Shri Rasiklal M. Parikh vs Acit , 19(2)
2017 Latest Caselaw 647 Bom

                                                                                ITXA-314.13.doc

Sbw

                 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                         ORDINARY ORIGINAL CIVIL JURISDICTION

                            INCOME TAX APPEAL NO.314 OF 2013


      Rasiklal M. Parikh                                                   ..Appellant
                Versus
      Assistant Commissioner of
      Income Tax-19(2), Mumbai                                             ..Respondent


      Mr. Sanjiv M. Shah for the Appellant.
      Ms. Shehnaz Bharucha for the Respondent.
                                              ...........

                                           CORAM: M. S. SANKLECHA &
                                                            A. K. MENON, JJ.
                                      RESERVED ON : 13TH FEBRUARY, 2017
                               PRONOUNCED ON :              10TH MARCH, 2017


      JUDGEMENT (PER A.K.MENON,J.)

1. This appeal under Section 260A of the Income Tax Act, 1961(the Act)

assails the order dated 31st October, 2012 passed by the Income Tax Appellate

Tribunal (Tribunal). The impugned order relates to Assessment Year 2006-07.

2. This appeal was admitted on 28th January, 2015 on the following

substantial questions of law:-

"(A) Whether on the facts and in the circumstances of the case

and in law, the Tribunal grossly erred in not, at the outset,

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deciding the application for admission of additional evidence

filed under Rule 29 of the Income Tax Appellate Tribunal Rules,

1963 read with the additional evidence paper book before

proceeding to pass an order on the merits of the controversies

involved in the appeal?

(B) Whether on the facts and in the circumstances of the case and

in law, the Tribunal was right in approving the denial of

exemption under Section 54F?

(C) Whether the Tribunal infringed the principles of natural

justice in not providing an opportunity to the Appellant to rebut

the detrimental conclusions inferred by the Tribunal based on the

additional evidences adduced by the appellant and the Circular

no.495 dated 22nd September, 1987?"

3. Vide order dated 28th January, 2015 the Court expedited the hearing of

the appeal in view of the appellant being 86 years of age. Thereafter by consent

of parties the appeal has been taken up for hearing on 18 th November, 2016 by

consent of parties. After the admission of the appeal the appellant took out

Chamber Summons No.335 of 2015 proposing certain amendments. Initially

the Chamber Summons was adjourned to the hearing of the appeal. However,

since the appellant sought to rely upon the contents of the proposed

amendment, we thought it fit to hear Chamber Summons in the first instance.

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Accordingly vide order dated 12th January, 2017 we held that the amendment

sought is impermissible and the Chamber Summons came to be dismissed. The

appeal has since been taken up for hearing.

4. Mr. Shah, the learned counsel for the appellant submitted that the

challenge is twofold. Firstly, he assails the failure of the Tribunal to pass an

order upon the application to lead additional evidence under Rule 29 of the

Income Tax (Appellate Tribunal) Rules, 1963 (ITAT Rules) and secondly on the

merits of the matter for having denied an exemption sought under Section 54F

of the Act. We will first deal with Mr. Shah's submission on the controversy in

the impugned order relating to the application for leading additional evidence.

The First Question

5. We deal with Question "A" first. In respect of Assessment Year 2006-07

the assessee had filed an appeal before the Tribunal arising out of an

Assessment Order dated 26th December 2008 passed under Section 143(3) of

the Act which was upheld by order dated 7 th July 2011 of the Commissioner of

Income Tax (Appeals) [CIT(A)]. During the pendency of the appeal before the

Tribunal, the appellant had on or about 9 th July, 2012 filed an application

seeking admission of additional evidence. In view of the impending hearing of

the appeal on 8th October, 2012, the appellant contended that certain additional

and material documents accompanying the application were sought to be

introduced for the first time before the Tribunal that do not really, in the strict

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sense, constitute "fresh evidences". It was submitted that the additional

evidence be admitted since it is fundamental in order to meet the ends of

justice.9

6. The Additional Evidence Paper Book (AEPB) consists of (i)

Commencement Certificate dated 29 th July, 2003 as amended on 7 th September,

2010, (ii) Occupancy Certificate in respect of Wing "A" and Wing "B' dated 29 th

January, 2008 and 2nd June, 2010, (iii) A pamphlet issued by the developer in

relation to the housing project (iv) copies of 4 letters addressed by the

developers to the appellant and (v) a Sketch Plan of flat nos.901, 902 and 903.

