under the Act, at ₹ 9 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 2,56,43,744/-. According to AO, the Assessee was not 'non-resident' and hence he was treated as resident Indian as declared in his original return as well as revised return of income. The Assessing Officer allowed the carry forward of loss of ₹ 2,56,43,744/-. The Assessee has not preferred any appeal with respect to the loss offered on the residential house in Netherlands as the same was not disputed by the Assessing officer. The CIT(A) in his order at Para 2.5 Page No. 18, however, held that the Assessing officer had not made any adverse comments or drawn any adverse inferences on the issue of allowability of carry forward of long term capital losses of Rs. 2,56,43,774/- in respect of the sale of flat in Netherlands but, he observed that 'prima facie' the carry forward of the long term capital loss was not allowable under the provisions of Sec. 80 r.w.s. 139(1) of the Act. He further observed that this was a mistake in law which was apparent from the records. The CIT(A) further observed that the Assessing officer also seemed to have not allowed the same as there was no mention in the Assessment Ordered since the Assessee had not taken up as a ground of Appeal, even though the Assessing officer had explicitly allowed the same. He further observed that even it was assumed to be allowed, it was a mistake of law apparent from the records. He therefore disallowed the claim for carry forward of long term capital loss relying on 80 r.w.s. 139(1) of the Act. the learned Counsel for the assessee argued that no show cause notice was issued with respect to the enhancement in the form of disallowance of carry forward of the long term loss to the Assessee. Accordingly, he framed the following legal propositions.
a) As the said issue was in favour of the Assessee as held by the Assessing officer, not taken up in ground of appeal and no enhancement / show cause notice was issued on the Assessee, 10 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 the rules of natural justice have been violated as the Assessee had no opportunity to be heard on the said issue.
b) Enhancement carried out without the issue of show cause notice and giving sufficient opportunity of being heard is in violation of Sec. 251(2) of the Act and principles of natural justice.
8. Now, to challenge the above, he relied on the decision of Hon'ble Andhra Pradesh High Court in the case of Y Bramiah V. ITO (2015) 229 Taxman 558 (AP), wherein Hon'ble Andhra Pradesh High court has held as under:-
"8. From this, it becomes clear that the Commissioner is conferred with the power not only to confirm the order of assessment or reduce the tax liability but also to enhance such liability or annul the very assessment. It is axiomatic that in case the adjudication by the Commissioner is going to result in reduction of the tax liability, no extra steps need to be taken. However, if the Commissioner intends to enhance the tax liability to the detriment of the assessee, that too in an appeal preferred by the assessee, a notice provided for under sub-section (2) of Section 251 of the Act must be issued requiring the appellant to show cause as to why such a course of action be not taken. The reason is not difficult to see. The assessee approaches the Commissioner ventilating his grievance and expecting some 11 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 relief. If apart from denying the relief, the Commissioner wants to fasten additional liability, the assessee must be put on notice. For all practical purposes, the appeal in such cases tends to assume the character of suo motu revision of the order of the Assessing Officer.
9. In the instant case, the Commissioner made certain observations, as to why the grievance of the appellant cannot be said to be genuine. Had he stopped at that and dismissed the appeals, there would not have been any other complications. However, he proceeded to issue certain directions, which are certainly detrimental to the interest of the appellant. He could have done that only after issuing a notice under sub-section (2) of Section 251 of the Act. Since no such notice was issued, the order dated 13.03.1997 passed by the Commissioner suffered a serious illegality and it is contrary to Section 251(2) of the Act."
