Income Tax Appellate Tribunal - Mumbai
Acit Cen Cir 22, Mumbai vs The Indian Hume Pipe Co. Ltd, Mumbai on 9 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "I", MUMBAI
BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND
SHRI C.N. PRASAD, JUDICIAL MEMBER
ITA.NO.5899/MUM/2012 (A.Y: 2004-05)
The Indian Hume Pipe Co. Ltd v. The Asstt. Commissioner of Income
Construction House, Tax
2nd Floor, Walchand Hirachand Rd. Central Circle 22
Ballard Estate 4th Floor,
Mumbai 400 001 Aayakar Bhavan, M.K. Road
Mumbai - 400 020
PAN : AAACT 4063 D
(Appellant) (Respondent)
ITA.NO.6647/MUM/2012 (A.Y: 2004-05)
The Asstt. Commissioner of Income v. The Indian Hume Pipe Co. Ltd
Tax Construction House,
Central Circle 22 2nd Floor, Walchand Hirachand
4th Floor, Rd.
Aayakar Bhavan, M.K. Road Ballard Estate
Mumbai - 400 020 Mumbai -400 001
PAN : AAACT 4063 D
(Appellant) (Respondent)
Assessee by : Miss Aasifa Khan
Revenue by : Shri B.C.S. Naik
Date of Hearing : 19.05.2017
Date of Pronouncement : 09.08.2017
2
ITA.NO.5899/MUM/2012 (A.Y: 2004-05)
ITA.NO.6647/MUM/2012 (A.Y: 2004-05)
The Indian Hume Pipe Co. Ltd
ORDER
PER C.N. PRASAD (JM)
1. These two appeals are filed by the assessee and revenue against the order of the Commissioner of Income Tax (Appeals)-39, Mumbai, dated 17.08.2012 for the Assessment Year 2004-05.
2. The assessee filed appeal against the order of the Ld.CIT(A) in upholding the reopening of Assessment Proceedings u/s 148 of the Act beyond the period of four years. It was contended that the Assessing Officer has no jurisdiction to reopen the assessment completed u/s 143(3) of the Act as it is only a mere change of opinion.
3. Coming to the merits, the assessee challenged the order of the Ld.CIT(A) in confirming the action of the Assessing Officer in adopting the fair market value as on 01.04.1981 at ₹.600/- per square meter as against ₹.688/- per square meter adopted by the assessee in computing capital gains. The revenue in its appeal challenged the order of the Ld.CIT(A) in directing the Assessing Officer to grant deduction u/s 54EC in respect of the investment made in specified bonds. According to the revenue the investments in specified bonds were made prior to sale of property and hence the criteria prescribed u/s 54EC is not satisfied and therefore assessee is not entitled for deduction u/s 54EC of the Act.
4. The Learned Counsel for the assessee submits that the assessment in this case was originally made u/s 143(3) of the Act on 27.11.2006. The Learned Counsel for the assessee submits that notice u/s 148 dated 29.03.2011 was issued stating that there is reason to believe that income of long term capital gains shown by the assessee for the Assessment Year 3 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd is escaped assessment within the meaning of the provisions of section 147 of the Act.
5. The Learned Counsel for the assessee referring to Page 81 of Paper Book submits that the reasons for reopening was stated to be that assessee sold land for ₹.39 crores and availed indexation cost at ₹.15.80 crores and shown long term capital gains at ₹.23.19 crores and assessee claimed exemption u/s 54EC by investing the amount in the specified bonds. On scrutiny of the bonds revealed that only the bond of ₹.6.80 Crores was deposited in National Housing Bank (in short "NSB") is eligible for exemption as it was invested on 30.04.2004 within six months from the date of sale. The remaining amounts invested in Rural Electrification Corporation Limited (in short "RECL") and National Highway Authority of India (in short "NHAI") were pertain to the period prior to 01.02.2002 to 30.06.2002. It was observed that these investments were made prior to the date of transfer i.e. 15.12.2003 as such the allowance of exemption u/s.53EC on the above investment valued at ₹.21.24 Crores is irregular. Thus assessee failed to disclose full and truly all material facts necessary for its assessment for Assessment Year 2004-05 by not giving details of the communication of the investment amounts u/s.54EC bonds with the sale proceeds. Hence it was stated that income had escaped assessment to the tune of ₹.21.24 Crores.
6. The Learned Counsel for the assessee submits that on the basis of this reason the assessment was reopened and the re-assessment was completed on 29.05.2012 u/s 143(3) r.w.s. 147 of the Act bringing into tax the difference in long term capital gains at ₹.16.44 Crores. The Learned Counsel for the assessee also submits that the cost of the land as on 01.04.1981 was adopted at ₹ 600/- per square meter as against ₹.688/-
4ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd per Square Meter and reworked out the capital gains by reducing the cost of indexation to the extent of ₹.1.97 Crores.