Mr. Shah submitted that on the scheduled date of hearing i.e. 8 th October, 2012

the appeal was heard finally. The grievance of the appellant before the

Tribunal was that the CIT(A) incorrectly denied exemption under Section 54F

of the Act. Mr. Shah submitted that the appeal was then heard but came to be

dismissed on 31st October, 2012 and a copy of the order was received on 10 th

November, 2012 whereupon it was noticed that while disposing of the appeal,

the Tribunal omitted to pass any order on the application to take on record the

additional evidence. The grievance of Mr. Shah is that the AEPB had been

taken on record but the Tribunal failed to pass any orders on the application to

permit the additional evidence to be considered. Instead the Tribunal used the

documents filed and relied upon them to hold against the assessee. Exception

has been taken to this approach adopted by the Tribunal. Mr. Shah then

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submitted that there are different ways in which additional evidence may be

considered viz under Rule 18 or 29 of the ITAT Rules and by using inherent

provisions of Section 254 of the Income Tax Act, 1961. In the instant case the

Tribunal by not indicating whether or not the application had been allowed

committed a serious error which has caused grave prejudice to the appellant.

Mr. Shah submitted that the Tribunal had erred in not passing an order on the

assessee's application for admission of additional evidence.

7. Mr. Shah submitted that the Tribunal ought to have first passed an order

on the application allowing or rejecting it and give reasons for the decision.

However, without indicating so, the Tribunal in paragraph 9 of the impugned

order relied upon the additional documents filed and held against the assessee.

It held that the commencement certificate filed revealed that the developers had

no approval for construction of the 9 th floor on which the appellant's premises

was situate and it is only on 7th September, 2010 that the commencement

certificate was validated for construction of the 9 th floor. Mr. Shah submitted

that the commencement certificate as amended and filed along with the AEPB

was used by the Tribunal to deny relief to the appellant. Furthermore, the

Tribunal also made reference in paragraph 10 of the order to the Sketch filed

along with the AEPB by stating as follows:-

"By merely filing of the design in the form of an internal map,

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would not suffice. It is only by physical verification, the

contention of the assessee could be established that three flats are

one residential unit having one common passage, one electricity

meter and one municipal corporation number. These mandatory

things could be established by the assessee as the flats are yet to

be completed."

8. Thus the Tribunal had grossly erred in referring to two documents filed

by the appellant in the AEPB, without passing an order permitting or rejecting

the application. He submitted that the impugned order is therefore vitiated. In

the course of his submissions, Mr. Shah relied upon the provisions of the 'ITAT

Rules. He invited our attention to Rules 18 and 29 of ITAT Rules which are

reproduced below for ease of reference:-

"18. (1) If the appellant or the respondent, as the case may be, proposes to refer or rely upon any document or statements or other papers on the file of or referred to in the assessment or appellate orders, he may submit a paper book in duplicate containing such papers duly indexed and paged at least a day before the date of hearing of the appeal along with proof of service of a copy of the same on the other side at least a week before :

Provided, however, the Bench may in an appropriate case condone the delay and admit the paper book. (2) The Tribunal may suo motu direct the preparation of a paper book in triplicate by and at the cost of the appellant or the respondent containing copies of such statements, papers

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and documents as it may consider necessary for the proper disposal of the appeal.

(3) The papers referred to in sub-rule (1) above must always be legibly written or type-written in double space or printed. If xerox copy of a document is filed, then the same should be legible. Each paper should be certified as a true copy by the party filing the same, or his authorised representative and indexed in such a manner as to give the brief description of the relevance of the document, with page numbers and the Authority before whom it was filed.

(4) The additional evidence, if any, shall not form part of the same paper book. If any party desires to file additional evidence, then the same shall be filed by way of a separate book containing such particulars as are referred to in sub-rule (3) accompanied by an application stating the reasons for filing such additional evidence.

(5) The parties shall not be entitled to submit any supplementary paper book, except with the leave of the Bench.

(6) Documents that are referred to and relied upon by the parties during the course of arguments shall alone be treated as part of the record of the Tribunal.

(7) Paper/paper books not conforming to the above rules are liable to be ignored.

29. Production of additional evidence before the Tribunal.

The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the

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Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced."

