M/s Engineering Tools Manufacturers P Ltd., Bangalore V. DCIT, Bangalore

ITA 1161/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5165 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 09-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASON P BOAZ CITI
• Assessee Lawyers: MANOJ D PUKALE
• Keywords: Capital asset; Revision of order; Cost of acquisition; Reasonable cause; Set aside; Capital Gains
• Section: 143(3); 207; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 1161/BANG/2009 ASSESSMENT YEAR : 2005-06 M/S. ENGINEERING TOOLS MANUFACTURERS P. LTD., NO.4/1, M.M. LANE, SJP ROAD CROSS, BANGALORE 560 002. : APPELLANT VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(3), BANGALORE. : RESPONDENT APPELLANT BY : SHRI MANOJ D. PUKALE, ADVOCATE RESPONDENT BY : SHRI JASON P. BOAZ, CIT-I (DR) O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE COMPANY IS DIRECTED AGA INST THE ORDER OF LD. CIT, BANGALORE - I, BANGALORE, IN F.NO.25/263/CIT-I/08-09 DATED 18.11.2008 FOR THE ASSESSMENT YEAR 2005-06 U/S 263 OF THE ACT. 2. THE ASSESSEE COMPANY [THE ASSESSEE IN S HORT] HAS RAISED EIGHT GROUNDS IN AN ILLUSTRATIVE AND NARRATIVE MANNER. H OWEVER, ON A CLOSE ITA NO.1161/BANG/09 PAGE 2 OF 8 SCRUTINY OF THE GROUNDS RAISED, THE ESSENCE AND SUB STANCE OF THE ISSUE IS CONFINED TO THAT THE CIT ERRED IN CONCLUDING THAT THE ASSESSMENT OR DER OF THE AO FOR THE AY 05-06 AS ERRONEOUS IN SO FAR AS THE ASSESSME NT OF LTCG, APPLYING INDEXED COST OF ACQUISITION OF THE FY 85-8 6 FROM WHICH YEAR THE ASSET WAS HELD BY THE ASSESSEE IN POSSESSION AS AGAINST INDEXED COST OF ACQUISITION OF THE FY 97-98 FROM WHICH YEAR THE ASSET WAS HELD AS ABSOLUTE OWNER BY SALE DEED EXECUTED IN 199 7. AND INVOKED THE PROVISIONS OF S.263 OF THE ACT. 3. BEFORE DEALING WITH THE ISSUE RAISED BY THE ASSESSEE, WE ARE CONFRONTED WITH THE ADMISSIBILITY OF THE APPEAL ITS ELF AS THERE WAS A CONSIDERABLE DELAY IN PREFERRING THE APPEAL. THE ASSESSEE HAD FURNISHED AN AFFIDAVIT IN WHICH IT WAS SUBMITTED THAT THE ASSESSEE TRANSFERRED THE SUBJECT PROPERTY DURI NG THE YEAR IN QUESTION WHICH WAS ALLOTTED ON 15.1.86 AND THE SALE DEED WAS EXECUTED AND REGISTERED ON 24.11.1997. THE ASSESSEE COMPUTED THE LONG TERM CAPITAL GAINS [LTCG] IN RESPECT OF THE ABOVE TRANSF ER BY APPLYING THE INDEXED COST OF ACQUISITION OF THE FY 1985-86 WHICH WAS ADOPTED IN THE ASSESSMENT ORDER PASSED ON 29.6.2007. THE CIT, B-I , BANGALORE, HOWEVER, CONSIDERED THE ASSESSMENT ORDER AS ERRONEO US AND PRE- JUDICIAL TO THE INTERESTS OF REVENUE FOR THE REASON S SET-OUT IN THE IMPUGNED ORDER AND DIRECTED THE AO U/S 263 OF THE A CT DT.18.11.2008 TO REDO THE ASSESSMENT, APPLYING THE INDEXED COST O F ACQUISITION OF THE FY 97-98. ACCORDINGLY, THE AO VIDE HIS ORDER DT: 3 0.10.2009 DETERMINED THE LTCG BY APPLYING THE INDEXED COST OF ACQUISITION OF THE FY 97-98. IT WAS, FURTHER, SUBMITTED THAT THE ASSE SSEE COULD PREFER THE APPEAL ONLY AFTER THE RECEIPT OF THE FRESH ASSESSME NT ORDER DT.30.10.2009 AND ALSO AGAINST THE ORDER OF THE CIT PASSED U/S 263 OF THE ACT. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES, IT W AS SUBMITTED THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FOR NOT PREFERRING THE APPEAL TILL THE AO CARRIED OUT THE ORDER OF THE CIT PASSED U/S 263 OF THE ACT AND PRAYED THAT THE DELAY OF 320 DAYS IN PR EFERRING THE PRESENT APPEAL BE CONDONED AND THE APPEAL MAY BE ADMITTED F OR ADJUDICATION. ITA NO.1161/BANG/09 PAGE 3 OF 8 4. THE LD. D R PRESENT HAD VEHEMENTLY OPPOSED THE CONTENTION OF THE ASSESSEE AND PRAYED THAT THE REQUEST OF THE ASSESSE E IN CONDONING THE DELAY IN PREFERRING THE APPEAL BE SUMMARILY REJECTE D. 5. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS. OF COURSE, THE ASSESSEE, IN FACT, SHOULD HAVE PREFERRED AN APPEAL WITHIN THE STIPULATED TIME FRAME, IF THE ASSESSEE WAS AGGRIEVED BY THE FI NDING OF THE CIT, B-I, BANGALORE UNDER SECTION 263 OF THE ACT. HOWEVER, O N A CAREFUL PERUSAL OF THE ASSESSEES ASSERTIONS IN ITS AFFIDAVIT WE FIND THAT THE ASSESSEE WAS UNDER BONA-FIDE BELIEF THAT CAUSE TO PREFER AN APPE AL DID NOT ARISE UNTIL THE AO CARRY OUT THE DIRECTIONS CONTAINED IN THE IMPUGN ED ORDER OF THE LD. CIT CITED SUPRA. 5.1. CONSIDERING THE FACTS AND CIRCUMSTANCES OF TH E ISSUE AND ALSO THE SPECIFIC DIRECTION OF THE CIT CONTAINED IN HIS IMPU GNED ORDER TO THE AO TO CARRY OUT HIS DIRECTIONS AFTER AFFORDING AN OPPORTU NITY TO THE ASSESSEE OF BEING HEARD FOR WHICH THE ASSESSEE WAS RATHER UNDER BONA-FIDE BELIEF THAT AN APPEAL COULD BE VENTURED ONLY AFTER THE RECEIPT OF THE FRESH ASSESSMENT ORDER IN WHICH THE SPECIFIC DIRECTION OF THE CIT WA S TO BE IMPLEMENTED, CANNOT BE IGNORED IN ISOLATION. THE BONA FIDE BELI EF OF THE ASSESSEE HAD CAUSED THE DELAY IN FILING THE APPEAL. 5.2. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE, WE ARE OF THE VIEW THAT THE ASSESSEE WAS PR EVENTED BY A REASONABLE CAUSE IN PREFERRING THE APPEAL WITHIN TH E STIPULATED TIME FRAME AND AS SUCH THE DELAY OF 320 DAYS IN CHALLENGING TH E LD. CITS ORDER ITA NO.1161/BANG/09 PAGE 4 OF 8 REFERRED SUPRA IS CONDONED AND THE REGISTRY WAS DIR ECTED TO TAKE THE ASSESSEES APPEAL ON RECORD FOR FURTHER HEARING AND ADJUDICATION. 6. LET US NOW PROCEED TO DEAL WITH THE ISSUE RA ISED BY THE ASSESSEE FOR ADJUDICATION. 6.1. THE ISSUE, IN BRIEF, THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN STEEL AND LEASING OF PROPERTY. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE AO NOTICED THAT UNDER THE HEAD CAPITAL GAINS THE ASSESSEE HAD INC ORPORATED 1986-87 INDEX FIGURE ON THE AMOUNT OF RS.40190/- PAID AS LA ND REGISTRATION CHARGES TO KIADB WHICH WAS INCURRED IN 1997-98. AFTER RE-C OMPUTATION, THE DIFFERENCE ACCRUED ON ACCOUNT OF INDEXATION WAS BRO UGHT ON THE TAX NET. 6.2. THE LD. CIT, IN HIS SUO MOTO ACTION, INV OKED THE PROVISIONS OF S.263 OF THE ACT AND SET ASIDE THE ASSESSMENT ORDER CONCL UDED U/S 143(3) OF THE ACT HOLDING IT TO BE ERRONEOUS AND PRE-JUDICIAL TO THE INTERESTS OF REVENUE AND, THUS, DIRECTED THE AO TO MAKE FRESH ASSESSMENT TO COMPUTE THE CAPITAL GAINS BY TAKING THE INDEXED COST OF ACQUISI TION FOR THE FOLLOWING REASONS, AFTER DUE CONSIDERATION OF THE ASSESSEES VERSION ON THE ISSUE: I. CITS REASONING FOR INVOKING THE PROVISIONS OF S .263 OF THE ACT : - THE AO HAD WRONGLY ACCEPTED THE COMPUTATION OF LTCG WITHOUT APPLICATION OF MIND IN RESPECT OF THE LAND SOLD BY THE ASSESSEE WHICH TOOK THE YEAR OF ACQUISITION AS 1986-87 FOR INDEXATION INSTEAD OF THE YEAR 1997-98 AS THE ASSESSEE BECAME THE ABSOLUTE OWNER OF THE SAME. ITA NO.1161/BANG/09 PAGE 5 OF 8 II. REBUTTAL OF THE ASSESSEE DURING THE COURSE OF PROCEEDINGS U/S 263 OF THE ACT: - BY REFERRING THE PROVISIONS OF S.2(47) OF THE ACT, IT WAS CONTENDED THAT THE SUBJECT PROPERTY WAS TRANSFERRED DURING THE F.Y 86-87; - THE POSSESSION OF THE PROPERTY WAS TAKEN DURING THE F.Y 1986-87 AS PER THE LEASE-CUM-SALE DEED; & - THE INDEXED COST OF ACQUISITION WAS CORRECTLY TAKEN AS THE PROPERTY WAS TRANSFERRED DURING THE F.Y 1986-87. III. REASONS FOR REJECTING THE ASSESSEES CONTENTI ONS BY THE CIT: 6.IT IS SEEN THAT THE PROVISIONS OF SECTION 2 (47) (V) AS PER WHICH TRANSFER OF A CAPITAL ASSET INCLUDES ANY TRANSACTIO N INVOLVING THE ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKE N OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT 1982, WERE INSERTED BY THE FINANCE ACT 1987 W.E.F. 01.4.1988. THE PROVISIONS ARE, THEREFORE, NOT APPL ICABLE IN RESPECT OF A TRANSACTION RELATING TO ANY IMMOVABLE PROPERTY WHIC H TOOK PLACE IN THE FINANCIAL YEAR 1986-87. THE ASSESSEE WAS, THEREFOR E, NOT JUSTIFIED IN TAKING THE FINANCIAL YEAR 1986-87 AS THE YEAR OF ACQUISITI ON OF THE PROPERTY FOR THE PURPOSE OF INDEXATION INSTEAD OF THE YEAR 1997-98 W HEN THE ASSESSEE BECAME THE ABSOLUTE OWNER OF THE PROPERTY ONLY AFTER THE E XECUTION OF THE SALE DEED ON 17.11.1997 WITH KIADB. 6.3. ON THE DIRECTIONS OF THE LD. CIT U/S 26 3 OF THE ACT, THE AO HAD PASSED AN ORDER U/S 143(3) R.W.S. 263 OF THE ACT DA TED 30.10.2009 CARRYING OUT THE CITS DIRECTIONS. 7. AGGRIEVED, THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. DURING THE COURSE HEARING, IT WAS SUBMITTED BY THE LD. A R THAT ITA NO.1161/BANG/09 PAGE 6 OF 8 (I) THE CIT EXERCISING U/S 263 OF THE ACT OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE RIGHTLY COMPUTED LTCG BY APPLYING THE INDEXED COST OF ACQUISITION OF THE FIN ANCIAL YEAR 1985-86 FROM WHICH YEAR THE ASSET WAS HELD BY THE A SSESSEE BY WAY OF POSSESSION; (II) THE AO ALSO MADE THE ASSESSMENT OF TOTAL INCOME BY DETERMINING SUM PAYABLE AFTER TAKING INTO ACCOUNT A LL RELEVANT MATERIAL WHICH HE GATHER AFTER SERVING NOTICE U/S 1 43(2) OF THE