7. The Learned Counsel for the assessee referring to Page 7 of Paper Book submits that in the course of Assessment Proceedings the Assessing Officer called for the details in respect of the property sold; copies of the sale deed, agreement and the valuation reports for determination of fair market value as on 01.04.1981. Learned Counsel for the assessee referring to the page 10 to 23 of the Paper Book submits that assessee filed detailed reply dated 17.08.2006 furnishing all the information necessary for completion of the assessment in respect of the properties sold; investments made and the computation of long term capital gains on sale of such property including the working of exemption claim u/s 54EC along with the copies of the bond certificates issued by RECL and NHAI and capital gains in NHB. The Learned Counsel for the assessee however submits that there is no discussion in the Assessment Order about the details furnished by the assessee. The Learned Counsel for the assessee submits that since the assessee filed all the necessary details for completion of assessment there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment. Therefore, by virtue of second proviso to section 147 of the Act since there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment reopening of assessment completed u/s 143(3) beyond four years is bad in law. The Learned Counsel for the assessee further submits that the assessee when approached the Hon'ble High Court, the High Court held that there is failure on the part of the assessee in disclosing fully and truly all material facts necessary for completion of assessment and therefore rejected to quash the notice issued u/s 148 of 5 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd the Act. The Learned Counsel for the assessee further submits that on further appeal by the assessee, the Hon'ble Supreme court disposed off the Special Leave Petition filed by the assessee with an observation that the Appellate Authorities will decide this issue without being influenced by the observations made by the Hon'ble High Court of Bombay.
8. The Learned Counsel for the assessee further placing reliance on the decision of the Bombay High Court in the case of Mrs. Parveen P. Barucha v. DCIT [348 ITR 325] submits that the assessment cannot be reopened to deny the benefit u/s 54EC which was granted taking into account earnest money invested before date of transfer of assets. The Learned Counsel for the assessee submits that the Hon'ble High Court held that denying the benefit which was allowed earlier amount to change of opinion on same set off facts which is not permissible. He submits that this decision squarely applies to the assessee's case.
9. The Learned Counsel for the assessee referring to the decision of the Hon'ble Bombay High Court in the case of ICICI Home Insurance Company Limited v. ACIT [2010 taxman 67] submits that the assessment cannot be reopened based on the audit party objections without recording reasons by the Assessing Officer independently. The Learned Counsel for the assessee submits that there is no independent application of mind by the Assessing Officer, but based only on the audit objection if assessment is reopened such reopening of assessment is bad in law and without jurisdiction. The Learned Counsel for the assessee submits that in assessee's case the audit party recorded objections in 2007 and the notice was issued by the Assessing Officer in 2010 to the assessee based on the audit objection. Therefore, he submits that reopening of assessment based on the audit party's objections is bad in law.
6ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd
10. Coming to the merits of the case the Learned Counsel for the assessee referring to Page 137 of the Paper Book submits that detailed submissions were made before the Ld.CIT(A) as to why the Fair Market Value of the property at Wadala as on 01.04.1981 should be taken only at ₹.688/- per square meter instead of ₹.600/- per square meter. The Learned Counsel for the assessee submits that, the Ld.CIT(A) ignoring the submissions of the assessee directed the Assessing Officer to adopt the value of the land at ₹.600/- per square meter in respect of the land marked at C.
11. The Ld. DR vehemently placed reliance on the order of the Hon'ble High Court in writ proceedings and submits that Hon'ble High Court has already held that there is a failure on the part of the assessee in disclosing truly and fully all the material facts necessary for completion of the assessment and therefore reopening of assessment is valid. He submits that the findings of the Hon'ble High Court cannot be ignored. However, the Hon'ble Supreme Court while dismissing the Special Leave Petition filed by the assessee observed that since the appeal is pending before the Appellate Authorities on validity of notice u/s.148, the Appellate Authorities will decide this issue along with other issues without being influenced by the observations made by the Hon'ble High Court. The Ld.DR further submits that fact of investment made within six months is not brought to the notice of the Assessing Officer, therefore there is failure on the part of the assessee in disclosing truly and fully all the material facts necessary for completion of assessment. The Ld. DR further submits that the audit objection can be the basis for reopening of assessment and he placed reliance on the decision of the Hon'ble 7 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd Supreme Court in the case of CIT v. P.V.S. Beedies Private Limited [237 ITR 13].
