Income Tax Appellate Tribunal - Lucknow
Jyoti Pat Ram vs Ito on 26 August, 2004
Equivalent citations: (2005)92TTJ(LUCK)199
ORDER
Keshaw Prasad, AM Both the appeals have been directed by the assessee against separate orders of the learned CIT (A), dated 28-8-2003, pertaining to assessment years 2000-01 and 2001-02. As the issues in both the appeals are common, these are being disposed of by a consolidated order. The grounds of appeal raised by the assessee for the assessment year 2000-01 are as under:
"1. Because, the proceedings under section 147 have neither been validly initiated nor concluded and the view to the contrary, as taken by the learned CIT (A)-I, Lucknow, hereinafter referred to as "CIT (A)" is wholly erroneous.
2. Because the learned CIT (A) on a due consideration and correct appreciation of the facts and. circumstances of the case, particularly that
(a) the "material" as was necessary for providing a live link and nexus between the formation of 'reason to believe' and 'escapement of income' was non-existent; and
(b) a valid return was pending at the time of initiation of action under section 147.
Should have held that initiation of proceedings under section 147 was wholly unlawful and the assessment order passed in pursuance of the same was null and void.
3. Because, in any case, owing to non-issuance of notice under section 143(2) in relation to the return filed on 16-8-2002, in compliance with the notice dated 16-7-2000, under section 148, the assessment order dated 26-3-2003, was liable to be declared as nullity.
Without prejudice to the aforesaid
4. Because the authorities below have erred in law and on facts in holding that the investment made in 'remodelling renovation of house No. 3/3/74, Rekabganj, Faizabad, did not amount to investment in construction of house' and in holding that a sum of Rs. 3,45,000 (as had been received by the appellant on transfer of capital asset) was liable to taxation under the head capital gains'.
5. Because the appellant's claim about investment in construction of house property (by utilising the sale proceeds amounting to Rs. 3,45,000) was fully supported by the relevant document and information and the same has undeservedly, illegally been ignored while deciding the issue involved in the appeal.
6. Because the appellant owned only one house property numbered as house No. 3/3/74, Rekabganj, Faizabad, and the authorities below have erred in holding that the appellant 'in any case, was not entitled for exemption under section 54F as it had more than one house property'.
7. Because wholly without prejudice to the contentions raised in the forgoing grounds Nos. 4, 5 and 6 the sum of Rs. 3,45,000 could not have been subjected to capital gain as one of the ingredients of the 'charging provisions', i.e. 'cost of acquisition' is non-existent (as is borne out from the assessment order itself wherein no deduction for any such 'cost' has been allowed) and in view of the principle laid down by the Hon'ble Supreme Court in the case of CIT v. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC).
8. Because the appellant disputes the computation of its income under the head 'income from house property'.
9. Because the appellant denies the liability for interest under various sections, even independent of quantum of assessment.
10. Because the order appealed against is contrary to the facts, law and principles of natural justice".
2. Briefly, the facts of the case are that the original return of income filed in both the assessment years were processed under section 143(1)(a) of the Act. Subsequently, the assessing officer, after recording the reasons, issued the notice under section 148 of the Act on 18-7-2002 for the assessment year 2000-01. Similar notice under section 148 was issued on 1-1-2003 for assessment year 2001-02. In response to the above notices, the assessee intimated the assessing officer that the original return filed by it may be treated as a return filed in response to notice under section 148 of the Act. The assessing officer, therefore, proceeded to make assessment under section 143(3)/148 of the Act by issue of notice under section 143(2) on 13-8-2002 for assessment year 2000-01 and on 9-6-2003 for assessment year 2001-02. Ultimately, the reassessment orders under section 143(3)/148 were passed, the validity of which was upheld by the learned CIT (A). The learned CIT (A)'s finding in upholding the initiation of proceedings under section 147 has been challenged before us.
