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Income Tax

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Category: Income Tax

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To increase efficiency both direct and indirect tax departments to use data analytics and artificial intelligence

To increase efficiency, remove the need for official discretion, and make tax administration more pleasant to businesses and taxpayers, both direct and indirect tax departments use data analytics, big data, and artificial intelligence/machine learning.

The Government is using data analytics, big data and Artificial Intelligence/Machine Learning in tax administration to make it more effective, free of official discretion, business and taxpayers friendly. This was stated by the Union Minister of State for Finance Shri Pankaj Chaudhary in a written reply to a question in Lok Sabha today.

Data analytics is being used to identify fiscal risks, suspicious trends and patterns and risky entities in Customs and GST by leveraging big data, the Minister added.

INDIRECT TAXES

The Project ADVAIT (Advanced Analytics in Indirect Taxes) has been rolled  out in 2021, as a flagship analytics project for Indirect Taxes, by Central Board for Indirect Taxes and Customs (CBIC). The project uses capabilities of big data and Artificial Intelligence as well. ADVAIT has been envisaged with a threefold objective of enhancing Indirect Tax revenue, increasing taxpayer base, and supporting data-driven tax policy, the Minister stated.

Further, the Minister stated, ADVAIT provides business outputs in three formats:

  • Reports,
  • Interactive Dashboards, and
  • Analytical Models

The Minister stated that the functionality of each output is specifically designed to aid and assist officers in their day-to-day operations that range from reporting and ensuring tax compliance to detecting tax evasion. The portal has advanced analytical capabilities including data matching, network analysis, pattern recognition, predictive analytics, text mining, forecasting and policy studies. ADVAIT has been designed and developed in a knowledge-driven data ecosystem using some of the most advanced data warehousing business intelligence solutions, keeping in view the 3 I’s:

  • Information,
  • Insights, and
  • Intelligence

DIRECT TAXES

The Minister stated that the Central Board for Direct Taxes (CBDT) is using techniques as data analytics, big data and Artificial Intelligence/Machine Learning for:

  • Identifying cases with High Risk of tax evasion and high likelihood of income addition, for further scrutiny.
  • Identifying taxpayers to send reminders for advance tax payments.
  • Prompting specific taxpayers about apparent mismatches in ITRs and transactions made, so that taxpayers may revise their returns.
  • Using big data techniques for storage and effective search of information by income tax officers.
  • Using data analytics over networks of taxpayers visualize the taxpayers relationships and to flag potential high-risk transactions.
  • Using data analytics techniques for segmentation of taxpayers to focus campaign on high- risk cases from tax evasion perspective.
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10 Things Every Salaried/ Business Must Do Before Financial Year End on 31 March 2023 – for Tax Saving and Compliance

10 Things Every Salaried/ Business Must Do Before Financial Year End on 31 March 2023 – for Tax Saving and Compliance

Below are the 10 Things Every Salaried/ Business Must Do Before Financial Year End on 31 March 2023 for Tax Saving and Compliance:

1) Make Investments:

To Save Tax Different types of Taxpayers are entitled for deduction at the Taxable Income e.g. Individuals and HUFs are entitled for deduction u/s 80C of Rs. 1,50,000/- and Rs. 50,000/- u/s 80 CCD for investments in National Pension Scheme (NPS), etc

2) Calculate Payable Advance Tax:

Income tax follows the principle of “Pay As You Earn” so calculate advance tax and pay before 31 March to save Interest on Tax 50% of Salaried earning > 10 Lakh and 25% of small business miss this and land up paying interest

3) Purchase Of Fixed Assets For Business or Profession

Purchase asset to claim depreciation (half of the specified rate of depreciation and put to use) This will ensure to reduce in your profits

4) Link your PAN with Aadhar:

Aadhar, your PAN will become inoperative from 1st April 2023. Now, what happens when it becomes inoperative? Read at

5) Find Out Capital Gains

On capital assets, especially shares, Mutual funds, etc, which if sold before 31 Mar will lead to Rs 1 Lakh exemption on Tax and Set off against profits will result if there is a capital loss

6) Prepay your Loan:

Check if you have surplus in Bank Account then its always good to pre-pay your loan considering rates are very High. Wealth Annual review should be done each March for your entire family

7) Calculate GST turnover

Businesses or professionals should keep track of their turnover. The total turnover up to 31st March is to be calculated for the purpose of determining the applicability of GST Registration and payment

8) Form 12B

If you have changed jobs during the financial year, then it is important to submit form 12B to your current employer. This form states your previous employment details. Alternatively calculate Tax liability and pay before 31 March

9) Insurance and Mediclaim

Check Annually to see coverage and Risk are covered based on past year exposure and additional liabilities created

10) Missed ITR filing for FY 2019-20:

File now Updated ITR Filing – It is necessary to submit the updated income-tax return for FY 2019-2020 or AY 2020-21 by 31st March 2023, as it cannot be filed by taxpayers after the deadline has passed.