12. We have heard the rival submissions perused the orders of the authorities below. The contentions of both the parties have been elaborately considered by the Ld.CIT(A) and also the findings and observations of the Hon'ble High Court and the Ld.CIT(A) has reached his conclusion that the reopening of assessment is valid. This conclusion has been reached by the Ld.CIT(A) based on the findings and observations of the Hon'ble High Court and the facts of the present case placed before the Hon'ble High Court by the assessee. The Ld.CIT(A) while arriving at the conclusion that the reopening is valid held as under: -
"4.4. I have considered the issue. I have also gone through the assessment order, the appellant's additional grounds of appeal and the appellant's submissions and the A.O.'s remand report. 4.4.1 The thrust of the argument of the appellant is that it disclosed fully and truly all the materials required for the assessment with regard to the long term capital gains and with regard to the claim of deduction u/s.54 EC of the I.T. Act. The appellant submits that during the original assessment proceedings, the A.O. asked the working of long term capital gains and in the reply the appellant has given the working indicating the claim of deduction u/s.54 EC of the I.T. Act and the appellant has also attached the copies of the Bonds certificate in support of it's claim u/s.54 EC of the I.T. Act. The appellant submits that the A.O. has accepted the appellant's claim in the original assessment and subsequently after four years from the end of assessment year the A.O. has re-opened the assessment based on the Audit Objection raised in this case. The appellant's contention is that there is no failure on the part of the appellant to disclose fully and truly all material facts relevant to the assessment year and in view of first proviso to section 147 of the I.T. Act, the A.O. has no jurisdiction to re-open the assessment. The appellant is also of the view that the A.O. has considered the claim of deduction u/s. 54EC of the I.T. Act in the original assessment and has 8 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd accepted the appellant's claim and now due to change of opinion the A.O. has taken a different view.
4.4.2 On the other hand the A.O. is of the view that just because certain details were filed it cannot be presumed that the assessee has made full and true disclosure of all materials required for assessment. In this regard the A.O. has relied on the Explanation 1 to Section 147 of the I.T. Act. The A.O. is of the view that in the original assessment the A.O. has not dealt with the claim of the appellant u/s.54 EC of the I.T. Act and hence the consideration of the claim and disallowing in the reassessment will not amount to change of opinion.
5. I find that these contentions were raised by the appellant and the A.O. during the Writ Petition hearings before the Hon'ble Bombay High Court. The Hon'ble High Court has elaborately discussed the issue from para 4 to 11 of the order and it extracted below for ready reference.
"4. Counsel appearing on behalf of the Petitioner submitted that - (1) The reopening of the assessment in the present case being beyond a period of four years of the end of the relevant Assessment Year, the impugned action can be justified only if there was a failure on the part of the Petitioner to disclose fully and truly all material facts necessary for his assessment for that Assessment Year; (ii) The assessee in the present case compiled with the obligation to disclose primary facts; (iii) The primary facts consisted of (a) the agreement under which a capital asset was transferred for which consideration was realized; (b) the cost of the acquisition of the asset and (c) the investment which was made by the Petitioner in specified securities. Whether the assessee is eligible to claim an exemption under section 54-EC if the investment was made prior to the date of transfer is an inference upon which no disclosure is required to be made by the Petitioner. The Assessing Officer, it was urged, had duly applied his mind to the return; queries have been raised to which the Petitioner had furnished replies.
5. Consequently it was submitted that there being no failure on the part of the Petitioner to fully and truly disclose all the material facts the action to reopen the assessment beyond a period of four years cannot be justified.
6. On the other hand, it was urged on behalf of the Revenue that
- (i)In the original return of income that was filed by the Petitioner, 9 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd there was a careful avoidance on the part of the Petitioner to disclose the dates on which investments were made in the specified bonds; (ii) Even after the Assessing Officer raised a query by his communication dated 14 July 2006 the Petitioner in its response once again did not specifically point out the dates on which investments were made in the specified bonds; (iii)The Assessing Officer had in the circumstances not applied his mind to the question as to whether the Petitioner had fulfilled the necessary requirements for an exemption under Section 54-EC; (v) The mere submission of certificates by the petitioner would not amount to a full and true disclosure of material facts having regard to the provisions of Explanation 1 to Section 147.
7. The reopening of the assessment has in the present case been sought to be effected by a notice dated 29 March 2011 which is beyond a period of four years of the end of the relevant Assessment Year 2004-05. In such a case the first proviso to Section 147 mandates that the validity of the reopening of the assessment must depend upon whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that Assessment Year. Explanation 1 to Section 147 provides that the production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to a disclosure within the meaning of the proviso. The expression 'necessarily' means inevitably or as a matter of compelling inference. The obligation to disclose primary facts lies on the assessee. The assessee has to disclose fully and truly all material facts. The import of Explanation I was noticed in a judgement of a Division Bench of this Court in 31 Infotech Ltd. v. Assistant Commissioner of Income tax l in the following observations:
" In other words, an assessee cannot rest content merely with the production of account books or other evidence during the course of the assessment proceedings and challenge the reopening of the assessment on the ground that if the Assessing Officer were to initiate a line of enquiry, he could with due diligence have arrived at material evidence. The primary obligation to disclose is on the assessee and the burden of making a full and true disclosure of material facts does not shift to the Assessing Officer. The assessee has to disclose fully and truly all material facts. Producing voluminous records before the Assessing Officer does not absolve 10 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd the assessee of the obligation to disclose and the assessee, therefore, cannot be heard to say that if the Assessing Officer were to conduct a further enquiry, he would come into possession of material evidence with the exercise of the diligence. An assessee cannot throw reams of paper at the Assessing Officer and rest content in the belief that the officer better beware or ignore the hidden crevices in the pointed material at his peril."