3. We will first take up the appeal directed by the assessee for assessment year 2000-01.
4. The learned counsel for the assessee, Shri S.K. Garg, submitted that the initiation of proceedings under section 147 by issue of notice dated 18-7-2002, was bad in law, for the reason that such a notice had been issued during the pendency of valid return. With reference to the chronology of dates and events, it was pointed out that the return in this case had been filed voluntarily, although belatedly, on 30-7-2001, after claiming exemption from capital gain as per the following narration as appearing in the statement showing computation of income'.
2. Capital gains
(i) Sale proceeds realised on 31-7-1999 from Ravi Kapoor, etc. of Edward Medical Hall's shop.
45,000
(ii) Sale proceeds realised on 5-8-1999 from Ravi Kapoor, etc. of Edward Medical Hall's shop 3,00,000 3,45,000 Less : Amount invested in remodel and renovation of NIL" residential house No. 3/3/74, Rekabganj, Faizabad 3,47,000 (extracted from p. 20 of the paper book)
5. In case the correctness of the claim of exemption under the head capital gain was required to be examined and verified, the assessing officer had the time-limit available to him to issue notice under section 143(2) by 30-7-2002. Instead, before the expiry of time-limit available to the assessing officer for issuing the notice under section 143(2) as stated above, he initiated proceedings under section 147 by recording the reasons vide order sheet entry dated 11-7-2002 as under :
"Assessee is having rental income from house property situated at 3/3/74, Rekabganj. During the year 'a' had sale capital gain from sale proceeds of Edward Medical hall shop amounting to Rs. 3,45,000 is claimed deduchion of Rs. 3,47,000 by investing in remodelling and renovation of residential house at 3/3/74, Rekabganj under section 54F deduction is available on transfer of longterm capital assets, if the capital gain is invested in purchase or construction of a residential house is not for remodel and renovation of existing house. Assessee has, therefore, claimed excessive deduction and I have reasons to believe that income of Rs. 3,45,000 has escaped assessment Exp. 2(6) issue notice under section 148."
Thereafter, notice under section 148 was issued on 18-7-2002 which again was a datelwhich fell prior to the outer limit for issuing notice under section 143(2). Such an initiation was bad in law. Reliance was placed on the decision of the Hon'ble Allahabad High Court in the case of Jhunihunwala Vanaspati Ltd. v. Asstt. CIT (2004) 266 ITR 664 (All) wherein their Lordships, after referring to a large number of cases, have held as under:
"It is well settled that the notice under section 148 cannot be issued when assessment proceedings are pending vide CIT v. Ranchhoddas Karsondas (1959) 36 ITR 569 (SC), CIT v. S. Raman Chettiar (1965) 55 ITR 630 (SC), N. Naganatha Iyer v. CIT (1966) 60 ITR 647 (Mad), Ram Bilas Kedar Nath v. ITO (1963) 47 ITR 586 (All), Dr. Onkar Dutt Sharma v. CIT (1967) 65 ITR 359 (All), Sool Chand Ram Sewak v. CIT (1969) 73 ITR 466 (All), S.P. Kochhar v. ITO (1984) 145 ITR 255 (All), Trustees of H.E.H. The Nizam's Supplemental Family Trust v. CIT (2000) 242 ITR 381 (SC) and CIT v. M.K.K.R. Muthukarauppan Chettiar (1970) 78 ITR 69 (SC) etc."
6. It was further clarified by the learned counsel that the earlier decision of the Hon'ble Allahabad High Court in the case of Pradeep Kumar Har Saran Lal v. AO (1998) 229 ITR 46 (All), wherein their Lordships had laid down the following proposition:
"We have already found that whatever exercise was done by the assessing officer to bring the profits computed under section 44AC to tax was ab initio void and, therefore, by virtue of that exercise, it cannot be said that the profits had been assessed to tax and if that is so, the plain conclusion is that the profits having accrued to the petitioner from the business of alcoholic liquor during the relevant financial year which according to the assessing officer were liable to tax, had escaped assessment. If the assessing officer had reason to believe that such profits had escaped assessment, then we see no good reason why reassessment proceedings could not have been initiated against the petitioner. The submission of Sri Gulati proceeds on the footing that since the assessing officer failed to issue notice under section 143(2) at the time of the processing of the return filed by the petitioner, he lost the jurisdiction for making reassessment under section 147, read with section 148 forever".
