2022 (4) TMI 499 - AT - Income Tax

Rectification u/s 154 - Deduction u/s. 54F on long term capital gain on sale of property - whether it can be said that the facts are straightforward enough to come to an unmistakable conclusion that the assessee has earned short term capital gains and assessee held the asset only for a period of 10 months, as held by the Ld. AO in the 154 order? - HELD THAT - In our view, perhaps after a long drawn debate, we may come to the conclusion that the assessee did in fact earn short term capital gains and is not eligible for exemption u/s 54F of the Act which is available on sale of asset held for more than 36 months. However, in our view, this decision would not qualify as a mistake apparent from the record . There are few factors which need to be considered while taking a view in the matter. Firstly, the assessee entered into a Banakhat with the seller in 1987 in respect of a piece of land, which was duly registered. Secondly, the said piece of land was converted from agricultural to non-agricultural with the object to effectuate the Banakhat referred to above. Thirdly, the assessee has produced copies of Gota Gram Panachayat tax bills for the period 1988-89 to 2004-05 with the assessee s name was appearing which showed that the assessee had effective right over the property since 1987. The above seems to suggest that assessee had secured the right to purchase the property after completing necessary formalities. Fourth, the same property in respect of which Banakhat was entered in 1987 was transferred in the name of the assessee by the same party/ seller. It would be difficult to conclude that it is a straightforward case wherein the Ld. assessing officer has made a mistake apparent from the record . Assessee has brought various evidences in support of his contention that the assessee had secured effective right to have the asset transferred in his name since 1987. Both parties, the seller and the buyer of land (assessee) took necessary steps to effectuate the sale. The sale of said plot was registered in assessee s name on 08-12-2009. The issue involved requires an analysis of facts before coming to the conclusion whether the sale of land by the assessee qualifies as a short term or long term capital gains. This, in our view, is not an issue which can be a subject matter of section 154 of the Act. Therefore, in our view, the Ld. CIT(A) erred in law and in facts in upholding the order u/s 154 of the Act passed by the Ld. AO. Appeal of assessee allowed.

Summary

Issues Involved:
1. Legality of rectification under section 154 of the Income Tax Act.
2. Classification of the sold land as a short-term or long-term capital asset.
3. Withdrawal of exemption claimed under section 54F.

Detailed Analysis:

1. Legality of Rectification under Section 154:

The primary issue was whether the rectification order under section 154 of the Income Tax Act was justified. The appellant argued that the rectification was "illegal and unlawful" as it involved a detailed analysis and interpretation of facts, which falls outside the purview of section 154. The section is intended for correcting "mistakes apparent from the record," which are obvious and patent mistakes, not those requiring extensive reasoning or debate. The tribunal referenced several legal precedents, including the Supreme Court's ruling in T.S. Balaram, ITO v. Vokart Bros., which emphasized that a mistake must be clear and not subject to multiple interpretations. The tribunal concluded that the issue of whether the assessee earned short-term or long-term capital gains required a detailed examination of facts, which cannot be addressed under section 154. Therefore, the rectification order was deemed inappropriate.

2. Classification of the Sold Land as Short-term or Long-term Capital Asset:

The appellant contended that the land sold was a long-term capital asset, held since 1987, and thus eligible for exemption under section 54F. The original assessment had accepted this claim. However, the rectification order reclassified the land as a short-term capital asset, arguing that the appellant only became the owner upon the registration of the sale deed on 08-12-2009. The tribunal noted that the appellant had entered into a registered agreement (Banakhat) in 1987 and had paid taxes on the property from 1988-89 to 2004-05, indicating effective control over the property since 1987. The tribunal found that the facts suggested a long-term holding and that the issue was not straightforward enough to be classified as a "mistake apparent from the record."

3. Withdrawal of Exemption Claimed under Section 54F:

The rectification order also withdrew the exemption of ?49,71,478/- claimed under section 54F, reclassifying the capital gains as short-term and assessing it at ?56,11,000/-. The appellant argued that the land was held for over 20 years, making it a long-term asset, and thus eligible for the exemption. The tribunal observed that the original assessment had allowed the exemption after a detailed examination, and the subsequent rectification involved a re-evaluation of the same facts, which is beyond the scope of section 154. The tribunal concluded that the rectification order was not justified in withdrawing the exemption.

Conclusion:

The tribunal allowed the appeal, stating that the rectification under section 154 was not warranted as the issue involved a detailed analysis of facts and was not a clear mistake apparent from the record. The tribunal did not delve into the merits of each ground individually, as the primary issue of jurisdiction under section 154 was decisive. The appeal was thus allowed in favor of the assessee.