1999 (7) TMI 95 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Assessing Officer's computation of capital gains under section 143(1)(a) was correct.
2. Whether the deduction under section 48(2) should be allowed before or after providing for exemptions under sections 54E and 54F.
3. Whether the issue of computation of capital gains is debatable and thus outside the ambit of prima facie adjustments under section 143(1)(a).

Issue-wise Detailed Analysis:

1. Assessing Officer's Computation of Capital Gains:
The Revenue's common ground of appeal was that the CIT(A) erred in law and on facts in directing the AC(IT) to rectify the intimations issued under section 143(1)(a) and to accept the figures of capital gain as declared by the assessees. The Assessing Officer processed the returns and issued intimation under section 143(1)(a), computing the capital gains chargeable to tax differently from the assessees' computations. The assessees contended that the Assessing Officer's computation was incorrect as it calculated the deduction under section 48(2) after deducting the exemptions under sections 54E and 54F.

2. Deduction Under Section 48(2):
The main contention revolved around whether the deduction under section 48(2) should be allowed on the total amount of capital gains before deducting the exemptions under sections 54E and 54F. The assessees argued that the language of section 48(2) is clear and that the deduction should be allowed on the total capital gains without deducting the exemptions under sections 54E and 54F. They supported their argument with the opinion of eminent jurist Late Shri S.P. Mehta. The Assessing Officer, referring to the Board's Circular No. 495 and the opinion of Shri N.A. Palkhiwala, held that the deduction under section 48(2) should be allowed after providing for exemptions under sections 54E and 54F.

3. Debatable Issue and Prima Facie Adjustments:
The CIT(A) concluded that the computation of capital gains by the assessees was a plausible interpretation supported by the opinion of Late Shri S.P. Mehta. The CIT(A) held that the Assessing Officer could adopt his interpretation while passing the order under section 143(3) after giving due opportunity to the assessee but not in an intimation under section 143(1)(a). The CIT(A) stated that the issue was highly debatable and thus outside the ambit of prima facie adjustments under section 143(1)(a). The Tribunal agreed with the CIT(A), noting that the issue of which computation was correct was highly debatable and could not be the subject-matter of prima facie adjustments under section 143(1)(a).

Conclusion:
The Tribunal upheld the CIT(A)'s order, directing the Assessing Officer to rectify the intimation and accept the figures of capital gain as declared by the assessees. The Tribunal emphasized that the issue was debatable and should be adjudicated on merit in the regular assessment proceedings under section 143(3). The appeals filed by the Revenue were dismissed.