does not present any difficulty or contradiction. In the later decision, which relates to the assessment year 1989-90, the assessee had filed return on 27-10-1989 and the said 'return was processed also under section 143(1) after making some adjustments'. Thereafter, a number of proceedings took place and then the assessing officer issued notice under section 148 after recording the reasons in August, 1997. Thus, the period of six months (as was applicable at that time) for issuing notice under section 143(2) had already expired. As against this, in the present case, the limitation for issuing notice under section 143(2) was subsisting on the dates of "recording the reasons" and issuing notice under section 148. The assessing officer could have validly issued notice under section 143(2) on the date when he recorded the reasons and/or even on the date when he issued notice under section 148.
7. Further, during the pendency of a valid return, the assessing officer could not have even entertained a reasonable belief that income chargeable to tax has escaped assessment. Reliance has been placed on the decision of Hon'ble Calcutta High Court in the case of CESC Ltd. v. Dy. CIT (2003) 263 ITR 402 (Cal), the relevant extract from the headnotes of the said report are reproduced hereunder :
"Before the assessment is complete, it is not possible to ascertain whether income has escaped assessment. Until the assessment is complete, there is no scope for finding any reason to believe that income had escaped assessment. Even if the return is incomplete or partial or defective, it is liable to be dealt with by the Income Tax Officer. Therefore, during the pendency of such return, notice under section 148 for reopening assessment under section 147 cannot be validly issued."
8. In the context of the assessing officer entertaining the "reasons to believe", it was further pleaded that the reasons as recorded by the assessing officer vide order-sheet entry dated 11-7-2002 (as have been reproduced by us in para 5 above) could not be said to be the "reasons recorded" for escapement of income as envisaged in section 147. In the statement of total income as had been filed along with the return on 30-7-2001, the assessee had clearly stated that the sale proceeds had been "invested in remodel and renovation of residential house No. 3/3/74, Rekabganj, Faizabad, " Without there being any material on record or any information having come to the knowledge of the assessing officer to the contrary, the assessing officer could not have held the investment of Rs. 3,47,000 in the 'remodel and renovation' in the present case did not amount to construction of a residential house and, therefore, the 'reasons recorded' by him do not meet the requirement of law. In support of this contention, the learned counsel referred to and relied upon the following cases:
(a) Sheo Nath Singh v. Appellate Asstt. CIT (1971) 82 ITR 147 (SC)
(b) ITO & Ors. v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) and
(c) Ganga Saran & Sons (P) Ltd. v. ITO (1981) 130 ITR 1 (SC) as had earlier been referred to and relied upon before the authorities below also.
9. It was further submitted that, in.any case the assessment order dated 26-3-2003 itself is illegal for the reason of non-issuance/non-service of mandatory notice under section 143(2), after the return had been filed on 16-8-2002 (in terms of the letter of date). It is evident that a notice under section 143(2) was issued on 13-8-2002 and obviously, the same is not referable to the "return" filed later, on 16-8-2002 (in compliance with the notice under section 148 dated 13-8-2002). Thus, the assessment order dated 26-3-2003 itself is without jurisdiction. In support of this contention, the learned counsel relied upon the following decisions as given by the Allahabad Bench of the Tribunal:
(d) Shubham Enterprises v. ITO in ITA No. 240/All/2002 relating to assessment year 1998-99.