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Individuals who are 60 years of age or older who do not have business income are exempt from paying advance tax

Individuals who are 60 years of age or older who do not have business income are exempt from paying advance tax

Fact and issue of the case

The appeal has been preferred by the Assessee against the order dated 31.12.2018 of Ld. Commissioner of Income Tax (Appeals)-I, Noida (hereinafter referred as Ld. First Appellate Authority or in short Ld. „FAA’) in appeal No. 425/2017-18/Noida arising out of an appeal before it against the assessment order dated 15.12.2017 passed u/s 144/147 of the Income Tax Act, 1961 (hereinafter referred as „the Act’) by the ld Assessing officer ITO, Ward-2(5), Noida (hereinafter referred as the Ld. AO).

Facts in brief are that a Non-PAN AIR information was received that the Assessee sold an immovable property of Rs. 2,62,35,074/- during the FY 2009-10. To verify the transaction an information was called u/s 133(6) of the Act. However, Assessee did not respond. The ld AO observed on the basis of sale deed that the plot bearing Khata No. 267, Village-Duryai, Pargana & Tehysil-Dadri, Noida, Distt. Gautam Budh Nagar was sold. Therefore, proceedings u/s 147 of the Act was initiated and notice u/s 148 of the Act was issued after prior approval of ld Pr. CIT, Noida. The Assessee did not furnish return of income u/s 148 of the Act. The Assessee had also not furnished PAN. Notice u/s 142(1) along with questionnaire was issued. The Assessee submitted that the land sold was agricultural land and was of ancestral nature. The Assessee claimed that it was situated at a distance of 12 kms from the local limits of Dadri Municipality and the land sold by him does not fall in the definition of capital asset as defined in section 2(14) of the Act. However, no return of income for Assessment Year 2010-11 or PAN was submitted therefore, show cause notice u/s 144 of the Act was issued and no reply was received. The assessment was completed u/s 147/144 of the Act holding that land sold was capital asset and that the Assessee had failed to submit ITR for Assessment Year 2010-11 and thus long term capital gain of Rs. 1,31,17,537/- was added to the income of the Assessee. As it was challenged in appeal before the ld CIT(A), the ld First Appellate Authority did not decide the appeal on merits but passed the impugned order by dismissing the appeal for non compliance of mandatory provision of section 249(4) of the Act.

Observation of the court

Perusal of the aforesaid provisions of section 207 of the Act show that it talks about payment of advance tax in regard to total income which would be chargeable to tax. However, an individual resident of 60 years or more who, any time during the previous year, was not having any income chargeable under the head “profit and gains” of business or profession, is not required to pay the advance tax. When read in context of section 249(4)(b) it has to be observed that where no return has been filed by the assessee, then in that case at time of appeal before the CIT(A), the assessee has to pay an amount equal to the amount of advance tax which was „payable by him‟. However, here no advance tax was payable as the assessee was over 60 years of age and not having any income from P&G. Further, the proviso to the Section 249(4) of the Act provides that if sufficient reason are brought on record in writing the CIT(A) may exempt the Assessee from the operation of provision of clause 249(4)(b) of the Act.

The record does not show if the Assessee has claimed before the ld CIT(A) that it was entitled to any exemption by virtue of section 207. The impugned order was passed in the absence of Assessee and the impugned order dated 31.12.2018 in paragraph Nos. 2 to 12 mention that inspite of notice being issued the same could not be served on the Assessee and therefore, there was no representation of the Assessee before the ld CIT(A) and who proceeded to dismiss the appeal by invoking provision of section 249(4)(b) of the Act without giving taking into consideration the facts which assessee claims made him not liable to pay the advance tax.

In the light of the aforesaid the impugned order is set aside and the issue is restored to the file of the ld CIT(A) to decide the question of applicability of section 249(4) of the Act on merits of claim of the assessee, after giving an opportunity of hearing to the Assessee.

The appeal is allowed for statistical purposes.

Order pronounced in the open court on 21/02/2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

Vikram-Singh-Vs-ITO-ITAT-Delhi

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House given to father as a “Colorable device”; denies receiving proper Section 54F benefit

House given to father as a “Colorable device”; denies receiving proper Section 54F benefit

Fact and issue of the case

Brief facts of the case are that the assessee is an individual and has filed his return of income for the A.Y 2015-16 on 13.11.2015. A revised return in response to notice issued u/s 142(1) on 10.11.2017 declaring an income of Rs.7,80,890/- under the head House Property, Business, Capital Gains and Income from Other Sources. The return of income was processed u/s 143(1) of Income Tax Act, 1961 and the case was selected for limited scrutiny under CASS. The assessee produced relevant record and information before the Assessing Authority and the Assessing Authority ultimately passed the impugned assessment order for the said Assessment Year 2015-16 u/s 143(3) dated 29.12.2017 by disallowing exemption u/s 54F of Rs.2,63,67,705/- and assessed the total income at Rs.2,71,48,595/-.

It is the contention of the Ld. AR before us that the Ld. assessing officer and the Ld. CIT(A) had wrongly concluded that the gift deed executed by the assessee in favour of his father was a colourable device and it was executed only with a view to evade the due taxes and that assessee had wrongly claimed the exemption under section 54F of the Income Tax Act, 1961.

