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2017 (2) TMI 950 - AT - Income TaxScope of rectification proceedings - whether the exemption granted to the assessee u/s 54 of the Act could be withdrawn in part in the proceedings u/s 154? - Held that - AO had sought to disturb the claim of exemption u/s 54 of the Act in the proceedings initiated u/s 154 of the Act by resorting to verification of all the facts , investigation into the said facts vis a vis the relevant dates prescribed in the section, whether the reinvestment in AJC Bose Road Property made by the assessee would amount to purchase or construction so as to reckon the time limit prescribed in the statute. All these issues are highly debatable in nature which in our considered opinion, could not be done u/s 154 of the Act. There are both favourable and adverse decisions on the subject mentioned issue for and against the assessee respectively by various high courts as stated supra. These disputes had reached the corridors of various judicial forums and had been debated extensively and hence cannot be construed as a mistake apparent from the record warranting rectification within the meaning of section 154 of the Act. See Oriental Cotton Corporation and Mills Ltd vs CIT 1990 (10) TMI 9 - CALCUTTA High Court . Thus we hold that the proceedings initiated u/s 154 of the Act to disturb the claim of exemption granted u/s 54 of the Act as bad in law. - Decided in favour of assessee
Issues Involved:
1. Whether the exemption granted to the assessee under Section 54 of the Income Tax Act could be withdrawn in part under Section 154 of the Act. 2. Whether the proceedings under Section 154 were initiated within the jurisdiction and scope of the section. 3. Whether the issue of reinvestment in new property within the time limit stipulated under Section 139(4) of the Act is debatable and thus outside the purview of rectification under Section 154. Detailed Analysis: Issue 1: Withdrawal of Exemption under Section 54 in Section 154 Proceedings - The assessee sold residential flats in Delhi and Kolkata, reinvested in another property, and invested in Section 54EC Bonds, claiming exemptions under Sections 54 and 54EC. - The initial assessment granted these exemptions. However, the Assessing Officer (AO) later initiated proceedings under Section 154 to rectify the reassessment, arguing that the assessee failed to deposit the unused capital gains in the capital gain account scheme as required under Section 54(2). - The AO disallowed the exemption claim of ?35,09,184 under Section 54 in the Section 154 proceedings, which was upheld by the CIT(A). Issue 2: Jurisdiction and Scope of Section 154 - The assessee contended that Section 154 cannot be invoked for investigating facts or calling for evidence, especially when the assessment was made under Sections 143(3) and 147. - The AO argued that the failure to deposit the capital gains in the specified account before the due date of filing the return under Section 139(1) invalidated the exemption claim. - The Tribunal found that the AO's attempt to disturb the exemption claim under Section 54 involved verification and investigation of facts, which are highly debatable and cannot be rectified under Section 154. Issue 3: Debatability of Reinvestment within Time Limit under Section 139(4) - The assessee argued that the reinvestment within the time limit stipulated under Section 139(4) should be considered substantial compliance with Section 54(2). - The Tribunal noted that various judicial forums, including the Hon'ble Gauhati High Court and the Bangalore Tribunal, had debated this issue extensively. - The Tribunal held that such a debatable issue could not be considered a mistake apparent from the record warranting rectification under Section 154. Conclusion: - The Tribunal concluded that the proceedings initiated under Section 154 to disturb the exemption claim under Section 54 were not within the jurisdiction and scope of the section. - The Tribunal relied on the Jurisdictional High Court decision in the case of Oriental Cotton Corporation and Mills Ltd vs CIT, which held that Section 154 has a limited application and cannot be used to correct debatable points of law or facts. - Accordingly, the Tribunal allowed the assessee's appeal, holding that the rectification proceedings under Section 154 were invalid. Other Grounds: - Grounds (D) and (F) were general and did not require adjudication. - Ground (E) regarding the chargeability of interest under Section 234B was consequential and did not require adjudication. Result: - The appeal of the assessee was allowed, and the order was pronounced in the open court on 02.12.2016.
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