ACT; (III) THE CIT HAD FAILED TO NOTICE THAT THE AO IN PARTICU LAR REJECTED THE ASSESSEES INDEXED COST OF ACQUISITION OF THE C APITAL ASSET IN SO FAR AS COST OF REGISTRATION AND COMPUTED LTCG AFTER TAKING INTO ACCOUNT PARTICULARS THE ASSESSEE PRODUC ED BY ADDING THE DIFFERENCE ACCRUED ON ACCOUNT OF INDEXAT ION IN RESPECT OF COST OF REGISTRATION FOR THE YEAR 1997-9 8 AS AGAINST INDEXED COST OF REGISTRATION OF THE YEAR 1985-86 WR ONGLY ADOPTED BY THE ASSESSEE; (IV) THE CIT ERRED IN DIRECTING A FRESH ASSESSMENT WITHO UT MAKING OR CAUSING INQUIRY NECESSARY TO PASS SUCH ORDER AS THE CIRCUMSTANCES OF THE CASE JUSTIFY AND WITHOUT APPRE CIATING AND ACCEPTING EXPLANATION OFFERED BY THE ASSESSEE; & - RELIES ON THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT & ANR. V.SMT.C.SHAKUNTALA IN ITA NO .117 OF 2006 DATED: 19.9.2007. 7.1. ON THE OTHER HAND, THE LD. D R WAS VERY EM PHATIC IN HIS URGE THAT THE LD. CIT HAD, INDEED, SET-ASIDE THE ORDER OF THE AO WHICH WAS RATHER ERRONEOUS AND PRE-JUDICIAL TO THE INTERESTS OF REVE NUE AND, THEREFORE, PLEADED THAT THE IMPUGNED ORDER OF THE LD. CIT REQU IRES TO BE SUSTAINED. 8. WE HAVE ATTENTIVELY CONSIDERED THE RIVAL SUBMISS IONS AND DILIGENTLY VIEWED THE RELEVANT RECORDS. 8.1. AT THE OUT-SET, WE WOULD LIKE TO POINT THAT THE HONBLE JURISDICTIONAL HIGH COURT [DIVISION BENCH] IN THE CASE OF CIT V. S MT. C.SHANKUNTALA CITED ITA NO.1161/BANG/09 PAGE 7 OF 8 SUPRA HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSU E. THE HONBLE COURT, AFTER ANALYZING THE ISSUE IN DEPTH AND ALSO IN CONF ORMITY WITH THE VARIOUS JUDICIAL PRONOUNCEMENTS ON A SIMILAR ISSUE, WAS PLE ASED TO OBSERVE THAT 3. WE HAVE CAREFULLY EXAMINED THE EXTRACTED PORTI ON OF THE DECISIONS OF THE SUPREME COURT [(1997) 226 ITR 625 & (1997) 2 39 ITR 775], PUNJAB AND HARYANA HIGH COURT [(1994) 207 ITR 148 & 117 ITR 525)], ANDHRA PRADESH HIGH COURT [(1998) 234 ITR 14 0] AND THIS COURT [(1998) 218 ITR 1] IN THE CASES REFERRED TO S UPRA AND ALSO THE PROVISION CLAUSE (V) TO SECTION 2(47) OF THE INCOME TAX ACT, WHICH PROVISION CAME INTO FORCE WITH EFFECT FROM 1.4.1998 . ACCORDING TO US, THE DECISION RENDERED BY THE KAT [KARNATAKA APPELLA TE TRIBUNAL] APPLYING THE RATIO LAID DOWN BY THE SUPREME COURT I N THE CASES OF PODDAR CEMENT AND THE MYSORE MINERALS, IS RIGHTLY A PPLIED TO THE FACT SITUATION OF THE CASE ON HAND AND DECIDED THE CASE OF THE ASSESSEE IN HER FAVOUR.. 8.2. AS THE FINDING OF THE HONBLE COURT CITED SUPRA IS DIRECTLY APPLICABLE TO THE FACTS OF THE ISSUE ON HAND, WE ARE OF THE UN ANIMOUS VIEW THAT THE LD. CIT WAS NOT JUSTIFIED IN INVOKING THE PROVISION S OF S.263 OF THE ACT. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF JULY, 2010. SD/- SD/- ( SMT. P. MADHAVI DEVI ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 16 TH JULY, 2010. DS/- ITA NO.1161/BANG/09 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.