Observation of the court

The Assessing Officer in the paragraph reproduced above have concluded that the gift deed though executed on 27.10.2014, was a colourable device as it was executed by the assessee just three days prior to entering into an agreement of sale. The conduct of the assessee, to gift the property to his father, just prior to entering into an agreement of sale raises doubt about the intention of the assessee. A perusal of clause 11 of the Gift Deed, copy of which is placed at Pages 23-28 of the paper book shows that Rs.2,20,000/- towards stamp duty and registration fee had been paid by the assessee vide Demand Draft No.317588 dt.12.01.2015 of Canara Bank, M.J. Market Branch, Hyderabad after execution of Agreement of Sale dt.03.11.2014 and just prior to purchase of asset on 30.01.2015. Quiet clearly, assessee was aware of the Income Tax provisions and was also aware that the assessee would not be entitled to the benefit of section 54F of the Act, if he had more than one residential house in his name before investing. In the present case, the assessee has shown the house property income from two houses, namely, oneself occupied (at Door No.3-6-305/43,43/1, Avanthi Nagar, Basheerbagh, Hyderabad) and one let out (at Sy.No.52 & 53, Saheb Nagar, Khurd Village, LB Nagar, Hyderabad). However, the assessee has gifted the house at Door No.3-6-305/43,43/1, Avanthi Nagar, Basheerbagh, Hyderabad by virtue of the gift deed to his father, just before entering into an agreement of sale and had claimed the deduction u/s. 54F, after investing the proceeds received by him in respect to property in survey Nos.114 & 115 situated at Gagan Pahad village in buying the residential house property at Road No. 47, Plot no.946, Jubilee Hills, Hyderabad. The Assessing Officer had brought on record that the assessee had two residential properties before purchasing the residential house property at Road No.47, Plot no.946, Jubilee Hills, Hyderabad.

From the conduct of the assessee and in view of the circumstances prevailing at the time of the agreement of sale, more particularly giving gift to his father just before the date of agreement, it is clear that the act of the assessee to gift the house is nothing but a concerted effort to avoid the due payment of taxes to the Government. With a view to avoid the payment of taxes, the assessee surreptitiously gifted the house at Door No.3-6-305/43,43/1, Avanthi Nagar, Basheerbagh, Hyderabad to his father just before entering into agreement of sale and received the consideration of Rs.2,28,38,880/- on 3.11.2014 and Rs.2,11,41,120/- on 03.11.2014. Though, gift deed, on a standalone basis seems to be a natural act on the part of son to gift home to his father, but when the gift deed is to be examined in the light of the prior and subsequent acts and prevailing circumstances, then it is clear that the real intention of the assessee, was to claim the deduction u/s. 54F of the Act. Further, the assessee before and subsequent to gifting the property, continued to live with his father in the same property, which clearly shows that the gift deed executed by the assessee was merely a camouflage to claim the deduction u/s. 54F of the Act and to avoid due payment of taxes to the Government. Undoubtedly, tax evasion connotes illegally suppressing facts, falsifying records, fraud or collusion to evade tax liability with the help of such unfair means. Whereas abusive tax avoidance involves ‘contrived’ or ‘artificial’ schemes. In the present case, the assessee was engaged in the artificial transfer of one house by way of gift deed just prior to the effective date. Further, under sections 23 and 24 of the Indian Contract Act, 1872, when the object is to defeat any provisions of law, and when consideration is of such nature that, if permitted, it would defeat the provisions of any law, the contract will be void. In the present case, per se gift deed was not executed on account of natural love and affection but was executed by the assessee to artificially avail the deduction u/s 54F of the Income Tax Act 1961.

We cannot countenance the assessee’s conduct and allow the assessee to misuse and exploit the beneficial provisions of section 54F of the Act. Undoubtedly, as per the assessee, he is an individual having a high net worth and paying huge taxes. The assessee artificially created a gift deed of the property with a view to fit into the provisions of section 54F, so that he can claim the deduction against the sale of capital asset. The act of the assessee was prearranged step for execution, and it served no commercial purpose but was motivated to avoid paying taxes.

In view of the above, the orders passed by the assessing officer and ld.CIT(A) were within the four corners of law and do not require any interference. The decisions relied upon by the assessee are distinguishable on facts and do not apply to the facts of the present case. Accordingly, the appeal of the assessee is dismissed.

In the result, the appeal of the assessee is dismissed.

Order pronounced in the Open Court on 15th March, 2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

Rachit-V-Shah-Vs-ITO-ITAT-Hyderabad

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To be added is the unexplained cash that was discovered throughout the search process

To be added is the unexplained cash that was discovered throughout the search process

Fact and issue of the case

This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-19, Chennai, dated 28.08.2019 and pertains to assessment year 2017-18.

The assessee has raised the following grounds of appeal:

“1. The CIT(A) is erred in upholding the assessment order which is against law, facts and circumstances of the case.