9. The learned Counsel for the assessee argued that the issue was not subject matter of appeal, the CIT(A) was not justified in holding that the Assessee is not entitle to carry forward the loss. He stated that the revise return filed on 30.03.2012 and subsequent revise return on the same day on 30.03.2012 clearly claiming capital loss in the computation of income file along with return of income at ₹ 2,56,43,744/- was well within the time limit prescribed under section 139(5) of the Act and the AO accepted the return of income as it is. The AO has accepted the loss 12 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 on sale of capital asset and along the same to be carried forward or to be adjusted against gain arising out of sale of capital asset. Further, the learned Counsel for the assessee also argued that as regards to appeal no. 6048/Mum/2017, the order of CIT(A) rectifying the mistake under section 154 of the Act and disallowing the carry forward and set off of the long term capital loss incurred on sale of the property in Netherlands by observing that the assessee is not entitled to claim for carry forward of long term capital loss relying on section 80 r.w.s 139(1) of the Act. The learned counsel stated that neither incurring of loss nor the computation thereof have been doubted either by the AO or the CIT(A). It was claimed that in section 154 of the Act, proceedings before the CIT(A), he concluded that loss sustain in sale of property in Netherlands though allowed to be carried forward cannot be set off against long term capital gains arising from properties in India. The learned Counsel for the assessee relied on the proposition that where the assessee has filed a positive return of income, it cannot be said that return is a loss return and the return is to be treated as a return filed under section 139(1) of the Act. He contended that long term capital loss has no effect on the positive total income of the assessee for the current assessment year and hence, the original return filed under section 139(1) of the Act and their revised return under section 139(5) of the Act has the same application and the claim made in the revise return of income, which has no effect on the positive total income as reflected in the return of income filed under section 139(1) of the Act, should be allowed to be carried forward and set off. For this proposition the learned Counsel for the assessee relied on the decision of co-ordinate Bench of this Tribunal in the case of Ramesh R. Shah vs. ACIT (2011) 12 taxman.com 501 (Mumbai), wherein, it is held as under:-
13ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 "10. In the present case, the Assessing Officer has serious reservation for allowing the assessee to carry forward long-term capital loss by interpreting the provisions of section 80 read with section 139(3). In this background, can it be said that the assessee has not fulfilled conditions laid down in section 80 and hence, it is not permissible to allow to carry forward of the capital loss. In the present case, the assessee filed original return under section 139(1) in which the positive income was declared. Even as per the assessment order positive income is determined as the assessee could not set off the loss on the sale of the shares of Phiolx Pharma Ltd. in the year itself. He claimed the same to be carry forward. In our humble opinion correct interpretation of section 80, as per the language used by the Legislature, condition for filing revised return of loss under section 139(3) is confined to the cases where there is only a loss in the original return filed by the assessee and no positive income and assessee desires to take benefit of carry forward of said loss. Once, assessee declares positive income in original return filed under section 139(1) but subsequently finds some mistake or wrong statement and files revised return declaring loss then can he be deprived of the benefit of carry forward of such loss? In our humble opinion, if we accept interpretation given by the authorities 14 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 below, it would frustrate the object of section
80. Section 80 is a cap on the right of the assessee, when the assessee claims that he has no taxable income but only a loss but does not file the return of income declaring the said loss as provided in sub-section (3) of section 139. It is pertinent to note here that Legislature has dealt with two specific situations (i ) under section 139(1), if the assessee has a taxable income chargeable to tax then it is a statutory obligation to file the return of income within the time allowed under section 139(1). So far as section 139(3) is concerned, it only provides for filing the return of loss if the assessee desires that the same should be carried forward and set off in future. As per the language used in sub-
section (3) to section 139, it is contemplated that when the assessee files the original return, at that time, there should be loss and the assessee desires to claim said loss to be carried forward and set off in future assessment years. Sub-section (1) of section 139 cast statutory obligation on the assessee when there is positive income. In the present case, admittedly, the assessee filed the return of income declaring the positive income and even in the revised return, the assessee has declared the positive income as the loss in respect of the sale of shares, which could not be set off, inter-source or inter-head under section 70 or 71 of the Act.
15ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7
11. We have to interpret the provisions of any statute to make the same workable to the logical ends. As per the provisions of sub-
section (5) to section 139, in both the situations where the assessee has filed the return of positive income as well as return of loss at the first instance as per the time limit prescribed and subsequently, files the revised return then the revised return is treated as valid return. In the present case, as the assessee filed its original return declaring the positive income and hence, in our opinion, subsequent revised return is valid return also and the assessee is entitled to carry forward of 'long-term capital loss'. Sub-sections (1) and (3) of section 139 provides for the different situations and in our opinion, there is no conflict in applicability of both the provisions as both the provisions are applicable in the different situations. We are, therefore, of the opinion that there is no justification to deny the assessee to carry forward the loss. We, accordingly, direct the Assessing Officer to allow the assessee to carry forward the loss."
