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2004 DIGILAW 753 (PNJ)

O. P. Gupta v. Commissioner Of Income Tax

2004-07-26

ADARSH KUMAR GOEL, N.K.SUD

body2004
Judgment N.K.Sud, J. 1. Assessee has filed this appeal under Section 260A of the IT Act, 1961 (for short the Act) against the order of the ITAT, Chandigarh Bench, Chandigarh, (for short the Tribunal) dt. 29th April, 1999 dismissing his appeal and upholding the action of the AO adding a sum of Rs. 1,06,240 to the total income of the assessee as capital gain by way of an adjustment under Section 143(1)(a) of the Act. 2. The brief facts of the case are that assessee filed his return for asst. yr. 1989-90 on 29th June, 1989 showing an income of Rs. 26,450. Along with the return, statement of capital gain was attached showing net realisation on sale of a plot at Anand Vihar, New Delhi at Rs. 4,95,000 and after deducting an initial cost of Rs. 23,000, capital gain was shown at Rs. 4,72,000. The assessee had further claimed benefit under Section 54F of the Act showing investment in purchase of property No. 84, Sector 9, Faridabad on 6th Dec., 1988 for Rs. 1,43,607. It was further explained that the balance amount of Rs. 3,28,400. (Rs. 4,72,000-1,43,600) had been deposited in Punjab National Bank, Faridabad in account. No. 9248 to be utilised for construction of house within the permissible period. Hence the taxable capital gain was shown as nil. 3. On receipt of the return, the AO issued a deficiency letter on 20th Sept., 1989 under Section 139(9) of the Act asking the assessee to specify the nature of account No. 9248 with the Punjab National Bank, Faridabad, along with the proof of money deposited in Capital Gains Account Scheme, 1988. Vide letter dt. 4th Oct., 1989 assessee explained that the aforesaid account was opened in Punjab National Bank, Sector-15 at Faridabad on 15th Oct., 1988 wherein the sale consideration of Rs. 5 lakhs received on sale of plot in Anand Vihar was deposited. It was further explained that assessee had also purchased a plot for constructing a residential house for a sum of Rs. 1,43,607 and the construction on the said plot was in progress and the balance amount of sale consideration would be utilised for the said construction by the end of March, 1990. Vide another letter dt. It was further explained that assessee had also purchased a plot for constructing a residential house for a sum of Rs. 1,43,607 and the construction on the said plot was in progress and the balance amount of sale consideration would be utilised for the said construction by the end of March, 1990. Vide another letter dt. 12th Oct., 1989 the assessee further explained that he was not aware that the unutilised amount of sale consideration had to be deposited under the head "Capital Gains Account Scheme, 1988" and not in a saving bank account or FDR account as was done by him. It was also explained that the whole consideration of Rs. 4,95,000 would be utilised in the construction of the residential house within a period of one and a half years. As such no capital gain was liable to be taxed. 4. By means of an intimation under Section 143(1)(a) dt. 31st Oct., 1989, the AO made an addition of Rs. 1,06,240 to the returned income by way of an adjustment.The intimation was accompanied by an explanatory-sheet which reads as under: Adjustment explanatory sheet Name : Sh. O.P. Gupta, XEN Canal Lining Division No. 22, Jind Asst. yr. 1989-90 Returned total income 26,450 Adjustment under s. 143(1)(a) 1,06,240 Adjusted total income 1,32,670 Name Designation Dr. 19/10/1989 Signature & Stamp of the AO 1. Adjustment under each head of income should be made separately. 2. Give brief reasons for adjustments made wherever necessary. Net consideration of plot 4,75,000 Less : Cost of acquisition 23,000 4,72,000 Less : Amount utilised in new asset (cost of plot and part construction thereon before date of filing return, i.e.. 29-6-1989)2,49,520 2,22,480 Capital gain Deduction under s. 48(1) (i) Basic10,000 (ii) 50% of the balance amount of Rs. 2,22.4801,06,240 1,16,2401,16,240 Net capital gain to be included in total income 1,06,240 (M.L. Sabharwal), ITO, Jind 5 Assesses filed an application under Section 154 of the Act objecting to the adjustment made by the AO. It was claimed that the addition of Rs. 1,06,240 could not be made as a prima facie adjustment under Section 143(1)(a). The AO vide his order dt. 29th Jan., 1990 rejected the assessees application holding that the law clearly stipulated that for claiming the benefit under Section 54F, the amount of consideration had to be deposited in Capital Gains Account Scheme which had not been done by the assessee. 6. The AO vide his order dt. 29th Jan., 1990 rejected the assessees application holding that the law clearly stipulated that for claiming the benefit under Section 54F, the amount of consideration had to be deposited in Capital Gains Account Scheme which had not been done by the assessee. 