1994 (10) TMI 91 - AT - Income Tax

Assessing Officer, Assessment Order, Capital Gains Tax, Original Assessment, Rectification Of Mistakes, Retrospective Effect, Tribunal s Order

Summary

Issues:
1. Whether the addition of Rs. 42,79,012 towards capital gains was correctly deleted by the Commissioner of Income Tax (Appeals) under section 254 of the Income-tax Act.
2. Whether the Assessing Officer had the authority to bring the additional compensation to assessment under the head 'Capital Gains.'
3. Whether the additional compensation invested in specified assets is exempt from capital gains tax.

Analysis:

Issue 1:
The original assessment completed under section 143(3) did not include the additional compensation of Rs. 42,79,012 received by the assessee in 1983 under the head 'Capital Gains.' The Tribunal set aside the assessment for a limited purpose, focusing on the applicability of section 74A. The CIT (Appeals) held that the Assessing Officer could not tax the additional compensation as the Tribunal's order did not grant such authority. The CIT (Appeals) further noted that the entire additional compensation was invested in specified assets, exempting it from capital gains tax. The Tribunal agreed with the CIT (Appeals) that the inclusion of the additional compensation in the order dated 18-5-1987 was unauthorized, as the Tribunal's order only pertained to section 74A.

Issue 2:
The revenue contended that the additional compensation should be assessed under section 155(7A) read with section 292B. However, the Tribunal disagreed, stating that the Assessing Officer lacked jurisdiction to tax the additional compensation in the absence of proper notice and opportunity for the assessee to be heard. Section 292B only cures defects, not jurisdictional issues. The Tribunal emphasized that the Assessing Officer's action was without authority and did not comply with the procedural requirements of section 154(3).

Issue 3:
The additional compensation was entirely invested in specified assets as per section 54E(3). The revenue argued that the exemption under the Second Proviso to section 54E(1) did not apply for the assessment year 1977-78. However, the Tribunal held that the provisions of sub-section (3) of section 54E applied retrospectively, benefiting the assessee who received additional compensation after 1-4-1978. The Tribunal relied on the legislative intent to mitigate hardship caused by delayed compensation receipt, as explained in Circular No. 240 dated 17-5-1978. Consequently, the capital gains from the additional compensation were deemed exempt from income tax.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT (Appeals) decision to delete the addition of Rs. 42,79,012 towards capital gains and confirming the exemption of the additional compensation invested in specified assets from income tax.