2. The CIT(A) is not correct in upholding the order in making addition of Rs. 9,39,460/-, without considering the affidavits filed by the assessee and his family members,

3. The CIT(A) is not correct in upholding the levy of interests u/s. 234A, 234B and 234C.

4. Your appellant reserves his right to adduce any additional or alternate ground at the time of hearing.

5. In the circumstances it is prayed to set aside the assessment order or to delete the addition of Rs. 9,39,460/-and to delete the interests levied u/s. 234A, 234B and 234C of the I.T. Act and render justice.”

The brief facts of the case are that, a search was conducted u/s. 132 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), in the group case of M/s. Kirtilal Kalidas Jewellers Pvt. Ltd on 12.09.2016. The appellant was working as Assistant Vice-President, Retail Operations in the company. During the course of search, the assessee’s residence was also covered and found that he had in possession of cash amounting to Rs. 10,39,460/-. The assessee was called upon to explain source, for which he did not given any satisfactory explanation. Hence, cash found amounting to Rs. 10 lakhs was seized and deposited into PD Account. Consequent to search, the case was taken up for assessment and during the course of assessment proceedings, the assessee could not explain source for cash found to be in possession, although, he claims that he had received gift from his wife amounting to Rs. 7,75,000/- and also received a sum of Rs. 3 lakhs from his father Shri. Ramalingam. The AO, made additions towards cash seized during the course of search proceedings as unexplained money u/s. 69A of the Act. The assessee carried the matter in appeal before the first appellant authority. During the course of appellant proceedings, the assessee explained that source for cash found during the course of search was, out of gift received from his wife Smt. Hanspriya and also amount received from his father Shri. Ramalingam. The Ld. CIT(A), after considering relevant submissions of the assessee opined that, the assessee could able to explain source to the extent of Rs. 1 lakh and thus, allowed relief to the extent of Rs. 1 lakh and balance amount of Rs. 9,39,460/- has been confirmed. Aggrieved by the CIT(A) order, the assessee is in appeal before us.

Observation of the court

None appeared for the assessee. We have heard the Ld. DR and perused relevant material available on record. We find that during the search in the residential premises of the assessee, a sum of Rs. 10,39,460/- cash was found and seized. The assessee could not explain source for cash deposits. However, during the course of assessment proceedings, the assessee has took a different stand and argued that his wife derives income from tuition fee and agricultural income and out of said source, she had given a sum of Rs. 7,75,000/- gift on 25.08.2016.

The assessee, further claimed that he had received a sum of Rs. 3 lakhs from his father Shri. Ramalingam. Although, the assessee claims to have received gift from his wife, but he could not substantiate his claim with necessary evidence, except stating that she had withdrawn some amount from her bank account. The Ld. CIT(A), after considering withdrawal from bank and subsequent deposits opined that assessee could able to explain source from his wife Smt. Hanspriya to the extent of Rs. 1 lakh only. Therefore, allowed relief to the assessee to that extent. In respect of amount received from his father Shri. Ramalingam, the assessee could not establish source for amount claimed to have been received from his father. Even before us, assessee could not file any evidence to justify source for cash found and seized during the course of search. Therefore, we are of the considered view that there is no error in the reasons given by the ld. CIT(A) to sustain additions made towards cash found during the search and thus, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss appeal filed by the assessee.

In the result, appeal filed by the assessee is dismissed.

Order pronounced in the court on 15th February, 2023 at Chennai.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Property from a “Will” is eligible for cost indexation as of the acquisition date of the first owner

Property from a “Will” is eligible for cost indexation as of the acquisition date of the first owner

Fact and issue of the case

This appeal in ITA No.55/Mum/2023 for A.Y.2016-17 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-57, Mumbai in appeal No. CIT(A)-57/Mumbai/10217/2018-19/for A.Y.2016-17 dated 03/10/2022 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/12/2018 by the ld. Income Tax Officer, INT Tax Ward 3(2)(1), Mumbai (hereinafter referred to as ld. AO).

The Revenue has raised the following grounds of appeal:-

“1. Whether on the facts and circumstances of the case and in law, the LA CIT(A) has erred in allowing the Indexation on the basis of Hon ’ble Bombay High Court decision in the case of CIT us. Manjula J Shah (355 ITR 474) Wherein the department had filed SLP in that case which was dismissed without discussing the issue on merit as the tax effect involved in the said case was below Rs. 1 Crore.

2. Whether on the facts and circumstances of the case and in law, the LA CIT(A) has erred in allowing the following expenses incurred by the assessee on transfer of his 15% share in the property on the ground that the assessee had incurred these expenses wholly and exclusively for the transfer of his property whereas no documentary evidences has been provided by the assessee during the course of assessment proceedings

i) Brokerage Rs 42,36,500/-

(ii) Solicitor’s fee 50,00,000/-

(iii) Amounts paid to Occupier 10,00,000/-

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing payment of Rs 20 lakhs made to the tenant, Shri Stefano Funari, for early termination of Leave and Licence, even though the assessee failed to furnish the Leave and Licence agreement and also failed prove that the payment made to Mr. Funari was wholly and exclusively for the purpose of transfer of immovable property during the course of assessment proceedings.”