10. On the other hand, the learned Sr. DR heavily relied on the order of CIT(A).
11. We have heard the rival contentions and gone through the facts and circumstances of the case. In view of the above given facts of the present case and precedence cited above, we are of the view that where 16 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 the assessee has filed a positive return of income, it cannot be said that the return is a loss return and the return of income is to be treated as a return under section 139 of the Act. The long term capital loss has no effect on the positive total income of the assessee for the current assessment year and hence all the returns of income filed by him need to be considered as a return of income filed under section 139(1) of the Act. Here, the returns filed under section 139(5) of the Act and claim made therein in the revise return, which has no effect on the positive total income as reflected in the return filed under section 139(1) of the Act, should be allowed to be carried forward and set off. We direct the AO accordingly. Both the orders of CIT(A) are quashed on the above issue.
12. The next issue in ITA No. 2099/Mum/2017 is as regards to adhoc disallowance confirmed by CIT(A). For this assessee has raised the following ground NO. 3: -
"3. The learned CIT(A) has erred in law and in facts in making arbitrary ad-hoc disallowance of 50% of Professional fees, 25% of Business promotion expenses and 25% of other expenses (Car expenses, mobile expenses, etc.). on presumption and conjuncture under section 37(1) of the Income Tax Act without rejection books of accounts."
13. We have heard the rival contentions on this issue and gone through the facts and circumstances of the case. The AO made the following disallowances:-
Nature of Amount Details of
expenses claimed (₹) disallowance
made by AO
Professional 10,00,000 Not business
17
ITA No s . 2 09 9/ Mu m/ 2 01 7 &
60 4 8/ Mu m/ 2 01 7
fees paid ot expenses;
Mr. Sarbpal 50%
Singh Anand 2,00,000 disallowed
Professional
fees paid to
Niktek
Solutions
Business 1,08,582 Not business
promotions expenses
expenses 50%
disallowed
Car 1,87,027 Personal
expenses expenses
Conveyance 56,580 25%
expenses disallowed
Mobile 73,730
charges
The CIT(A) restricted the disallowance of professional fee paid to Mr. Sarbpal Singh Anand at ₹ 5,00,000/- as made by AO. As regards to professional fee paid to Niktek Solutions, he retained the disallowance at ₹ 1,00,000/- as made by AO. As Regards to disallowance of business promotions expenses, he restricted the disallowance at 25% as against 50% made by AO. Similarly, he personal expenses like car expenses, conveyance expenses and mobile charges were restricted at 25% as made by AO.
14. Now before us, the learned counsel for the assessee fairly agreed that a reasonable disallowance should be restricted and he offered that the disallowance of ₹ 2,00,000/- on all the issues will suffice. On the other hand, the learned Sr. DR requested that a reasonable disallowance should be restricted.
15. After hearing both the sides on this issue, we direct the AO to restrict the disallowance at a 10% on all the items above mentioned and recompute the disallowance accordingly. For this we are of the view that 18 ITA No s . 2 09 9/ Mu m/ 2 01 7 & 60 4 8/ Mu m/ 2 01 7 neither the AO nor CIT(A) has doubted the genuineness of expenses or unreasonableness of expenses. Just to make it reasonable, we cannot rule out some personal element in some of the expenses, hence, a reasonable disallowance of 10% is restricted. This issue of assessee's appeal is partly allowed.
16. In the result, the appeal in ITA No. 6048/Mum/2017 is allowed and appeal in ITA No. 2099/Mum/2017 is partly allowed.
Order pronounced in the open court on 25-07-2018. Aado S a kI Gaao Y aNaa Ku l ao mao idnaM k 25-07-2018 kao kI ga[- .
Sd/- Sd/-
(जी. मंजनु ाथ /G MANJUNATHA) (महावीर स ह
िं /MAHAVIR SINGH)
(लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER)
Mumbai, Dated: 25-07-2018
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai BY ORDER,
6. Guard file.
//True Copy//
Assistant Registrar
ITAT, MUMBAI