6. Aggrieved by the said order, assessee filed an appeal before the CIT, Rohtak, who, vide his order dt. 16th Dec., 1991 affirmed the findings of the AO and dismissed the same. Still aggrieved, assessee preferred an appeal before the Tribunal which has also been dismissed vide the impugned order dt. 29th April, 1999. 7. The Tribunal has accepted the contention of the assessee that an adjustment under Section 143(1)(a) could be made only if it was found that a deduction, allowance or relief claimed in the return, which, on the basis of information available in the return, accounts or documents, was, prima facie inadmissible. It, however, held that in the present case there was clear information available in the return about the sale of plot, realisation amount of the same, the amount spent on construction till a particular date, and the remaining unspent amount placed in bank giving the number of the account and place where situated. Thereafter, the AO had issued a notice under Section 139(9) and had ascertained about the nature of the account. It is only thereafter he had found that the provisions of Section 54F had not been complied with. Thus the action of the AO was upheld by the Tribunal. 8. Mr. P.C. Jain, learned counsel for the appellant referred to the provisions of Section 54F as operative from 1st April, 1989 and contended that as per the said provisions the AO had to determine the tax liability as per the income shown in the return and issue an intimation indicating tax payable or refundable to the assessee on the basis of such returned income. However, proviso to Section 143(1)(a) entitles the AO to make certain adjustment in the returned income but such adjustments are confined to (i) correcting arithmetic errors in the return, accounts or documents accompanying it; (ii) allowing any loss carried forward, deduction, allowance or relief which, on the basis of information available in such return, accounts or documents, is prima facie admissible, but which is not claimed in the return; and (iii) disallowing any loss carried forward, deduction, allowance or relief claimed in the return which, on the basis of the information available in such return, accounts or documents, is prima facie inadmissible. He highlighted the fact that disallowance of relief claimed in the return is only permissible if, on the basis of information available in such return, it is found to be prima facie inadmissible. In support of his contention, he placed heavy reliance on Khatau Junkar Ltd. and Anr. v. K.S. Pathania and Anr. (1992) 196 ITR 55 (Bom), SRF Charitable Trust v. Union of India and Ors. (1992) 193 ITR 95 (Del), Samtel Colour Ltd v. Union of India and Ors. (2002) 258 ITR 1 (Del) and R.K. Gyankishore Singh v. Asstt. CIT and Anr. (2003) 261 ITR 107 (Gau). 9. Learned counsel pointed out that from the facts as noticed by the Tribunal, it is evident that from the documents filed with the return, it was not clear as to what was the nature of account No. 9248 in which the unutilised amount of sale price of the plot had been deposited. This is also evident from the fact that the AO needed to verify it by issuing a letter dt. 29th Sept., 1989 subsequent to the filing of the return. He further pointed out that although this letter has been labelled as deficiency letter under Section 139(9) of the Act, but it was, in fact, not so as it does not fall within the parameters of the said provision. It was simply a letter seeking certain further information in respect of the return filed by the assessee, which was not permissible for sending an intimation under Section 143(1)(a) of the Act. 10. It was simply a letter seeking certain further information in respect of the return filed by the assessee, which was not permissible for sending an intimation under Section 143(1)(a) of the Act. 10. Learned counsel also contended that even otherwise, there was substantial compliance with the provisions of Section 54F of the Act by the assessee as the entire sale proceeds had been deposited in a nationalised bank and money was withdrawn from time to time for construction of the new house within the period stipulated in the said provision. The only difference was that the saving bank account was not named as capital gain account as the bank was not aware of any such scheme by its head office as the scheme had been announced only a few months earlier. He submitted that the basic purpose of relief under Section 54F is to ensure that the sale proceeds are utilised for development of housing accommodation in the country and what was important was the utilisation and not the deposit in the bank account. He also pointed out that in the present case, not only the money had been deposited in the bank, although in a different account, but it also stands proved that the entire amount had been utilised for construction of a new house. Thus he contended that in view of substantial compliance with the provisions of Section 54F of the Act, the deduction claimed was even otherwise admissible. For this purpose, he placed reliance on Kesho Ram Passey v. Reserve Bank of India and Ors. (1984) 146 ITR 16 (P&H) and CIT v. Hindusthan Welfare Trust (1994) 206 ITR 138 (Cal). 