Observation of the court

We have heard rival submissions and perused the materials available on record. With regard to aforesaid grounds raised by the Revenue, the following facts are undisputed and indisputable:-

Kaikhoshru Byramji Mehta and his brother, Mr. Ardesir Byramji Mehta had a leasehold right by the Deed of Lease dated 30th July, 1910 for a period of 99 years commencing from 1 December, 1907 admeasuring 2170.58 sq. mtrs with two buildings standing thereon known as ‘Beach House’ and ‘Sea Side’ situate at Colaba Road, Mumbai along with the strip of land which was subject to the provisions and covenants contained in the Deed of Lease dated 27th July, 1940 co-terminus with the Deed of Lease dated 30th July, 1910 wherein Mr Kaikhoshru Byramji Mehta was having 2/3 share whereas Mr. Ardesir Byramji Mehta was having 1/3 share in the property (herein referred to as “the said Property”).

The share of the said Mr. Kaikhoshru Byramji Mehta was mortgaged by the Deed of Mortgage dated 30th March, 1922 to Mr Ardesir Byramji Mehta for a sum of Rs 50,000/- Out of the aforesaid amount a sum of Rs 30,000/- was outstanding, due and payable by Mr. Kaikhoshru Byramji Mehta to Mr Ardesir Byramji Mehta as on 22 September, 1931.

Mr Kaikhoshru Byramji Mehta who was having 2/3rd share in the said property settled his share in the said property subject to the mortgage claim for the benefit of the children and widow of his deceased brother, Mr Cawasha Byramji Mehta.

The said Mr. Kaikhoshru Byramji Mehta requested Mrs. Awanbai Cawasha Mehta, Mrs. Jehangir Edulji Spencer, Mr. Rustom Cawasha Mehta and Ms. Piroja Cawasha Mehta, the widow and children of the late Mr Cawasha Byramji Mehta, to act as trustees along with him in respect of the Trust created by him for their benefit by putting his 2/3rd share in the said property into the said Trust.

By a registered Deed of Transfer dated 8th July, 2002, the trustees of the said Trust transferred the leasehold right in the said property to Dr. Fali S. Mehta and Dr Keiki R. Mehta being the only beneficiaries in their respective individual capacity whereby the said Dr. Fali S Mehta received 30% undivided share and the said Dr. Keiki R. Mehta had received 70% undivided share in the said property.

Fali S. Mehta died on 29th August, 2003 leaving behind his Last Will and Testament dated 19th May, 1997 and Codicil dated 12th April, 1999 where under he bequeathed his 30% undivided right, title and interest in the said property to his wife, Mrs. Joan Fali Mehta absolutely. The said Will and Codicil were probated by the High Court at Bombay under T & I. J. Petition No.96 of 2007, as a consequence of which the said Mrs. Joan Fali Mehta became entitled to the said 30% undivided right, title and interest of the said Dr. Fali S. Mehta in the said property subject to the occupation of interest of the said Dr. Fali S. Mehta in the said property subject to the occupation of the tenants.

The said Mrs. Joan Fali Mehta died on 9th March, 2008 leaving behind her Last Will and Testament dated 31st August, 2007 where under she bequeathed her entire estate to her two sons, namely, Dr. Sorab (Sohrab) Fali Mehta and Dr. Rustom Fali Mehta. The Will of Mrs. Joan Fali Mehta contained a provision that the executor, namely, Mr. Cyrus Soli Nallaseth should sell the said 30% undivided right, title and interest in the said property and divide the sale proceeds equally between her two sons.

In compliance of the aforesaid direction in the Will of Mrs. Joan Fali Mehta, Mr. Cyrus Soli Nallaseth executed the Deed of Release dated 30th December, 2015 wherein Mr. Cyrus Soli Nallaseth was referred to as the First Releasor and Dr. Sorab Fali Mehta and Dr. Rustom Falı Mehta were referred to as the Confirming Parties / the Second Releasors and Dr. Keiki R. Mehta was referred to as the Release. By the Deed of Release dated 30th December, 2015, the two sons of Mrs. Joan Fali Mehta who had received the bequest from their mother released their 30% undivided right, title and interest in the said property for a consideration of Rs.37 crores in favour of Dr. Keiki R. Mehta.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

ITO-Vs-Sohrab-Fali-Mehta-ITAT-Mumbai

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Sale of real estate held for business purposes is taxable as business income, and Section 50C is not relevant

Sale of real estate held for business purposes is taxable as business income, and Section 50C is not relevant