(e) Asstt. CIT v. Santosh Kumar (2003) 87 lTD 107 (AD) Reliance was also placed on the decision of the Special Bench of the Tribunal, Lucknow Bench, in the case of Mawal Kishore & Sons Jewellers v. Dy. CIT (2003) 265 ITR 75 (Lucknow)(AT)(SB) where the Hon'ble Bench has held as under:
"Let us now consider the questions regarding applicability of the proviso to section 143(2). In this connection, it would be appropriate to consider the scheme of section 143(2) with reference to the scheme of section 158BC. The perusal of section 143(2) shows that it confers powers on the assessing officer to proceed to make assessment of the total income of an assessee if he considers that it is necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner. The use of the word 'if' by the legislature clearly shows that the power to assess is optional and the assessing officer need not proceed to assess in each and every case. If he opts to exercise such powers then such exercise must be made within the period prescribed by the proviso to this section. So, in our opinion, the proviso is attached to such power/jurisdiction of the assessing officer to proceed to assess, that is what learned counsel for the assessee has vehemently argued by submitting that by insertion of a proviso with effect from 1-4-1989, the jurisdiction of the assessing officer has been affected. However, the mode for exercise of such power is through the issue of notice under section 143(2). In view of the above discussion, we are of the view that there are two limbs of this sub-section. In the first part, it contains jurisdictional aspect since the assessing officer has to decide as to whether he intends to proceed to make assessment. If yes, then such decision is to be implemented within the period prescribed in the proviso. In the second part, it contains the procedural aspect, i.e. the mode for exercising the jurisdiction. In such case, the assessing officer is required to serve the notice."
10. On the other hand, the learned Departmental Representative, referred to and relied upon the findings of the learned CIT (A) as given in para 2 of the appellate order dated 28-8-2003, which is the subject-matter of the present appeal, which are reproduced hereunder.. .
"The assessing officer has pointed out that although the appellant had claimed exemption from capital gain, but in his return or in the computation sheet, there was no mention of the section under which the exemption was claimed. Since the assessee had invested the sale proceeds of the property in remodelling and renovation of an already existing house, the assessing officer held that the appellant was not entitled for any exemption. Therefore, holding that income chargeable to tax had escaped assessment, the assessing officer initiated proceedings under section 147. The argument of the appellant that the reasons recorded by the assessing officer cannot be said to be a relevant material for taking action under section 147, as the appellant had himself disclosed the information in the return, does not hold. It may be mentioned that according to the provisions of section 147 as amended with effect from 1-4-1989, if the assessing officer had reasons to believe that income had escaped assessment, action under section 148 can be initiated. The assessment year involved in this appeal is 2000-01 and the notice under section 147/148 was issued on 18-7-2002. In other words, the notice under section 147/148 was issued within four years from the end of the relevant assessment year, i.e., 2000-01. Thus, the notice has been issued under main provision of section 147 and not with reference to the proviso thereto. In terms of main provision of section 147 as it stands, the existence of only one condition, i.e., the assessing officer must have reason to believe that income, profit or gain chargeable to tax had escaped assessment, would suffice. In this context, reference may be made to the decision in the case of Praful Chunilal Patel v. M.V. Makwana, Asstt. CIT (1999) 236 ITR 832 (Guj). Therefore, in view of the above discussions, I find no merit in these grounds and the same are dismissed."
The sum and substance of the said decision is that the notice having been issued within a period of four years, the same could not be found to be faulted with.
11. It is further submitted that in any case sufficiency of reasons was not required to be gone into in deciding the validity of action under section 147. The belief about escapement of income need not be conclusive at the stage of initiation of action under section 147. Once it is found that the assessing officer has good reasons to entertain such a belief, as is the case here, there is no bar for initiating the proceedings under section 147. This has been so held by the Hon'ble Allahabad High Court in the case of Jhunjhunwala Vanaspati Ltd. v. Asstt. CIT (supra). It was also contended that the assessing officer is not precluded from taking action under section 147, to bring to tax the escaped income. Reliance was placed on the following case laws:
(a) Inder Narain Jhalani v. Union of India (2002) 254 ITR 663 (MP).,
(b) CIT v. Punjab National Bank (2001) 249 ITR 763 (Del); and
(c) V.P. Patil v. ITO (2003) 262 ITR 135 (Karn).