8. The Division Bench observed that the words "not necessarily"
in Explanation 1 would indicate that whether there was a full and true disclosure within the meaning of the Section would depend upon the facts and circumstances of each case; that is to say on the nature of the document and the circumstances in which it is produced (reliance was placed in that regard on the judgement of the Calcutta High Court in Imperial Industries Ltd. v. ITO 2 and of the Delhi High Court in Rakesh Agarwal v. Asst. CIT 3)-
9. The basic principle which has been laid down by the Supreme Court in Commissioner of Income tax v. Bhanji Lauji is whether the assessee has disclosed the primary facts which are necessary for assessment fully and truly. If the assessee has done so, the Assessing Officer is not entitled on a mere change of opinion to commence proceedings for reassessment. If the Assessing Officer has been apprised of all the primary facts necessary for assessment, he may well have raised a wrong legal inference from the facts disclosed. On that count he would not be justified in reopening the assessment. Essentially, therefore in each case the Court has to determine as to whether there was a full and true disclosure of primary facts by the assessee. The full and true disclosure which the statute contemplates must be judged in the context of Explanation 1 Section 147. The assessee cannot merely rely upon the fact that if the Assessing Officer had followed an enquiry with due diligence on the basis of the account books or other evidence produced by the assessee, he could have discovered material evidence. The mere production of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer does not necessarily amount to a disclosure within the meaning of the first proviso to section 147. The nature of the material produced and the circumstances which it was produced assumes some significance.
10. In the present case, the assessee, in the return of income that was originally filed, submitted a computation of taxable long term 11 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd capital gains. After computing the long term capital gains at Rs.23.19 Crores, the assessee sought to deduct therefrom an amount of Rs.23.24 Crores invested under Section 54-EC. The statement, however, was silent on the date on which the amounts were invested. The Assessing Officer did during the course of the assessment proceedings raise a query on 14 July 2006 seeking an explanation of an amount of Rs.38.75 Crores credited from the sale of certain property. The Assessing Officer called upon the assessee to furnish a copy of the sale deed together with the details of the property sold; valuation reports for determination of the fair market value as on 1 April 1981 and a detailed working of capital gains arising out of the sale of the property. The assessee disclosed the sale agreements and furnished a working of capital gains which was in terms of what was submitted with the return of income. Significantly neither in the return of income nor in the disclosures that were made in response to the query of the Assessing Officer did the assessee make any inference to the dates on which amounts were invested in bonds of the National Highway Authority of India, Rural Electrification Corporation of India and National Housing Bank. The assessee did not enclose copies of the certificates which do bear the date of allotment. However, in our view, it is evident that the Assessing Officer had clearly not applied his mind to the question as to whether the assessee had fulfilled the conditions specified in Section 54-EC for availing of an exemption. But more importantly the assessee in the present case was required to make a full and true disclosure of material facts which does not appear either from the computation of taxable long term capital gains in the original return of income or in the computation that was submitted in response to the query of the Assessing Officer. In both the sets of computation there was a complete silence in regard to the dates on which the amounts were invested. The assessment order does not deal with this aspect. In both the sets of computation thee was a complete silence regard to the dates on which amounts were invested. The assessment order does not deal with the aspect. In the circumstances, having applied the touch of stone of the legal principles underlying the reopening of an assessment beyond a period of four years, we have come to the conclusion that there was no full and proper disclosure by the assessee of all the material facts necessary for the assessment.
11. Full and true disclosures must mean what the statute says. These disclosures cannot be garbled or hidden in the crevices of the 12 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd documentary material which has been filed by the assessee with the Assessing Officer. The assessee must act with candor and the disclosure must be full and true. A full disclosure is a disclosure of all material facts which does not contain any hidden material or suppression of fact. A true disclosure is a disclosure which is truthful in all aspects. Just as the power of the Revenue to reopen an assessment beyond a period of four years is restricted by the conditions precedent spelt out in the proviso to Section 147, equally an assessee who seeks the benefit of the proviso to Section 147 must make a full and true disclosure of all primary facts. The assessee in the present case did refer to the fact that the capital gains had resulted from the transfer of a capital asset and in the course of the computation did provide for the cost of acquisition notionally as of 1 April 1981. An exemption was claimed under Section 54-EC. All the necessary facts on the basis of which the claim to an exemption are founded must be disclosed. As the assessee failed to do so, the Revenue in the present case would be justified in reopening the assessment on the ground that income has escaped assessment. Clause © of Explanation 2 to Section 147 provides for cases where income chargeable to tax is deemed to have escaped assessment. Among those cases are cases where an assessment has been made but (1) income chargeable to tax has been under assessed; or (ii) such income has been assessed to a lower rate; or (iii) such income has been made the subject of excessive relief under the Act; or (iv) an excessive loss or depreciation allowance or any other allowance under the Act has been computed. The Assessing Officer in the present case has not exceeded his jurisdiction in reopening the assessment. We, however, clarify that in the view which has been taken it has not been necessary for the Court to furnish its interpretation of the provisions of Section 54-EC which really do not fall for consideration at this stage. For the reasons aforesaid, we do not find any reason to exercise the extra-ordinary jurisdiction of this Court under Article 226 of the Constitution. The Petition is accordingly dismissed."