Fact and issue of the case

The brief facts of the case are that, the assessee did not file his return of income for the assessment year 2007-08, u/s. 139(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). The assessment has been reopened u/s. 147 of the Act, for the reasons recorded as per which income chargeable to tax has been escaped assessment on account of non­disclosure of capital gains from sale of property and thus, notice u/s. 148 of the Act, dated 05.03.2013 was issued. In response to the notice, the assessee filed return of income on 07.02.2014, declaring total income of Rs. 1,39,420/-. The case was selected for scrutiny and during the course of assessment proceedings, the AO noted that the assessee has sold a property in financial year relevant to assessment year 2007-08, for a consideration of Rs. 95 lakhs, but admitted a sum of Rs. 47 lakhs under the head ‘profits and gains from business’. The AO, further noted that the assessee has purchased said property on 12.10.2004, for a total consideration of Rs. 79,21,500/-. Therefore, the AO called upon the assessee to furnish necessary evidences including purchase and sale deed copies of property and relevant computation of income under the head profits and gains from business or profession. In response, the assessee submitted that he has purchased a property for the purpose of commercial exploitation and thus, the same has been treated as stock in trade in the books of accounts of the assessee. Therefore, consideration received towards sale of property has been offered to tax on cash system of accounting. Therefore, submitted that the question of computation of capital gains on transfer of property does not arise.

The AO, on the basis of information submitted by the assessee opined that, the claim of the assessee that he had purchased impugned property for business purpose and shown as stock in trade in the books of account is unsubstantiated. Therefore, rejected arguments of the assessee and computed short term capital gains from transfer of property by adopting full value of consideration in terms of provisions of section 50C of the Act and determined short term capital gains of Rs. 2,40,29,848/-. The relevant findings of the AO are as under:

Observation by the tribunal

The tribunal has heard both the parties, perused materials available on record and gone through orders of the authorities below. The facts with regard to the impugned dispute are that the assessee has purchased a property in Devanahalli, Bangalore on 14.10.2004, for a consideration of Rs. 79,21,500/-. The assessee has sold said property in the financial year relevant to assessment year 2007-08 for a consideration of Rs. 95 lakhs and guideline value of the said property as per stamp duty authority was at Rs. 3 crores. The assessee has declared consideration received from transfer of property on cash system and actual consideration received in the impugned assessment year amounting to Rs. 47 lakhs has been treated as business receipts. The AO, assessed profit derived from transfer of property under the head short term capital gains and has also adopted full value of consideration in terms of provisions of section 50C of the Act and determined short term capital gains of Rs. 2,39,76,791/-, after allowing cost of acquisition of the property. The sole dispute requires to be resolved in the given facts and circumstances of the case is whether profit derived from transfer of property is assessable under the head profit and gains of business or profession as claimed by the assessee or under the head capital gains as assessed by the AO. The AO, assessed profit under the head capital gains, on the ground that the assessee could not file any evidences to prove that said property has been purchased as a stock in trade and further, the assessee did not invest any amount for development of the property. It was the argument of the assessee before the AO that property has been purchased and shown as stock in trade in the books of accounts and further, although said property has been purchased for commercial exploitation, but could not develop the property because of civil dispute pending in Civil Court. 10. We have given our thoughtful consideration to the reasons given by the AO to assess profit derived from transfer of property under the head capital gains and we ourselves do not subscribe to the reasons given by the AO for the simple reason that non-development of property during the period of holding the asset does not decide the nature and head of income under which profit derived from transfer of said property is assessable. But, what is relevant to decide the nature and head of income on a particular receipt is intent of the assessee and the treatment given in the books of accounts for the relevant assessment year. In this case, the assessee claims to have purchased the property for the purpose of commercial exploitation, keeping in view the location of land, which is adjacent or near to Bangalore International Airport, where lot of scope for commercial exploitation of property. The assessee further explained that he could not develop the property because of pending OS No. 615/2005 before Devanahalli Civil Court filed by M/s. Alfa Home Maker (P) Ltd, disputing transfer of property. We find that the assessee has filed necessary evidences, including financial statement for the relevant assessment years to prove its claim that property has been shown as stock in trade in the books of accounts of the assessee. The assessee had also filed relevant details including case particulars of OS No. 615/2005 pending before Devanahalli Civil Court, to prove that there was a pending litigation on the property and thus, he could not invest any amount for development of property in absence of clear title. The assessee had also filed necessary financial statements including tax audit report to prove that amount received from transfer of property has been treated as business receipts. From the above, it is very clear that the intent of the assessee when the property has been purchased was to commercially exploit the property keeping in mind the locational advantage of the property. Further, the assessee had also made clear its intention by recording purchase of property as stock in trade in the books of accounts for the relevant assessment years. Therefore, we are of the considered view that the assessee has rightly declared profit derived from transfer of property under the head profit and gains of business and profession. It was only the AO by wrong appreciation of facts has assessed profit derived from sale of property under the head capital gains by holding that income declared by the assessee under the head profit and gains from business or profession is afterthought. In our considered view, the observations of the AO is nothing but suspicion and surmise, but not backed by any evidence. On the other hand, the evidences filed by the assessee clearly suggests that the impugned property sold for the assessment year is a stock in trade and profit derived from transfer of property is assessable under the head profit and gains from business or profession. Therefore, we are of the considered view that the AO and the CIT(A) completely erred in assessing profit derived from transfer of property under the head capital gains.