12. As regards the assessee's plea with regard to non-issuance of notice under section 143(2), the learned Departmental Representative admitted candidly that no such notice was issued, after the assessee had filed the return in compliance with the notice under section 148, in terms of its letter dated 16-8-2002. However, such a notice had duly been issued on 13-8-2002, after initiation,of proceedings under section 148, which had gone to meet the requirement of law. Without prejudice to this, the learned Departmental Representative submitted that non-service of notice under section 143(2) in the present case, can at best be said to be an irregularity which is curable even at the stage of the Hon'ble Tribunal and the assessee's plea for annulment of assessment on this score, therefore, deserves to be rejected. In support of his plea, reliance was placed on the following decisions:
(a) Sant Bala Mohan Singh v. CIT (1973) 90 ITR 197 (All)
(b) Rattan Lal Tikku v. CIT (1974) 97 ITR 553 (J&K);
13. In his rejoinder, Shri S.K. Garg submitted that the cases of Sant Bala Mohan Singh (supra) and Rattan Lal Tiku (supra) do not have any application in the present case, as the same related to the assessments prior to 1-4-1989. It was only with effect from 1-4-1989 that a time-limit has been set down for issuing notice under section 143(2), which has materially changed the consequence of nonservices of notice under section 143(2) within the time-limit laid down thereunder. As regards other cases which relate to reassessment proceedings, the learned counsel submitted that the same were different on facts and are not applicable in the present case.
14. We have considered the rival submissions. Undoubtedly, the assessing officer could have proceeded to verify the assessee's claim for exemption of capital gain, by issuing notice under section 143(2) till 31-7-2002. But the availability of the time does not debar the department for initiating proceedings under section 147. There is no dispute that during -the pendency of assessment, no notice under section 148 could be issued. But in the instant case, the assessment proceedings were not pending. Once the return filed by the assessee was processed under section 143(1)(a) it could not be said that assessment proceedings were pending.
15. Our views find support from various sections of the Act. For example, charging of interest under section 234B. This section provides for charging of interest on the 'assessed tax'. Explanation to section 234B has also provided the definition of the words 'assessed tax'. As per this definition, the tax on the income to be determined under section 143(1) or on regular assessment. There cannot be any "assessed tax" unless the income has been assessed. It may not be out of place to mention that the word "determination" applies to both the orders under section 143(1) or regular assessment. Similarly, section 246A provides for the orders which could be appealed before the learned CIT (A). This section has also used the word "determination". Thus, if the intimation under section 143(1)(a) has been issued, it cannot be said that the assessment was pending. Moreover, by way of amendment to section 147, the Explanation 2 has also been brought to the statute. This Explanation provides the circumstances under which it will be deemed that the income chargeable to tax has escaped assessment. Clause (b) of Explanation 2 provides that where a return of income has been furnished by the assessee, but no assessment has been made and it is noticed by the assessing officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, it will be a case of deemed escapement of income. The assessing officer will be justified in assuming jurisdiction under section 147 of the Act. As per this Explanation also, the reassessment could be made where the return has been filed but the assessment was not done. If somebody goes by the arguments of the learned counsel, where an intimation under section 143(1)(a) was issued but no notice under section 143(2) is issued, it will be deemed that no assessment has been made. Under these circumstances, clause (b) of Explanation 2 will be attracted and the assessing officer will be justified in assuming powers under section 147 of the Act. In case the intimation under section 143(1)(a) was treated as assessment, clause (c) of Explanation 2 would be invoked. But neither the section nor the Explanation thereunder put any embargo on the department that, unless the time-limit for issue of notice under section 143(2) has expired, no notice under section 148 could be issued. We, therefore, hold that the learned counsel's arguments in this behalf have no force and these are rejected.