5.1 It is seen from the decision that the Hon'ble High Court has considered all the submissions of the appellant and has come to the conclusion that first proviso to section 147 of the I.T. Act is not applicable in this case and the Hon'ble High Court has upheld the jurisdiction of the A.O. to re-open and complete the re-opened assessment. There is no change in the facts or no new information is brought before me. I completely agree with the views of the 13 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd Hon'ble High Court. In view of this I hold that the A.O. has properly assumed jurisdiction to reassess the income and the A.O.'s action is as per law. In view of this A.O.'s jurisdiction to assess the income u/s.147 of the I.T. Act is upheld.
13. On a careful consideration and reading of the conclusion arrived by the Ld.CIT(A) we find that this conclusion has been arrived based on the findings of the Hon'ble High Court in assessee's own case. In the circumstances we would not see any valid reason to deviate from the findings arrived at by the Ld.CIT(A). Thus we uphold the reopening of the assessment. This ground of the assessee is rejected.
14. Coming to the merits of the case in so far as the adoption of the land value as on 01.04.1981 at ₹.600/- per square meter by the Assessing Officer as against ₹.688/- per square meter adopted by the assessee based on the valuation reports is concerned, the Ld.CIT(A) taking note of the fact that the Hon'ble ITAT Mumbai for the Assessment Year 2002-03 has approved the value of land as on 01.04.1981 at ₹.600/- Per Square Meter and also since the valuer has adopted the value at ₹.600/- per square meter for the Assessment Year 2002-03 as well as for Assessment Year 2003-04 the Ld.CIT(A) sustained the action of the Assessing Officer in adopting the value at ₹.600/- per square meter for the Assessment Year 2004-05 also. We do not see any valid reasons to reverse with the findings of the Ld.CIT(A) thus we sustain the action of the Ld.CIT(A) and the Assessing Officer in adopting the Fair Market value at ₹.600/- Per Square Meter.
15. Coming to the Revenue's appeal the Ld.CIT(A) allowed the claim for deduction u/s 54EC to the assesse on the investments made even anterior to the date of transfer of assets on the earnest or advance money by the assessee in view of the circular of CBDT No. 359 dated 10.05.1983.
14ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd
16. The Ld.CIT(A) also relied on various decisions in allowing the claim of the assesse. The Ld.DR strongly placed reliance on the order of the Assessing Officer. Whereas the Learned Counsel for the assessee strongly placed reliance on the orders of the Ld.CIT(A) and further submitted that an identical issue has been decided by the Bombay High Court in the case of CIT v. Subhash Vinayak Supnekar in ITA.No.1009/Mum/2014 dated 14.12.2016. Copy of the order is placed on record. The Learned Counsel for the assessee referring to this decision of the Bombay High Court submits that the Hon'ble High Court taking note of the decision in the case of Bhikulal Chandak HUF v. Income Tax Officer and the decision in the case of Mrs. Parveen P. Barucha v. DCIT [348 ITR 325], held that the earnest money received on sale of assets when invested in specified bonds u/s. 54EC of the Act assessee is entitled to the benefit of Section 54EC of the Act.
17. We have heard the rival submissions perused the orders of the authorities below and the decisions relied upon. The Ld.CIT(A) considering the submissions of the assessee as well as the circular of the CBDT came to the conclusion that the assessee is entitled for deduction u/s 54EC and the earnest money invested in the bonds specified for exemption u/s 54EC of the Act. Such conclusion was arrived at by observing as under: -
"6.1 During the appellate proceedings, the appellant submitted that the A.O. has erred in making addition of Rs. 16,44,30,757/- by not allowing deduction of investment made u/s 54EC of the Act. The appellant stated that it had sold its Wadala land during the year under consideration and had entered into the MOU dated 31st July 2001, and in terms of the same the sale consideration was received in various installments before the date of transfer of the Wadala land. The appellant stated that the advance money received by it was invested in specified bonds u/s 54EC of the Act, to claim the 15 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd exemption from payment of capital gains tax. It was submitted that during the course of original assessment proceedings u/s 143(3), the then A.O. had allowed the claim of deduction u/s 54EC but the Audit Department had raised objection for this claim and in response to the audit objection the assessment was reopened and the claim of deduction allowed u/s 54EC was withdrawn vide order dated 29th May 2012, passed u/s 143(3) r.w.s. 147 of the Act.