11. Mr. A.S. Tewatia, learned counsel for the Revenue, has, on the other hand, supported the impugned order. 12. We have heard the learned counsel for the parties and perused the impugned order. 13. In order to appreciate the contention of the learned counsel for the appellant, it is necessary to refer to Section 143(1)(a) of the Act and the first proviso thereto, as applicable to the asst. yr. 1989-90. 12. We have heard the learned counsel for the parties and perused the impugned order. 13. In order to appreciate the contention of the learned counsel for the appellant, it is necessary to refer to Section 143(1)(a) of the Act and the first proviso thereto, as applicable to the asst. yr. 1989-90. The said provision is as under: "143(1)(a) Where a return has been made under Section 139, or in response to a notice under Sub-section (1) of Section 142,-- (i) if any tax or interest is found due on the basis of such return after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provision of Sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under Section 156 and all the provisions of this Act shall apply accordingly and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee : Provided that in computing the tax or interest payable by, or refundable to the assessee, the following adjustments shall be made in the income or loss declared in the return, namely-- (i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified; (ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts or documents, is prima facie admissible but which is not claimed in return, shall be allowed; (iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents is prima facie inadmissible, shall be disallowed." 14. In the instant case, it is Clause (iii) of the proviso which was sought to be applied by the ITO. The said clause clearly provides that the ITO can make an adjustment to the income or loss declared in the return only if, on the basis of information available in such return, accounts or documents, the deduction, allowance or relief claimed is prima fade inadmissible. The conclusion that the claim of the assessee is inadmissible must, in other words, flow from the return as filed. The conclusion that the claim of the assessee is inadmissible must, in other words, flow from the return as filed. No power is given to the ITO to disallow a claim for the reason that there is no proof in support of the claim made by the assessee. In other words, if the claim for deduction or exemption is not supported by requisite documents or information filed with the return, it cannot be said that the said deduction or allowance is prima facie inadmissible. The authorities cited by the learned counsel for the assessee support fully this interpretation. Applying this test to the facts of the present case, it is clear that the assessee had claimed the benefit of Section 54F of the Act in respect of the income from capital gain and the information available in the return was that the amount of Rs. 3,28,400 had been deposited in Punjab National Bank, Faridabad in account No. 9248. The nature of this account was not clear from this information and that is why even the AO had to seek this information by issue of a letter dt. 20th Sept., 1989. Had the return filed by the assessee contained the information that the amount had been deposited in saving bank account, there could be justification to hold that the deduction claimed in the return on the basis of information available in such return, was prima facie inadmissible. However, in the absence of such information in the return, all that can be said is that the claim for deduction is not supported by necessary proof, but certainly the claim cannot be held to be prima facie inadmissible by presuming that the said account was not an account under the said capital gain scheme. The explanatory-sheet, which has already been fully reproduced above, clearly shows that the adjustment is based on information obtained from the assessee subsequent to the filing of the return. For instance, in the return filed by the assessee, there was no information in regard to the amount spent on construction of the house upto the date of filing of the return. The assessee had merely stated that he made an investment of Rs. 1,43,600 for the purchase of a plot and had deposited the balance amount of Rs. 3,28,400 in account No. 9248 in Punjab National Bank, Faridabad. The assessee had merely stated that he made an investment of Rs. 1,43,600 for the purchase of a plot and had deposited the balance amount of Rs. 3,28,400 in account No. 9248 in Punjab National Bank, Faridabad. However, while making the adjustment, amount utilised in new assets on account of cost of the plot and part construction thereon before the date of filing of the return, has been deduced at Rs. 2,42,520. 