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TMI Blog2011 (5) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... for taking action under section 263 cannot be counted from that order of re-assessment but it will go back to original assessment where the subject matter was not at all considered whether assessment as short-term capital gains or long term capital gains - it is clear that construction of the building was made during financial year 1996-97 and sale was also made during that financial year - These facts are steering at the face of the Assessing Officer and if they escape his notice or he ignores them then certainly the order of Assessing Officer becomes erroneous and prejudicial to the interest of revenue - it is settled law if a duty cast on the Assessing Officer either to enquire or to assess a particular item of income, and if he fails to carry out his duty then his order would be erroneous and prejudicial to the interest of revenue - Decided against the assessee - 2423 (AHD.) OF 2005 - - - Dated:- 6-5-2011 - D.K. TYAGI, D.C. AGRAWAL, JJ. Mrs. Urvashi Shodhan for the Appellant. Shelley Jindal for the Respondent. ORDER D.C. Agrawal, Accountant Member. This is an appeal filed by the assessee raising following grounds : (1) The ld. CIT has grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and clarifications as given by the appellant and further erred in not appreciating the facts and law in their proper perspective. In addition to this assessee has raised additional ground as under : (1) The ld. CIT has erred in law in passing order under section 263 of the Act which is barred by limitation as the order revised by him was original order passed under section 143(3) and not the reopened order under section 147 of the Act. The impugned order therefore, is bad, illegal, without jurisdiction and therefore requires to be quashed. 2. Regarding admission of additional ground we have heard the parties. In our considered view it is purely a legal ground. The same is, therefore, admitted for adjudication. The only issue agitated in the additional ground which according to the ld. AR goes to the root of the case is that action of the ld. CIT under section 263 is barred by limitation. 3. The facts relating to this issue raised in the additional ground are that assessment order for assessment year 1997-98 was passed under section 143(3) on 6-3-2000. Against returned income of Rs. 14,43,470, assessment was made on a total income of Rs. 14,83,466. The computation made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred for different parts of the property as under : Terrace Rs. 65,813 3rd floor Rs. 82,111 2nd floor Rs. 87,120 1st floor Rs. 84,806 Upper Ground floor Rs.74,752 Lower ground floor Rs. 1,79,574 Therefore, keeping in view of the above, it is crystal clear that the assessee has claimed excess cost of construction which has eventually resulted into under assessment of income of Rs. 2,73,551 [Rs. 3,48,303 (-) Rs. 74,752]. I have therefore, reasons to believe that the income of Rs. 2,73,551 of the assessee has been escaped the assessment under section 147 of the Income-tax Act." On the basis of above reasons notice under section 148 was issued on 11-7-2003. Thus the Assessing Officer considered that assessee has incorrectly shown cost of construction of upper ground floor at Rs. 3,48,303 as against actual cost of construction at Rs. 74,752. This has led to incorrect computation of cost of acquisition by Rs. 2,73,55 and hence incorrect computation of capital gains. In other words, according to the Assessing Officer the assessee has worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs leading to passing of assessment order under section 143(3) read with section 147 on 14-2-2005 for the assessment year 1997-98 in your case was called for and examined. 2. It is seen that the Assessing Officer rightly assumed jurisdiction under the proviso to section 147 read with Explanation 1 thereto to bring to tax the escaped amount of capital gains from the sale of a shop on the upper ground floor of the building Laxmi Palace, which had escaped assessment in the original assessment order under section 143(3) dated 6-3-2000, whereby, the capital gains offered to tax in the return was accepted as such. This escapement was by reason of failure on your part to disclose fully and truly all material facts necessary for the assessment inasmuch as in the return of income the cost of the said shop was claimed at Rs. 3,48,203 whereas this shop was constructed by incurring Rs. 74,752 only which material fact was not disclosed either in the return or in the course of assessment proceedings. Mere filing of bills of the contractor did not amount to such disclosure by virtue of the aforesaid Explanation 1 to section 147. However, after correctly assuming jurisdiction, instead of comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be enhanced to incorporate correct amount of capital gains under the correct head (short-term capital gains) or be cancelled with a direction to the Assessing Officer to make a fresh assessment in accordance with law. 6. You are requested to appear before the undersigned either personally or through your authorised