6.2 The appellant submitted that during the course of reassessment proceedings before the current A.O., the appellant relied upon the circular no 359 dated 10th May 1983, issued in respect of Sec. 54E (in pari material with 54EC). As per this circular, investments made even anterior to the date of transfer of the asset, utilizing the earnest or advance money will qualify for the benefit of deduction u/s 54E (now 54EC), in the light of the spirit and purpose of the section. The appellant stated that sec. 54E and 54EC are pari- materia to each other.
6.2.1 The appellant drew my attention to the circular no 359 dated 10th May 1983 and various decisions of the courts on this subject, as follows:
1) Circular No. 359 dated 10th May 1983.
"Section 54E provides for exemption of long term capital gains if the net consideration is invested by the assessee in specified assets within a period of six months after the date of such transfer. A technical interpretation of sec. 54E could mean that the exemption from tax on capital gains would not be available if part of the consideration is invested prior to the date of execution of the sale deeds as the investment cannot be regarded as having been made within a period of six months after the date of transfer.
On consideration of the matter in consultation with the Ministry of Law, it is felt that the foregoing interpretation would go against the purpose and spirit of the section. As the section contemplates investment of the net consideration in specified assets for a minimum period and as earnest money or advance is a part of the sale consideration, the Board have decided that if the assessee invest the earnest money or the advance received in specified assets before the date of transfer of assets, the amount so invested will qualify for exemption under sec. 54E."16
ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd
2) Shri Harkirat Singh v/s Asstt. Commissioner of Income - Circle 22(1) ITAT Bench "C" New Delhi. ITA No. 3241/Del/2010 A.Y.2006- 07 Order dt. 9.9.2011.
In this case during the year assessee made sale of property at Mahaveer Enclave for Rs. 30 lacs and earned long term capital gain of Rs. 24,20,000/-. Assessee claimed investment of NHB Bond and sought exemption u/s 54EC and an investment of Rs. 10 lacs was made on 07/06/2005 and Rs. 14,20,000/- on 13/09/2005 in NHB Bonds. Agreement to sell was executed in August 2005. Assessing officer did not accept the investment of Rs. 10 lacs made in NHB Bond in June 2005 u/s 54EC on the plea that the long term capital gain on sale of property should be invested after the date of transfer/ registration only. The assessee claimed that assessee has received advance against sale of property in March 2005 as first installment of sales proceeds and invested the same in June 2005 in NHB Bonds, was not accepted by the assessing officer. Assessing officer did not grant exemption u/s 54EC with respect to investment of Rs. 10 lacs in NHB Bonds.
The Hon'ble ITAT Delhi Bench 'C' has observed as under:
"We have heard both the counsel and perused the records. Ld. Counsel of the assessee contended that there is no evasion of tax made by the assessee. Rather it was motive of compliance with law that assessee has invested Rs. 10 lacs in NHB Bonds on receipt of first installment of the first sale proceeds. Hence he claimed that exemption u/s 54EC should be allowed."
The Hon'ble ITAT has quoted the sec. 54EC and remarked as under:
"A reading of the above makes clear that exemption under this section (54EC) can be claimed when the assessee earns capital gains from transfer of long term capital asset. A very strict interpretation of section would mean only after the sale has been complete, that investment under section 54EC can be done. However we find that in the present case assessee has received Rs. 10 lacs in March 2005 out of the gross sale proceeds of Rs. 30 lacs. The receipt of Rs. 10 lacs was part of the total receipt and assessee in god faith with a motive of compliance of law has invested the same in NHB Bonds to avail the exemption u/s 54EC. This act of the assessee is bonafide. Under the circumstances, in our 17 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd considered opinion, assessee should be granted exemption on Rs. 10 lacs u/ s 54EC. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee."
3) CIT Vs Late N. Kasi Vishwanathan [2008] 305 1TR 371 (Mad.) Tax on capital gains can be saved by reinvestment in specified bonds u/s 54EA (earlier sec. 54E, later sec. 54EB and now sec. 54EC). The assessee was awarded compensation by civil court by an order dated 01.12.1995, but this order was subject matter of appeal before the High Court, which had granted stay, but allowed the assessee to withdraw 25% of such amount on furnishing securities. The amount was received on 21st July 1999, which later formed part of enhanced compensation awarded by the High Court in the assessment year 2000-01. The assessee had claimed the amount deposited in these bonds out of the amount received earlier, subject to security. The assessing officer denied the benefit, because the remaining enhanced compensation was received only on 21st July 1999, while the investment was made on 01.06.1999 out of the amounts received earlier. The Hon'ble High Court of Madras held that this difference in date will make no difference. The assessee had already received part of it and he had not, therefore, depended upon the balance amount. The investment was made even before the time limit but out of compensation. It was in this context, the High Court upheld the order of the Tribunal. Board circular no. 359, dated 10th May 1983 (see [1983] 143 ITR (St.) 2) has conceded that investment even anterior to date of transfer, as for example, from earnest money or advance will qualify for the benefit of reinvestment under sec. 54E (now 54EC) in the light of "the purpose and spirit of the section".