16. However, a very interesting situation has arisen in this case. The notice under section 143(2) has been issued prior to filing of the return (the date on which the assessee informed the assessing officer that original return may be treated as a return in response to notice under section 148). It is settled law that notice under section 143(2) was mandatory if the assessing officer wants to vary the returned income. Except in the cases of prima facie adjustment under section 143(1)(a), section 143(2) confers jurisdiction on the assessing officer to make regular assessment. Unless this notice is issued, the whole assessment order will be invalid. The Lucknow Special Bench of the Tribunal in the case of Nawal Kishore & Sons Jewellers (supra) has considered this issue and held that notice under section 143(2) confers jurisdiction on the assessing officer to make assessment. As the issue of notice under section 143(2) confers jurisdiction, the same was mandatory. The Hon'ble Punjab & Haryana High Court in the case of Smt. Rama Sinha v. CIT & Anr. (2002) 256 ITR 481 (P&H) had held that once a return in pursuance of notice under section 148 is filed, the provisions of this Act shall, as far as may be, apply accordingly as if such return were a return required to be furnished under section 139. The Hon'ble court further observed that "that being so, the procedural provisions for making an assessment under section 143(3) of the Act also come into play". The Hon'ble Supreme Court in the case of R. Dalmia & Anr. v. CIT (1999) 236 ITR 480 (SC) also held that the procedure laid down in section subsequent to section 139 has to be followed. The Delhi Bench of the Tribunal in the case of Vishal Gupta (ITA Nos. 3256 to 3260/Del/2000) had also considered similar issue. After deliberating the issue, the Bench had held as under:
"Keeping in view the above facts and circumstances of this case, we are of the considered opinion that notice under section 143(2), which is required to be served within 12 months from the end of the month in which return was filed, was not complied with and hence the proceedings completed by the assessing officer cannot be held as invalid."
The Mumbai Bench of the Tribunal in the case of Uma Polymer (P) Ltd. v. Asstt. CIT (2002) 123 Taxman 226 (Mum)(Mag) also considered this issueand held as under:
"The notice under section 143(2) is not mere procedural in nature but is a mandatory provision. Once the valid return under section 148 is filed by the assessee, the provision on the assessment of return filed under section 139 shall apply due to mandatory provisions of section 148 itself."
17. Keeping in view the above judicial pronouncements, we have examined the facts of the case. Admittedly, in the assessee's case, no notice under section 143(2) was issued after the date on which the assessee informed the assessing officer of treating the original return a return in response to notice under section 148. It is also settled law that notice under section 143(2) could be issued only if the return has been filed. The notice under section 143(2) issued prior to the filing of return was non est. The notices under section 148 or 142(1) could be issued prior to filing of the return of income also. But it was not so in the case of notice under section 143(2). Thus, the reassessment order passed under section 143(3)/148 without the issue of a valid notice under section 143(2) was illegal and the same is cancelled.
18. However, the learned counsel has challenged the following issues on merits also :
(a) denial of appellant's claim for exemption from capital gain, in relation to the sale consideration aggregating Rs. 3,45,000 as had been received on sale of two shops known as Edward Medical Hall's shops on 31-7-1999 and 5-8-1999, which had been held by the assessee as long-term "capital asset" and
(b) recomputation of income under the head "Income from house property."
19. As mentioned earlier the assessee had sold its Edward Medical Hall shop on which capital gain was earned. The entire amount of capital gain was claimed to have been invested in remodelling and renovation of residential house at 3/3/74, Rekabganj, Faizabad. Deduction under section 54F of the Act was accordingly claimed.
20. From the assessment order, it is seen that the assessing officer had denied the exemption that had been claimed under section 54F on the ground that the entire investment was made in "remodel" and "renovation" of residential house No. 3/3/74, Rekabganj, Faizabad, and such investment cannot be said to have been made in construction of a house. On the other hand, the assessee's submission was that the terms "remodel" and "renovation" also signify new construction. To explain its case, the assessee made the following submissions before' the assessing officer :
"5. With a view to clear this factual aspect that, in place of dilapidated portion of house, a new portion was constructed, we are submitting hereunder the following documents :
(a) Site plan of the area which has been rebuilt, as has been described as "remodel and renovation" in the statement accompanying the return.