Having said so, let us come back to the application of provisions of section 50C of the Act. The provisions of section 50C deals with deeming consideration in place of actual consideration received towards transfer of property being land and building, in a case where the transfer of capital asset being land or building and a consideration received for transfer of property is less than guideline value of the property assessable by stamp duty authorities, then the difference between consideration received and actual value of the property will be treated as full value of consideration. In this case, what was transferred by the assessee is a stock in trade, but not a capital asset. Therefore, we are of the considered view that provisions of section 50C cannot be applied when asset transferred is not a capital asset. Thus, we are of the considered view that the AO and CIT(A) erred in applying provisions of section 50C of the Act and determination of full value consideration to compute short term capital gains from transfer of property. Thus, we direct the AO to delete additions made towards computation of short term capital gains from transfer of property.

In the result, appeal filed by the assessee is allowed.

Order pronounced in the court on 8th March, 2023 at Chennai.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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If a meritorious action for locks is filed without proper consideration, the court may dismiss it

If a meritorious action for locks is filed without proper consideration, the court may dismiss it

Fact and issue of the case

The assessee has raised following grounds of appeal:

“1. Whether, on facts and circumstances of the case and in law, Ld. Assessing officer has erred in making adjustment of Rs. 182,025/- u/s. 143(1) of the act.

2. Whether, on facts and circumstances of the case and in law, Ld. Assessing officer has erred in disallowing expenditure of Rs. 182,025/- without having any basis for such disallowance?

3. Whether, on facts and circumstances of the case and in law, Ld. Assessing officer has erred by not applying slab rate of tax, available to AOP, on Income of charitable trust?

4. Whether, on facts and in circumstances of the case and in law, Ld. Assessing officer has erred by not allowing basic exemption of Rs.200,000/- available to Charitable Trust as Association of person?

5. Whether, on facts and in circumstances of the case and in law, Ld. CIT(A) has erred in not condoning delay in filing first appeal?

Further, appellant craves leave to add, amend, alter or withdraw all or any ground o f appeal.

The only effective issue raised by the assessee is that the learned CIT-Aerred in confirming the adjustment made by the AO under the provisions of section 143(1) of the Act without allowing the basic exemption of Rs. 2 lakhs.

In the present case, the assessee is a trust engaged in imparting education. The return was processed under section 143(1) of the Act. The assessee has filed the return of income treating itself as an association of person (trust)and claimed the basic exemption of Rs. 1,82,025/- only. It was observed by the AO that the assessee is not registered under section 12AA of the Act. Thus, the AO treated the assessee as a private discretionary trust and applied the rate of taxation at the maximum marginal rate. The AO has also disallowed the exemption claimed by the assessee and added back to the total income of it.

The assessee has filed the appeal before Ld. CIT(A) with the delay of 561 days. The assessee submitted before the Ld. CIT(A) that the appellant trust is now registered under section 12AA of the Act as on 30-07-2018 and so the second proviso to section 12A(2) of the Act will be applicable to it and the benefit of section 11 and 12 shall also be granted for earlier years in dispute.

For the delay in filing the appeal, the assessee submitted that it was advised by the chartered accountant to “wait and watch” like many other assesseeare facing the same issue. But when the department started recovery of the demand, then another chartered Accountant advised the assessee to file the appeal before the Ld. CIT(A).

Observation of the court

We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that there was a delay in filing the appeal before the learned CIT(A) for 561 days. This delay was not condoned by the learned CIT(A) on the reasoning that there was negligent and casual behavior of the assessee in pursuing the income tax litigation whereas it was contended by the learned AR that the assessee was advised by the chartered accountant to wait and watch like the other assessee who were also facing the same problems. The assessee to this effect has also filed the affidavit of the chartered accountant as observed by the learned CIT(A) in his order. The observation of the learned CIT(A) reads as under:

“Further, as the appellant is being represented by a qualified chartered accountant who filed an affidavit also who is expected to know the procedure in such matters ”

From the above observation of the learned CIT(A), it is transpired that the assessee has acted and reacted on the advice of the chartered accountant who is a professional person for tax matters. This fact has nowhere been doubted by the learned CIT(A) in his order. Now the controversy arises to resolve whether the assessee acting on behalf of the professional advice can be held guilty for defiance of any provision of law. The answer certainly goes in favour of the assessee. It is for the reason that the assessee, who was under the bona fide belief upon the advice of the professional, did not prefer any appeal before the learned CIT(A). However, at the same time the assessee upon the initiation of the recovery by the Department immediately approached to another consultant who advised to file the appeal before the learned CIT(A).

Before parting, we also note that the demand was raised upon the assessee in the intimation generated under section 143(1) of the Act which was challenged before the learned CIT-A who did not condone the delay in filing the appeal by the assessee. As such, we note that none of the authorities below has looked into the merit of the case, therefore in the interest of justice and fair play, we are setting aside this issue to the file of the AO for fresh adjudication as per the provisions of law. Hence the ground of appeal filed by the assessee is allowed for the statistical purposes.