4) Ramesh Narhari Jakhadi v/s ITO [1992] 41 ITD 368 (Pune- Trib).
In this case it has been observed that the circular no. 359 dated 10th May1983, issued by the board, keeping in view the purpose and spirit of section 54E, same consideration would apply for relief under sec. 54 B also.
The Board's Circular No. 359 dated 10th May 1983 issued in Connection with relief u/s 54E has been cited in support of his contention that the earnest money or advance money received for sale is part of sale consideration and investment of such money in some other specified assets before the date of transfer of the asset 18 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd would qualify for exemption u/s 54E of the Act. It is the contention of the learned counsel for the assessee that the same logic which applies to sec. 54E, should also apply with equal force to the relief u/s 54B claimed by the assessee.
Since it is common practice to obtain earnest money or advance or installments before a property is conveyed by registering sale deed, the investment made would amount to investment out of sale consideration. For this conclusion, Circular no. 359 is relied upon. In other words, the logic in the aforesaid circular issued in connection with 54E would apply with equal force to relief u/s 54B also. Applying the spirit of the circular, it could be said that the investment made prior to the date of transfer would also be eligible and should be considered as investment made out of sale proceeds. The limit of two years' period after transfer is an outer limit, while the investment made earlier to the date of transfer out of the earnest money or advances should be considered to fall within two years' time limit period and which would be inner limit, so to say.
5) Income Tax Officer Ward-10(1), Banglore v/s Mrs. Barbara Thelma Gill. 2009-TIOL- 160-ITAT-Bang.
In this case the assessee converted certain agricultural land into stock in trade and within six months of such conversion invested in NHAI bonds - At the time of sale of the converted land, a demand for tax liability on account of capital gains was made which assessee refused stating that investment made u/s 54EC qualifies for exemption - AO rejected the claim by holding that the investment ought to have been made within six months from the actual sale of the land. The CIT(A) allowed assessee's claim of exemption.
The appellant submitted that the above decisions clearly support its claim and requested to allow the relief to the appellant.
6.3 I have gone through the issue. In this case deposits were made in specified bonds from the advance money received for towards the sale of property and the appellant claims that it is eligible for deduction u/s.54 EC of the I.T. Act relying on Circular No.359 dt. 10.5.1983 and other decisions relied upon in the appellant's submissions.
6.4 The A.O. is of the view that Circular No.359 is not applicable to section 54 EC of the I.T. Act and hence the benefit of Circular no.359 cannot be availed by the appellant. The A.O. has held that 19 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd since the investments in specified bonds were made prior to date of sale of property, the criteria prescribed u/s.54EC is not satisfied and hence the appellant is not eligible for deduction u/s.54 EC of the I.T. Act.
6.5 Section 54E, EA, EB, EC are introduced to give exemption from capital gains if the sale proceeds of the property/capital gains from the property are invested in specified assets. These sections were used for augmenting the sources for making public infrastructures etc by offering incentive by way of capital gains exemptions to the assessee. If the sale proceeds/capital gains from the transfer of capital assets are invested in specified assets listed out in these sections, then, the assessee will be entitled for deduction under those sections. In this case the part of the sale proceeds were received in advance prior to date of sale and the appellant has invested the monies in the specified assets and claimed deduction u/s.54 EC of the I.T. Act. But Section 54EC talks about the period in which the investment should be made. The wordings "the assessee has at any time within a period of six months after the date of such transfer, invested the whole or any part of the capital gains" is notable. In view of these wordings, the A.O. is of the view that since the investment in specified securities were not made at anytime within period of six months after the date of transfer, the appellant is not entitled for deduction u/s.54 EC of the I.T. Act.
6.5.1 But it is noticed the same wordings "the assessee has, within a period of six months after the date of such transfer invested or deposited" is used in all the sections i.e. 54E, 54EA, 54EB, 54EC of the I.T. Act. In section 54E, the Board in the Circular No.359 dt.10.05.83, has clarified that if advance money received for the sale is invested even prior to the date of transfer is eligible for deduction u/s.54E. The Board has also opined that the strict interpretation would go against the purpose and spirit of the section.
6.6 I am of the view that the purpose and spirit of these sections 54E, 54EA, 54EB, 54EC are one and the same. The purpose and spirit of the section is to encourage investments out of sale proceeds /capital gains which will help the state to raise funds for infrastructure facility by granting deduction from capital gains under these sections. The logic and reasoning applied in circular No.359 issued u/s.54E is equally applicable to section 54EC of the I.T. Act. Further the case laws relied on by the appellant supports the appellant's contention that the beneficial Circular no.359 is applicable in the appellant's case.
20ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd 6.6.1. Above all, the Hon'ble ITAT Delhi in the case of Shri Harkirat Singh (supra) has decided the issue in the assessee's favour in similar set of facts and the Hon'ble ITAT Delhi is squarely applicable to the appellant's case.
6.6.2 Respectfully following the Hon'ble ITAT Delhi Bench's decision, I hold that the appellant is eligible for deduction u/s.54 EC of the I.T. Act. The A.O. is directed to grant the deduction u/s.54EC with regard to the investments made in the specified securities.
18. This conclusion of the Ld.CIT(A) is in tune with the decision of the Hon'ble Bombay High Court in the case of CIT v. Subhash Vinayak Supnekar (supra) wherein the lordships held as under: -
"2. Mr. Bajpayee, learned Counsel for the Revenue urges the following question of law for our consideration: -
"Whether on the facts and circumstances of the case and in law, the Tribunal erred in holding that the assessee was entitled to deduction u/s 54EC of the Act when the assessee had not fulfilled the mandatory requirement of making the investment within six months from the date of the transfer?"
3. The short question that arises for our consideration in this appeal is whether an amount received on sale of a capital asset as an advance on the basis of Agreement to Sale and the same being invested in specified bonds before the final sale, would entitle the respondent assessee to the benefit of Section 54EC of the Act.
4. The impugned order of the Tribunal records the fact that an Agreement of sale for the subject property was entered into on 21st February, 2006. The final sale took place under a Sale Deed dated 05th April, 2007. The respondent assessee had invested an amount of ₹50 Lakhs from the advance received under the Agreement to Sale in the Rural Electrification Corporation Ltd. bonds on 2nd February 2007. The Assessing Officer as well as the Commissioner of Income Tax (Appeals) held that the respondent assessee is not entitled to the benefit of Section 54EC of the Act as the amounts were invested in the bonds prior to the sale of the subject property on 5th April, 2007. The impugned order of the Tribunal placed reliance upon the decision of its co-ordinate bench in Bhikulal 21 ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd Chandak HUF Vs. Income Tax Officer, 0126 TTJ 545 wherein it has been held that where an assessee makes investment in bonds as required under Section 54EC of the Act on receipt of advance as per the Agreement to Sale entitled to claim the benefit of Section 54EC of Act.
5. The grievance of the Revenue before us is that the Agreement to sale dated 21st February, 2006 was never produced before the authorities. Therefore, the respondent assessee is not entitled to the benefit of Section 54EC of the Act.
6. We find that the Sale Deed dated 5th April, 2007 is produced. This itself in clause (d) thereof records the fact that the Agreement to Sale had been entered into 21st February, 2006 in respect of the property and the amounts being received by the vendor (respondent assessee) under that Agreement to Sale. Thus, these amounts when received as advance under an Agreement to Sale of a capital asset are invested in specified bonds, the benefit of Section 54EC of the Act is available. In the above view, the Tribunal holds that the facts of the present case are similar to the facts before the Tribunal in Bhikulal Chandak HUF (supra). The Revenue does not dispute the same before us. Moreover, on almost identical facts, this Court in Ms. Parveen P Bharucha Vs. DCIT, 348 ITR 325, held that the money received on sale of asset, when invested in specified bonds under Section 54EC of the Act, is entitled to the benefit of Section 54EC of the Act. This was in the context of reopening of an assessment and reliance was placed upon CBDT Circular No. 359 dated 10th May, 1983 in the context of Section 54E of the Act.
7. Mr. Bajpayee, learned Counsel for the Revenue very fairly points out that the Revenue had preferred an appeal against the order of the Tribunal in Bhikulal Chandak HUF (supra) to this court (Nagpur Bench) being Income Tax Appeal No.68 of 2009. This Court by an order dated 22nd August, 2010 refused to entertain the Revenue's above appeal from the decision of the Tribunal in Bhikulal Chandak HUF (Supra). In the above view, the question as proposed for our consideration in the present facts does not give rise to any substantial question of law. Thus, not entertained.
19. Thus we respectfully following the decision of the Jurisdictional High Court we uphold the order of the Ld.CIT(A) in allowing the claim for deduction u/s 54EC of the Act.
22ITA.NO.5899/MUM/2012 (A.Y: 2004-05) ITA.NO.6647/MUM/2012 (A.Y: 2004-05) The Indian Hume Pipe Co. Ltd
20. In the result the appeal of the assessee as well as the revenue are dismissed.
Order pronounced in the open court on the 09th August, 2017.
Sd/- Sd/-
(RAJENDRA) (C.N. PRASAD)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai / Dated 09/08/2017
VSSGB, SPS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
//True Copy//
BY ORDER,
(Asstt. Registrar)
ITAT, Mum