representative on 30-8-2005 at 10.30 a.m. at my office, in room No. 215, 2nd floor, Aayakar Bhavan, Race Course Circle, Baroda, along with all the relevant evidences on which you wish to rely upon in this regard. You may, in particular, furnish the working with supporting material of the cost of three items sold and the proportionate amount of sale consideration attributable to the sale of these items i.e., the shop, the 1/5th portion of the open undivided land and the parking right in the open parking space respectively. In case of non-compliance, the matter will be decided on merits." The gist of the reasons for issuing this show cause notice was that sale consideration attributable to upper ground floor would give rise to only short-term capital gains which has been assessed by the Assessing Officer in his order under section 147 read with section 143(3) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d structure was entirely demolished and the land was available for new construction. Permission by Municipal authorities was granted on 10-4-1996 for new construction. (2) The law is clear on the point that capital gains in respect of land and in respect of superstructure can be worked out separately. On land it can be long term capital gains and on superstructure it can be short term capital gains. (3) The cost of construction of the portion sold as per Manish Builders was Rs. 74,753. Since construction was carried out in Financial Year 1996-97 as permission for new construction was granted on 10-4-1996 and the upper ground floor was sold on 27-3-1997 it would give rise to the short term capital gains. On sale of land ld. CIT categorically stated that it will give rise to long term capital gains though he had made some calculation according to which sale consideration of the land sold would be Rs. 1,78,795 and indexed cost of the land would be Rs. 1,38,531 which would result into long term capital gains. 6. Against, the ld. AR submitted that - (1) The reopening of the assessment under section 147 has been challenged by the assessee before ld. CIT(A) by filing the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reassessment proceedings is the same i.e., the capital gains. It cannot be further subdivided into long term capital gains or short term capital gains for finding out as to which of the two was not the subject matter of reassessment. Once computation of capital gains is the subject matter of re-assessment then the Assessing Officer was duty bound to work out whether it should be short term or long term and if he has failed to do so then ld. CIT will have the jurisdiction to revise his order. It is not a case that subject matter of reassessment was entirely different. (2) He submitted that in Ashoka Buildcon Ltd.'s case (supra) reassessment under section 147 was done in respect of issue under section 72A whereas ld. CIT sought to revise this reassessment order under section 263 on the issues relating to (i) section 40A(2)(b), (ii) on the issue relating to under section 36(1)(iii), (iii) on the issues relating to section 68, (iv) on the issue relating to depreciation and (v) issues relating to share suspense accounts etc. These issues were different than the issue relating to section 72A. He submitted that in the case of CIT v. Alagendran Finance Ltd. (supra), subject matter fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich did not form part of the reassessment order will be reckoned from the original order. 10. Now the question is whether assessment as short-term capital gains or long term capital gains is a subject matter other than capital gains or it would be integral part of capital gains and, therefore, would be subject matter considered in the reassessment order. In our considered view computation of capital gains is provided between section 45 to section 55A of the IT Act. None of the sections or sub-sections contained in Chapter IV under the head 'Capital gains' refer to short term capital gain or long term capital gains but the same is provided only in section 2(29B) and section 2(42B). Therefore, what is short term capital or long term capital gains are part of the definitions and not of the charging sections. Definitions cannot form a subject matter of assessment but it is only the charging section which can form or create a subject matter. For the sake of convenience we reproduce section 2(29B) and section 2(42B) as under : Section 2(29B) - "long term capital gain" means capital gain arising from the transfer of a long term capital asset. Section 2(42B) - "short term capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year: Provided that where an assessment under sub-section (3) of section 143(3) or this section has been made for the relevant assessment year no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assessee or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.]" 12. When we examine reasons recorded by the Assessing Officer for reopening the assessment it is clear that construction of the building was made during financial year 1996-97 and sale was also made during that financial year. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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