9911796707
TMI Blog2004 (8) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... iently refer to new construction also and therefore, the assessee has to be held to have made investment in construction of residential house within the stipulated time. In coming to this conclusion, we have derived due support from the definition of the said terms as also various case laws as have been mentioned in the submissions that have been reproduced by us in para 19 above. In principle, it is entitled to exemption u/s 54F of the Act and we hold accordingly. Still the claim for exemption is not effectively available to the assessee in this year. It has rightly been observed by the ld. CIT(A) that in this particular year i.e., assessment year 2000-01, the proviso below section 54F specifically lays down that the exemption shall not be available to an assessee if he owns another house on the date of transfer. In the present case, the assessee owned house No. 3/3/74, Rekabganj, Faizabad. If remodel and renovation is treated as construction of house, as has been held by us earlier, the effect would be that the assessee becomes owner of a house other than the house that he owned earlier. In view of the proviso to section 54F as was applicable from the assessment year 2000-01, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the aforesaid 4. Because the authorities below have erred in law and on facts in holding that the investment made in 'remodelling, renovation of house No. 3/3/74, Rekabganj, Faizabad did not amount to investment in construction of house' and in holding that a sum of Rs. 3,45,000 (as had been received by the appellant on transfer of capital asset) was liable to taxation under the head 'capital gain'. 5. Because the appellant's claim about investment in construction of house property (by utilizing the sale proceeds amounting to Rs. 3,45,000) was fully supported by the relevant document and information and the same has undeservedly, illegally been ignored while deciding the issue involved in the appeal. 6. Because the appellant owned only one house property numbered as House No. 3/3/74, Rekabganj, Faizabad and the authorities below have erred in holding that the appellant 'in any case, was not entitled for exemption under section 54F as it had more than one house property'. 7. Because wholly without prejudice to the contentions raised in the forgoing ground Nos. 4,5 and 6 the sum of Rs. 3,45,000 could not have been subjected to capital gain as one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;Computation of Income'. 2. Capital gains (i) Sale proceed realized on 31-7-1999 from Ravi Kapoor etc. of Edward Medical Hall's shop 45,000 (ii) Sale proceed realized on 5-8-1999 from Ravi Kapoor etc. of Edward Medical Hall's shop 3,00,000 3,45,000 Less: Amount invested in remodel and renovation of residential house No. 3/3/74, Rekabganj, Faizabad 3,47,000 Nil (extracted from page 20 of the paper book) 5. In case the correctness of the claim of exemption under the head capital gain was required to be examined and verified, the Assessing Officer had the time limit available to him to issue notice under section 143(2) by 30-7-2002. Instead, before the expiry of time limit available to the Assessing Officer for issuing the notice under section 143(2) as stated above, he initiated proceedings under section 147 by recording the reasons vide order sheet entry dated 11-7-2002 as under: Assessee is having rental income from House property situated at 3/3/74, Rekabganj. During the year 'a' had sale capital gain from sale proceeds of Edward Medical Hall shop amount to Rs. 3,45,000 is claimed deduction of Rs. 3,47,000 by inventing in remodelling and renovation of reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why reassessment proceedings could not have been initiated against the petitioner. The submission of Sri Gulati proceeds on the footing that since the Assessing Officer failed to issue notice under section 143(2) at the time of the processing of the return filed by the petitioner, he lost the jurisdiction for making reassessment under section 147, read with section 148 for ever. Does not present any difficulty or contradiction. In the later decision, which relates to the assessment year 1989-90, the assessee had filed return on 27-10-1989 and the said return was processed also under section 143(1) after making some 'adjustments'. Thereafter, a number of proceedings took place and then, the Assessing Officer issued notice under section 148 after recording the reasons in August 1997. Thus, the period of six months (as was applicable at that time) for issuing notice under section 143(2) had already expired. As against this, in the present case, the limitation for issuing notice under section 143(2) was subsisting on the dates of 'recording the reasons' and issuing notice under section 148. The Assessing Officer could have validly issued notice under section 143(2) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 26-3-2003 itself is illegal for the reason of non-issuance/non-service of mandatory notice under section 143(2), after the return had been filed on 16-8-2002 (in terms of the letter of date). It is evident that a notice under section 143(2) was issued on 13-8-2002 and obviously, the same is not referable to the 'return' filed later, on 16-8-2002 (in compliance with the notice under section 148 dated 13-8-2002). Thus, the assessment order dated 26-3-2003 itself is without jurisdiction. In support of this contention, the learned Counsel relied upon the following decisions as given by the Allahabad Bench of the ITAT: (d) Shubham Enterprises v. ITO [IT Appeal No. 240 (All.) of 2002 relating to assessment year 1998-99. (e) Asstt. CIT v. Santosh Kumar [2003] 87 ITD 107 (All.). Reliance was also placed on the decision of the Special Bench of the ITAT Lucknow Bench in the case of Nawal Kishore Sons Jewellers v. Dy. CIT [2004] 265 ITR 752 (AT) where the Hon'ble Bench has held as under: Let us now consider the questions regarding applicability of the proviso to section 143(2). In this connection it would be appropriate to consider the scheme of section 143(2) with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings under section 147. The argument of the appellant that the reasons recorded by the Assessing Officer cannot be said to be a relevant material for taking action under section 147 as the appellant had himself disclosed the information in the return does not hold. It may be mentioned that according to the provisions of section 147 as amended w.e.f. 1-4-1989, if the Assessing Officer had reasons to believe that income had escaped assessment, action under section 148 can be initiated. The assessment year involved in this appeal is 2000-01 and the notice under section 147/148 was issued on 18-7-2002. In