In the result, the appeal filed by the assessee is allowed for the statistical purposes.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Shiksha-Foundation-Vs-DCIT-ITAT-Ahmedabad

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Application for revision under Section 264 is permissible to fix a genuine error

Application for revision under Section 264 is permissible to fix a genuine error

Fact and issue of the case

Case of the petitioner in brief is that petitioner is an old lady of advancing age and being unaware of the technicalities of the income tax law, committed mistake in her return by including the exempted income in question relating to dividend and long term capital gain as income payable to tax and such mistake was realised by her only upon receipt of the orders passed under Section 143 (1) of The Income Tax Act, 1961, and it is her case that since the filing of original return itself was delayed no revised return could be filed by her under Section 139 (5) of the Act for claiming deduction of the income exempted from income tax which was included as taxable income due to bonafide mistake and having no other recourse like filing of revised return or appeal, she filed revision applications under Section 264 of the aforesaid Act before the Commissioner of Income Tax concerned. Respondent CIT concerned dismissed the revision applications of the petitioner in question by the aforesaid impugned orders by holding that since the orders passed under Section 143 (1) of the Act relating to relevant assessment years could not be called erroneous and that the petitioner did not file the revised return under Section 139 (5) of the Act for the claim in question he could not allow such claim in the revision application under section 264 of the Act and further by holding that since the original return under Section 139 (5) of the Act was filed beyond the specified date, petitioner was debarred from filing revised return through which the mistake of unclaimed deduction could have been claimed and further held that the scope of revision by the Commissioner is not an alternative path to the revised return by relying on a judgment of the Hon’ble Supreme Court in the case of Goetze (India) Limited –Vs- CIT (2006) 284 ITR 323 (SC).

Mr. Sen, Ld. Advocate for the petitioner challenged the aforesaid impugned orders of revision passed by the Commissioner, under Section 264 of the Act by contending that nowhere on merit Commissioner has held that the income in question claiming for deduction by the petitioner was not an exempted income or the same is a taxable income under the Act in the facts and circumstances of the case. He also submits that without going into the merit of claim by considering the records of the case including relevant income tax returns on the basis of which orders under Section 143 (1) of the Act were passed, CIT erroneously tried to draw similarity between the revised return and revision and dismissed the revision applications in question.

Mr. Sen submits that power conferred on the Commissioner, under Section 264 of the Act is not only wider in its scope rather it is also intended for the purpose of preventing miscarriage of justice and providing relief to an assessee which an assessee is otherwise entitled to. He submits that expression “such enquiry” and “such order” under Section 264 of the Act are wide enough to include a situation like present one where a bonafide mistake has been committed in her return for which she was made liable to pay tax which is exempted under the Act. He submits that the learned Commissioner has misinterpreted and misconstrued the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Limited (supra) which relates to exercise of power by an Assessing Officer in allowing any deduction without claiming in any return or without filing a revised return and not relates to power to be exercised by the Commissioner under Section 264 of the Income Tax Act, 1961.

He submits that the aforesaid decision of the Hon’ble Supreme Court is restricted to the power of the Assessing Officer to enter into the claim for deduction without filing revised return but the same does not include the exercise of power by the Appellate Tribunal under Section 254 of the Act or by the Commissioner under Section 264 of the Act.

Considering the facts and circumstances of the case as appears from record, submission of the petitioner and ratio laid down in the judgments cited, I am of the considered view that the respondent Commissioner of Income Tax concerned in the facts and circumstances of the case has committed error in law in dismissing the revision applications of the petitioner filed under section 264 of The Income Tax Act, 1961, by refusing to consider the claim of the petitioner on merit that the income in question was exempted from tax and not liable to tax under The Income Tax Act, 1961, which according to the petitioner was included in her return as taxable income due to bonafide mistake and which she could not rectify by filing revised return since original return itself was belatedly filed and petitioner had no other remedy except taking recourse to filing of revision application under section 264 of The Income Tax Act, 1961.

Observation of the court

In view of the reasoning and discussions made above, , I am of the considered view that the impugned orders dated 24th March, 2014 under Section 264 of The Income Tax Act, 1961, relating to assessment years 2007-08 and 2008 -09 in WPA No. 16473 of 2014 and WPA No. 16476 of 2014 are not sustainable in law and accordingly the same set aside and the matters are remanded back to the Commissioner of Income Tax concerned to reconsider and dispose of the applications in question under Section 264 of The Income Tax Act, 1961, by passing a reasoned and speaking order in the light of the discussion and observation made in this judgment, within a period of eight weeks from the date of communication of this judgment, after giving opportunity of hearing to the petitioner or her authorised representative.

Accordingly, these writ petitions being W.P.A No. 16473 of 2014 and W.P.A. No. 16476 of 2014 stand disposed of by allowing the same. No order as to costs.

Urgent certified photocopy of this judgment, if applied for, be supplied to the parties upon compliance with all requisite formalities.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Ena-Chaudhuri-Vs-ACIT-Calcutta-High-Court

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