15. We are also in agreement with the counsel for the appellant that information sought by the AO vide letter dt. 20th Sept., 1989 about the nature of account No. 9248 with Punjab National Bank at Faridabad, did not fall within the parameters of Section 139(9) of the Act. Sub-section (9) of Section 139, as it existed on 1st April, 1989, reads as under: "Where the AO considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the AO may, in his discretion, allow and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return : Provided that where the assessee rectified the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the AO may condone the delay and treat the return as a valid return. Explanation : For the purposes of this sub-section, a return shall be regarded as defective unless all the following conditions are fulfilled, namely :- - (a) the annexures, statements and columns in the return of income relating to computation of income chargeable under each head of income, computation of gross total income and total income have been duly filled in; (b) the return is accompanied by a statement showing the computation of the tax payable on the basis of the return; (bb) the return is accompanied by the report of the audit obtained under Section 44AB; (c) the return is accompanied by proof of-- (i) the tax, if any, claimed to have been deducted at source and the advance tax and tax on self-assessment, if any, claimed to have been paid; (ii) the amount of compulsory deposit, if any, claimed to have been made under the compulsory deposit scheme (Income-tax Payers) Act, 1974 (38 of 1974); (d) where regular books of account are maintained by the assessee, the return is accompanied by copies of-- (i) manufacturing account, trading account, P&L a/c or, as the case may be, income and expenditure account or any other similar account and balance sheet; (ii) in the case of a proprietary business or profession, the personal account of the proprietor; in the "case of a firm, AOP or BOI, personal accounts of the partners or members; and in the case of a partner or member of a firm, AOP or BOI, also his personal account in the firm, AOP or BOI; (e) where the accounts of the assessee have been audited, the return is accompanied by copies of the audited P&L a/c and balance-sheet and the auditors report and where an audit of cost accounts of the assessee has been conducted, under Section 233B of the Companies Act, 1956 (1 of 1956) also the report under that section; (f) where regular books of account are not maintained by the assessee, the return is accompanied by a statement indicating the amounts of turnover or, as the case may be, gross receipts, gross profits, expenses and net profit of the business or profession and the basis on which such amounts have been computed, and also disclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year." 16 A perusal of the above clearly shows that a notice under this section can only be issued if the ITO considers the return of income furnished by the assessee as defective. The Explanation to this sub-section lists the circumstances under which a return can be treated as defective. In other words, a return can be treated as defective only if it falls in one or more of Clauses (a) to (f) of the Explanation. Thus it is clear that failure to give particulars of the bank account for the purposes of making a claim under Section 54F is not a case for regarding a return as defective. Consequently, the AO could not have issued any deficiency letter under Section 139(9). Thus, we are satisfied that the letter dt. 20th Sept., 1989 was not a notice under Section 139(9) of the Act, but was simply a letter seeking further information from the assessee. 17. In view of the above, it is clear that the addition of Rs. 1,06,240 made to the returned income by way of an adjustment under Section 143(1)(a) is based on the information which had been obtained after the filing of return whereas such an adjustment could have been made only on the basis of information available in the return or accounts or documents filed with the return. A deduction claimed in the return cannot be treated as prima facie inadmissible for want of proof or necessary particulars. Thus, the assessee is bound to succeed on this ground alone. It is, therefore, not necessary for us to go into the other contentions raised by the counsel for the appellant. 18. Accordingly, the appeal is allowed and the addition of Rs. 1,06,240 made by way of an adjustment by the AO under Section 143(1)(a) of the Act is deleted. No costs.