(b) the estimate prepared by an approved draftsman, showing the investment in remodel and renovation;
(c) certificate from the raftsman to carry out the supervision; and
(d) certificates from the Municipal Corporator of the area, as also by the respectable citizens of the neighbourhood, to prove the nature of activity carried out by the assessee.
Now coming to the gist of the matter as to whether remodel and renovation in the present case amounts to construction of residential house, we beg to submit that the Income Tax Act itself does not contain the definition of the term remodel and renovation. Therefore, at the first instance, we beg to refer to the dictionary meaning as given in "Webster's New Twentieth Century Dictionary of the Enghsh Language Unabridged Second Edn. " of the two terms
(a) Remodel: to model again, to make over, to rebuild
(b) Renovation to make new The aforesaid dictionary meaning of the two terms, even if the same are used separately, meaning to construct or to construct something new in case the two words are read jointly, then the same will mean nothing but "building something new."
6. In legal parlance also, the said terms have been interpreted to have the same in "The Law Lexicon" by Justice Y.V. Chandrachud, second Edn. (Report) 2001.
"Construction and reconstruction are interchangeable terms and the only difference is that the phrase "construction" will be used where a new building is put up where none existed before, but reconstruction will apply to a building which is rebuilt in the place of an existing building, but in both these cases there would be construction. Sadha Singh S. Mulla Singh v. District Board, AIR 1962 Pun 204 (East Punjab Urban Rent Restriction Act 3 of 1949 section 3),' Thus, from whatever angle the case is examined, 'remodel and renovation' amounts to construction of house and this is more so in the present case where an altogether new portion has been built after razing old construction, to the ground. Therefore, the claim for exemption had rightly been made in the return filed by the assessee and there was no escapement of income within the meaning of section 147 of the Act. The proposed proceedings, therefore, deserve to be dropped."
However, the submissions of the assessee did not find favour with the assessing officer, who rejected the claim of the assessee. The learned CIT (A) has concurred with the view of the assessing officer and rejected the ground.
21. Before us, reliance has again been placed on the said submissions. Besides, reliance has also been placed on the decision of Madras High Court in the case of CIT v. P. V. Narasimhan (1990) 181 ITR 101 (Mad). On the other hand, the learned Departmental Representative relied on the order of the assessing officer.
22. We have carefully considered the rival submissions on this issue and find force in the submissions made by the learned counsel for the assessee. The terms remodel and renovation sufficiently refer to new construction also and therefore, the assessee has to be held to have made investment in construction of residential house within the stipulated time. In coming to this conclusion, we have derived due support from the definition of the said terms as also various case laws as have been mentioned in the submissions that have been reproduced by us in para 19 above. In principle, it is entitled to exemption under section 54F of the Act and we hold accordingly. Still the claim for exemption is not effectively available to the assessee in this year. It has rightly been observed by the learned CIT (A) that in this particular year, i.e., assessment year 2000-01, the proviso below section 54F specifically lays down that the exemption shall not be available to an assessee if he owns another house on the date of transfer. In the present case, the assessee owned house No. 3/3/74, Rekabganj, Faizabad. If remodel and renovation is treated as construction of house, as has been held by us earlier, the effect would be that the assessee becomes owner of a house other than the house that he owned earlier. In view of the proviso to section 54F as was applicable from the assessment year 2000-01, the claim for exemption under section 54F is not effectively allowable and we hold accordingly.
23. In the statement of facts, (filed before the first appellate authority along with memo of appeal itself), the appellant had claimed that, while subjecting the entire proceeds realised on transfer of capital asset aggregating Rs. 3,45,000 to long-term capital gain, no benefit of 'cost of acquisition' had been given. Even if the assessee had not furnished any such information, the assessing officer was obliged to find out the same and give due benefit to the assessee, at an indexed figure. As this has not been done, the inference is that the "capital asset" did not have any "cost of acquisition". If an 'asset' which is subjectmatter of transfer does not have any cost then the very measure of computation of capital gain fails and result would be that there would be no capital gain exigible to tax as has been held by the Hon'ble Supreme Court in the case of B.C. Srinivasa Shetty (1981) 128 ITR 294 (SC).
