2022 (2) TMI 226 - AT - Income Tax

Deduction u/s.54B - Claim denied which was not claimed by the assessee while filing the return - assessee had not raised the aforesaid claim for deduction u/s. 54B either in his Original return of income filed u/s. 139(1) of the Act; or by filing a revised return of income u/s 139(4) of the Act; or by moving a rectification application u/s 154 of the Act; or in the return of income filed in compliance to Notice u/s 148 - HELD THAT - Admittedly as per the settled position of law it is not permissible for an assessee to raise a fresh claim for deduction otherwise than by filing a revised return of income. Our aforesaid view is fortified by the judgment GOETZE (INDIA) LIMITED 2006 (3) TMI 75 - SUPREME COURT held that the limitation in entertaining a claim for deduction otherwise than by filing a revised return of income is limited to the power of the assessing authority and does not impinge on the powers of the Income-tax Appellate Tribunal. Hon ble High Court of Bombay in the case of CIT Vs. Pruthvi Brokers Shareholders (P) Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT had after taking cognizance of the judgment of the Hon ble Supreme Court in the case of Goetze (India) Ltd. (supra) observed that an assessee in the course of proceedings before the appellate authorities is entitled to raise additional grounds not merely in terms of legal submissions but also additional claims to wit claims not made in the return filed by it. The assessee at the time of filing of his returns of income u/s. 139(1) and u/s 148 of the Act had remained under a bonfaide belief that as the agricultural land in question i.e at Village Dharampura was situated beyond the municipal limits and thus not a capital asset therefore the gain on transfer of the same was not exigible to tax under the Act. Accordingly backed by his aforesaid conviction the assessee in our considered view had no occasion to have raised in his aforesaid returns of income filed u/s 139(1) and u/s 148 of the Act a claim for deduction u/s 54B w.r.t the investment that was made by him towards purchase of new agricultural lands. In fact it was only after the aforesaid claim of the assessee for exemption of the gain on transfer of the agricultural land in question was scuttled by the A.O for the reason that the agricultural land in question was situated within the municipal limits and thus was a capital asset that the assessee on account of such changed circumstances had raised the aforesaid claim for deduction u/s 54B. The assessee at the time of filing of his returns of income u/s. 139(1) and u/s 148 of the Act had remained under a bonfaide belief that as the agricultural land in question i.e at Village Dharampura was situated beyond the municipal limits and thus not a capital asset therefore the gain on transfer of the same was not exigible to tax under the Act. Accordingly backed by his aforesaid conviction the assessee in our considered view had no occasion to have raised in his aforesaid returns of income filed u/s 139(1) and u/s 148 of the Act a claim for deduction u/s 54B w.r.t the investment that was made by him towards purchase of new agricultural lands. In fact it was only after the aforesaid claim of the assessee for exemption of the gain on transfer of the agricultural land in question was scuttled by the A.O for the reason that the agricultural land in question was situated within the municipal limits and thus was a capital asset that the assessee on account of such changed circumstances had raised the aforesaid claim for deduction u/s 54B - Decided against revenue.

Summary

Issues Involved:
1. Whether the CIT(A) erred in allowing the deduction u/s 54B which was not claimed by the assessee while filing the return?

Detailed Analysis:

1. Deduction u/s 54B Not Claimed in the Return:
The primary issue revolves around whether the CIT(A) was justified in allowing the deduction under Section 54B of the Income-tax Act, 1961, which the assessee did not claim in the original or revised return. The assessee, engaged in the business of trading and manufacturing electric poles, filed his return for the assessment year 2007-08 declaring an income of Rs. 1,83,410 along with agricultural income of Rs. 1,14,710. The return was initially processed under Section 143(1).

2. Reopening of Assessment:
The AO observed that the assessee sold his ½ share in urban land for Rs. 10 lakh but did not offer the capital gain for tax. Consequently, the AO reopened the case under Section 147 and issued a notice under Section 148. The assessee requested that his original return be treated as filed in compliance with the notice.

3. Claim for Exemption and Deduction:
During the assessment proceedings, the AO rejected the assessee’s claim that the land was agricultural and thus not taxable under Section 2(14)(iii). As the exemption was denied, the assessee claimed a deduction under Section 54B for investments made in new agricultural land. However, the AO rejected this claim because it was not made in the original or revised return, nor through a rectification application under Section 154.

4. CIT(A)’s Decision:
The CIT(A) observed that the assessee had a bona fide belief that the land was not taxable, hence did not claim the deduction initially. The CIT(A) opined that once the AO concluded the land was a capital asset, he should have allowed the deduction under Section 54B suo moto. The CIT(A) directed the AO to allow the deduction of Rs. 4,31,581 for the purchase of new agricultural lands.

5. Revenue’s Appeal:
The revenue appealed, questioning whether the CIT(A) was right in allowing the deduction despite it not being claimed in the return. The Tribunal noted that as per the Supreme Court's judgment in Goetze (India) Ltd. v. CIT, an assessee cannot raise a fresh claim for deduction other than by filing a revised return. However, this limitation applies only to the assessing authority, not the appellate authorities.

6. Tribunal’s Rationale:
The Tribunal referenced the Bombay High Court’s decision in CIT Vs. Pruthvi Brokers & Shareholders (P) Ltd., which allows an assessee to raise additional claims before appellate authorities. The Tribunal concluded that the CIT(A) was within his jurisdiction to entertain and allow the deduction under Section 54B, despite it not being claimed in the return, as the assessee had a bona fide belief that the land was not taxable.

7. Conclusion:
The Tribunal upheld the CIT(A)'s order, finding no merit in the revenue's appeal. It emphasized the appellate authorities' jurisdiction to entertain new claims and directed the AO to allow the deduction under Section 54B. Consequently, the revenue's appeal was dismissed.

8. Cross-Objection by Assessee:
The assessee's cross-objection, being supportive of the CIT(A)'s order, was rendered infructuous and dismissed.

Final Order:
Both the appeal filed by the Revenue and the cross-objection filed by the assessee were dismissed. The order was pronounced on February 2, 2022.