An AO cannot simply change their mind and withdraw a claim that has been accepted in scrutiny proceedings
Fact and issue of the case
Aforesaid appeal has been filed by the assessee against the impugned order dated 05.03.2018, passed by the ld. CIT(A)-1 1, New Delhi in relation to the proceedings under section 154/143(3) of the Income-tax Act, 1961 (for short ‘the Act’) for the assessment year 2013- 14.
The assessee has filed revised grounds of appeal stating that firstly, ld. CIT (A) has erred in upholding the order of Assessing Officer passed u/s 154 as AO did not have any jurisdiction to rectify the order u/s 143(3); and secondly, ld. CIT (A) erred in confirming the disallowance of exemption claimed by the assessee u/s 54 of the Act.
The facts in brief are that the assessee has filed her return of income showing total income of Rs.24,70,668/-. In the return of income, the assessee has claimed exemption u/s 54 in respect of long term capital gain arising out of sale of a property and purchase of new house property. Assessing is joint owner of a property at A-1/ 112, Safdar jung Enclave along her husband. The property was divided into two portions, the assessee was the 100% owner of the Southern portion of this property and this portion was sold by the assessee for Rs.79 lakhs and the sale deed was executed on 23.07.2012. The Northern portion of the property was held by the assessee along with her husband and both were having 50% share. The assessee has sold her share of this property (Northern portion) for Rs.57,44,628/-and the sale deed was registered on 24.01.2013. The assessee has shown long term capital gains of Rs.45,06,829/- on sale of Southern portion of the property and of Rs.36,74,449/- on sale of the Northern portion of the property. The assessee has also claimed exemption u/s 54 of the Act in respect of the long term capital gains arising from sale of both these portions of the property by stating that the assessee has invested a sum of Rs.2, 13,20,000/- in purchase of second floor of the property at B7/11 1B, Safdarjung Enclave, New Delhi, for which the purchase deed was executed on 13.01.2012. Assessing Officer, after considering the claim made by assessee, had allowed the claim of exemption u/s 54 vide order passed u/s 143(3) dated 02.02.2016. Thereafter, AO had passed assessment order u/s 154 rectifying the said assessment order and denied the exemption u/s 54 after noting the following facts and disallowed the claim of exemption in the following manner :-
“Excess claim of exemption u/s 54 by the assessee to the tune of Rs.36,74,449/-
|13.01.2012||Purchase of new house property||2,13,20,000/-|
|23.07.2012||Long Term Capital Gain on sale of Property (Southern ½ side)||45,06,829/-|
|24.01.2013||Long Term Capital Gain on sale of Property (Northern side)||36,74,449/-|
|Exemption claimed u/s 54 on Purchase of immovable house Property on 13.01.2012||81,81,278/-|
From the aforesaid facts, it is crystal clear that the assessee has purchased the new capital asset (on 13.01.2012) beyond the permissible period of one year before the date on which the transfer took place (i.e. on 24.01.2013). Therefore, the claim of exemption u/s 54 to the tune of Rs.36,74,449/- shall be disallowed. In order to rectify the above mistake, a notice u/s 154 dated 02.03.20 17 was issued to the assessee to file the reply on or before 08.03.20 17. The assessee has filed her reply vide letters dated 08.03.20 17 and 03.04.20 17 which were duly considered but not found tenable under the provisions of Income-tax Act, 1961. In view of above, the income of the aforesaid assessee is recomputed.”
This has been affirmed by the ld. CIT (A) despite noting the entire facts.
Before us, ld. counsel for the assessee submitted that, once the issue has been examined by the AO in order passed u/s 143(3) where all material facts have been given and was provided to the Assessing Officer, then another AO cannot tinker with such allowance of exemption u/s 54 within the scope of section 154. Thus, the order of the AO is beyond the scope of purview of rectification u/s 154 as there was no mistake apparent from record. On merits, he submitted that the assessee had sold the property during the relevant AY 2013-14 and in the previous year i.e. July 2012, the assessee had entered into agreement for sale of the property and assessee received consideration in the month of November 2012 only and the possession was also given to the buyer in the month of November 2012. It was only the registration was actually delayed and was done on 20.01.2013, because assessee’s husband was suffering from colon cancer and was undergoing last dose of his Chemotherapy during the first 15 days of January 2013. Thus, there was only marginal delay of few days in the registration of the property. The only reason given by the ld. CIT (A) and AO is that the assessee sold the property on 24.01.2013 but acquired the new assets year prior, i.e., on 13.01.2012 for which exemption has been denied as according to them the registry of sale should have been on or before 13th Jan 2013. Whereas the prescribed time for making the investment prior to the sale of property was from 13.0 1.2012 to 13.01.2013 and here in this case, the assessee has made the investment in the new property prior to the prescribed period on 13.01.2012 and sold on 24.01.2013 and hence there it is beyond 1 year. Thus, once the sale consideration was received and possession was given and simply because the registration was done on some later date, the exemption cannot be denied.
On the other hand, ld. DR strongly relied upon the order of the AO and ld. CIT (A) and clearly the exemption us 54 cannot be available as it was beyond the time limit.
Observation by the tribunal
The tribunal has heard the rival submissions and perused the material referred to before us. First of all, form the perusal of the claim made by the assessee as well as perusal of the records, we find that the assessee has claimed exemption u/s 54 on account of long term capital gain on account of sale of house property which was invested in the purchase of another property one year ago, that is, the purchase deed was executed on 13.01.2012. The AO had allowed this claim vide in scrutiny assessment vide order passed u/s 143(3). Once the claim has been allowed in scrutiny proceedings, then the AO cannot withdraw the claim u/s 154, by mere change of opinion and without there being any apparent mistake on record. It is well settled proposition that AO cannot review his own order within the limitation and scope of section 154. In any case, there is no mistake apparent on record for the reason that; firstly, the formalities of sale and receiving of the entire sale amount was completed including handing of the possession was duly completed within the period of one year, that is, by the month of November 2012; and only due to some exceptional and unavoidable circumstances, there was a delay in registration which, here in this case. Secondly, it is undisputed fact that assessee has purchased the residential property on 13.01.2012 and assessee can claim exemption u/ 54 if she sale property within one year. Now, if assessee has received the entire sale consideration before one year and handed over the possession, then affectively assessee has transferred the property. If for extreme and unavoidable circumstances there is slight delay in registering the property exemption cannot be denied. Here the delay is only 11 days. Thus, no adverse inference can be drawn to withdraw the exemption. Accordingly, we hold that the exemption allowed by the AO in the original assessment order u/s 143(3) was correct and assessee’s appeal is allowed.
Order was pronounced on 3rd day of March, 2022.
The tribunal has ruled in favour of the assessee and dismiss the appeal.
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