24. From a perusal of the appellate order dated 28-8-2003 (which is the subject-matter of appeal before us), it is seen that the said ground has not been adjudicated upon by the learned CIT (A). In normal course, we would have restored the matter back to the file of the learned CIT (A) to adjudicate the said ground. However, we are refraining ourselves from doing so as we find that the decision of Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Shetty (supra) is squarely applicable to the facts of this case, as contained in the assessment order itself. In this view of the matter, we hold that the sum of Rs. 3,45,000 could not have been subjected to capital gain, even if, it is held that the assessee's case is adversely hit by the applicability of proviso to section 54F.
25. As regards recomputation of income under the head "Income from house property", no specific submissions were made before us. Therefore, no interference is called for.
26. In the result, the appeal directed by the assessee is partly allowed.
27. Now, we will take up the appeal for assessment year 2001-02.
28. In the grounds of appeal, the assessee has challenged the initiation of proceedings under section 147 as well as reassessment order on merits. As mentioned earlier, the return filed by the assessee was processed under section 143(1)(a) of the Act. Subsequently, the notice under section 148 was issued on 1-1-2003 after recording the following reasons:
1-1-2003 Assessee is having rental income from house property situated at 3/3/74 Rekabganj. During the year, he has received arrear rent of Rs. 80,604.60 (Rs. 11,452.50 - Rs. 4,735.45 = 6,717.05 x 12) from property let out to Syndicate Bank relating to assessment year 2000-2001. As per provisions of section 25(B) (sic) of Income Tax Act, 1961, with effect from 1-4-2001 arrear rent is charged to Income Tax Act, 1961, as the income of that previous year in which such rent is received. However, as. per computation of income he has not shown that arrear of rent. Therefore, shown (sic) reasons to believe that income of Rs. 80,604.60 chargeable to tax has escaped assessment. Issue notice under section 148.
Sd/-
1-1-2003"
29. From the above reasons recorded, it is seen that the action under section 147 had been taken on the ground that arrears of rent had not been shown in the return filed originally on 30-7-2001 which had been subjected to processing also on 10-7-2002. The assessment under section 143(3)/148 was completed by including such arrears of rent as well as the long-term capital gains of Rs. 10,000 representing sale proceeds realised by the assessee on the transfer of long-term capital asset. As these facts relating to the arrears of rent have not been rebutted by the learned counsel, we hold that the initiation of proceedings under section 147 is valid.
30. Coming to the variation between the returned income (shown in the return filed on 24-1-2003 as revised return) and the assessed income, we find that such variation was on account of treatment given by the lower authorities to a sum of Rs. 10,000 which represented sale proceeds realised by the assessee on transfer of long-term capital asset, Like the assessment year 2000-01, the benefit of cost has not been given by the assessing officer which by implication means that the asset had been held to be having no cost at all. The principle as has been laid down in the case of B.C. Srinivasa Shetty (supra) was applicable and the said sum of Rs. 10,000 cannot be exigible to long-term capital gains tax.
31. In relation to the similar investment made by the assessee in the immediately preceding year, we had held vide our order of even date in ITA No. 643/Lucknow/2003 that investment in remodel and renovation to house amounted to construction of new house as the similar investment had been made in this year as well. Under the circumstances, it is held that the assessee is entitled to exemption under section 54F of the Act. Such a claim for exemption is not defeated in this year as the proviso to section 54F has undergone a change with effect from 1-4-2001. In this year, it was permissible for the assessee to construct another house even though on the date of transfer he already held the residential house. Therefore, keeping in view the change in law, the assessee's claim for exemption under section 54F of the Act in relation to the sum of Rs. 10,000 is allowed.
32. In the result, the appeal directed by the assessee is partly allowed.