other words, the notice under section 147/148 was issued within four years from the end of the relevant assessment year i.e., 2000-01. Thus, the notice has been issued under main provision of section 147 and not with reference to the proviso thereto. In terms of main provision of section 147 as it stands, the existence of only one condition i.e., the Assessing Officer must have reason to believe that income, profit or gain chargeable to tax had escaped assessment, would suffice. In this context reference may be made to the decision in the case of Praful Chunilal Patel v. CIT [1999] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 1-4-1989 that a time limit has been set down for issuing notice under section 143(2), which has materially changed the consequence of non-services of notice under section 143(2) within the time limit laid down thereunder. As regards other cases which relate to reassessment proceedings, the learned Counsel submitted that the same were different on facts and are not applicable in the present case. 14. We have considered the rival submissions. Undoubtedly, the Assessing Officer could have proceeded to verify the assessee's claim for exemption of capital gain, by issuing notice under section 143(2) till 31-7-2002. But the availability of the time does not debar the Department for initiating proceedings under section 147. There is no dispute that during the pendency of assessment no notice under section 148 could be issued. But in the instant case, the assessment proceedings were not pending. Once the return filed by the assessee was processed under section 143(1)(a) it could not be said that assessment proceedings were pending. 15. Our views find support from various sections of the Act. For example, charging of interest under section 234B. This section provides for charging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing situation has arisen in this case. The notice under section 143(2) has been issued prior to filing of the return (the date on which the assessee informed the Assessing Officer that original return may be treated as a return in response to notice under section 148). It is settled law that notice under section 143(2) was mandatory if the Assessing Officer wants to vary the returned income. Except in the cases of prima facie adjustment under section 143(1)(a), section 143(2) confers jurisdiction on the Assessing Officer to make regular assessment. Unless this notice is issued the whole assessment order will be invalid. The Lucknow Special Bench of the Tribunal in the case of Nawal Kishore Sons Jewellers has considered this issue and held that notice under section 143(2) confers jurisdiction on the Assessing Officer to make assessment. As the issue of notice under section 143(2) confers jurisdiction, the same was mandatory. The Hon'ble P H High Court in the case of Mrs. Rama Sinha v. CIT [2002] 256 ITR 481 had held that once a return in pursuance to notice under section 148 is filed the provisions of this Act shall, as far as may be, apply accordingly as if such return were a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration aggregating Rs. 3,45,000 as had been received on sale of two shops known as Edward Medical Hall's shops on 31st July, 1999 and 5th August, 1999 which had been held by the assessee as long term 'capital asset'; and (b) re-computation of income under the head 'Income from house property'. 19. As mentioned earlier the assessee had sold its Edward Medical Hall Shop on which capital gain was earned. The entire amount of capital gain was claimed to have been invested in remodelling and renovation of residential house at 3/3/74, Rekabganj, Faizabad. Deduction under section 54F of the Act was accordingly claimed. 20. From the assessment order, it is seen that the Assessing Officer had denied the exemption that had been claimed under section 54F on the ground that the entire investment was made in 'Remodel' 'Renovation' of residential house No. 3/3/74, Rekabganj, Faizabad and such investment cannot be said to have been made in construction of a house. On the other hand, the assessee's submission was that the terms 'remodel' 'renovation' also signify new construction. To explain its case the assessee made the following submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound. Therefore, the claim for exemption had rightly been made in the return filed by the assessee and there was no escapement of income within the meaning of section 147 of the Act. The proposed proceedings, therefore, deserve to be dropped. However, the submissions of the assessee did not find favour with the Assessing Officer, who rejected the claim of the assessee. The ld. CIT(A) has concurred with the view of the Assessing Officer and rejected the ground. 21. Before us, reliance has again been placed on the said submissions. Besides, reliance has also been placed on the decision of Madras High Court in the case of CIT v. P.V. Narasimhan [1990] 181 ITR 101. On the other hand the ld. DR relied on the order of the Assessing Officer. 22. We have carefully considered the rival submissions on this issue and find force in the submissions made by the learned counsel for the assessee. The terms 'remodel' and 'renovation' sufficiently refer to new construction also and therefore, the assessee has to be held to have made investment in construction of residential house within the stipulated time. In coming to this conclusion, we have derived due support from the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon'ble Supreme Court in the case of B.C. Srinivasa Shetty is squarely applicable to the facts of this case, as contained in the assessment order itself. In this view of the matter, we hold that the sum of Rs. 3,45,000 could not have been subjected to capital gain, even if, it is held that the assessee's case is adversely hit by the applicability of proviso to section 54F. 25. As regards recomputation of income under the head 'income from house property', no specific submissions were made before us. Therefore no interference is called for. 26. In the result, the appeal directed by the assessee is partly allowed. 27. Now, we will take up the appeal for assessment year 2001-02. 28. In the grounds of appeal, the assessee has challenged the initiation of proceedings under section 147 as well as re-assessment order on merits. As mentioned earlier, the return filed by the assessee was processed under section 143(1)(a) of the Act. Subsequently, the notice under section 148 was issued on 1-1-03 after recording the following reasons: 1-1-2003 Assessee is having rental income from house property situated at 3/3/74, Rekabganj. During the year he has received arrear rent of R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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