9. Mr. Shah submitted that whenever any party applies for production of

additional evidence before the Tribunal, the Tribunal may allow such

documents to be produced or any affidavit to be filed or reasons to be recorded

and Rule 18(4) which provides that additional evidence not forming part of the

paper book, was to be filed by way of separate paper book containing

particulars accompanied by an application stating the reasons for filing such

additional evidence. He submitted that the application made by the appellant

on 9th July, 2012 constitutes an application contemplated in Rule 18(4). He

submitted that upon such application being filed, the Tribunal was bound to

consider the same in accordance with law and pass an order giving reasons for

accepting or rejecting the same. However, in the instant case, the Tribunal

adopted a different course, omitting to pass an order on the application yet

using the contents of the some of the documents in order to arrive at its

conclusions in the appeal. Reasons for allowing or rejecting the AEPB could

have to be recorded in the final order but was not. The course adopted by the

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Tribunal was perverse and therefore he submitted question "A" be answered in

the affirmative.

10. In support of his contentions in respect of question (A), Mr. Shah,

learned counsel for the appellants referred to the following judgments :

(i) Commissioner of Income Tax v/s. Asian Techs Ltd. 233 ITR 715

(Ker);

(ii) Commissioner of Income Tax v/s. Travancore Titanium Products Ltd.

203 ITR 685';

(iii) R.S.S. Shanmugam Pillai & Sons vs. Commissioner of Income Tax,

Madras 95 ITR 109 (Mad.);

(iv) Maruti Udyog Ltd. vs. Income Tax Appellate Tribunal and Others

244 ITR 303 (Del.)

(v) Zenith Ltd. v/s. Deputy Commissioner of Income Tax and Another

271 ITR 135;

(vi) Parkkot Maritima Agencies Pvt. Ltd. v/s. Commissioner of Income

Tax in Tax Appeal No.37 of 2016 decided on 15th November, 2016;

(vii) Assam Hindu Mission Upper Nawprem v/s. Smt. Elaboris Tron AIR

1999 Gauhati 39;

(viii) Smt. Suhasinibai Goenka v/s. Commissioner of Income Tax 216 ITR

518;

(ix) Commissioner of Income Tax v/s. Kum. Satya Setia 143 ITR 486;

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(x) Hukumchand Mills Ltd. Vs. Commissioner of Income Tax, Central,

Bombay 63 ITR 232 (SC);

(xi) Arjan Singh Vs. Kartar Singh and Others AIR (38) 1951 SC 193

(xii) M.M. Quasim vs. Manohar Lal Sharma and Others AIR 1981 SC

(xiii) Gopal Chandra Chaudhury v/s. LIC of India AIR 1985 Orissa 120;

11. We do not see how the facts before the Kerala High Court in Asian

Techs (supra) help the appellant. In the above case, the Tribunal in exercise of

its powers under Rule 29 of the Income Tax (Appellate Tribunal) Rules directed

the parties to file details showing description of the articles manufactured and

the amounts received by the assessee. The same was filed on behalf of the

assessee. on the directions of the Tribunal. In that case the judicial member of

the Tribunal had based the entire reasoning relating to the factual position on

the basis of the above material tendered for the first time before the Tribunal

and that although the order of the Tribunal had used the word "we" indicating

reasoning on behalf of both members, the accountant member was unable to

agree with the conclusions. On a reference the third member agreed with the

view of the Judicial Member. It is in that context that the judgment has to be

read. In that case the Tribunal had called upon the assessee to furnish the

additional material but had not admitted them as additional evidence and yet

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the judicial member relied upon the same in the order. This course adopted by

the Tribunal was disapproved by the High Court terming it as grossly unfair

and illegal and therefore suffering from judicial infirmity and ad-hocism. It is

not a case where the appellant before the Tribunal had sought leading of

additional evidence documentary or oral. In the present case, the appellant-

assessee had himself filed the AEPB well before the date of hearing and the

Revenue had notice of the application. The appellant-assessee therefore was

fully aware of the additional material he sought to rely upon. As against this, in

the case in Asian Techs (supra) the Tribunal had called for certain information

on its own then there was no notice to the Revenue as to whether the

additional material had been admitted as additional evidence or even the basis

of the same having admitted. The Court held that it is important in regard to

the material that the party to the appeal viz. the Assessee and the Revenue

should have notice and knowledge of the same. Such are not the facts in the

instant case.

12. As far as Travancore Titanium Products Ltd. (supra) is concerned, we

note that the Court found that the Tribunal relied upon the documents which

were tendered for the first time and that the grounds of appeal before the

Commissioner were also not part of the paper book and the Tribunal had

considered a working sheet that had been prepared and which was not a part

of the documents tendered before the Tribunal as additional evidence in Rule

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29 and no reasons were stated by the Tribunal for accepting these additional

documents. There was nothing on record to show whether these documents

were produced before the Assessing Officer or before the first appellate

authority. The plea put forward by the assessee before the Tribunal was new

one based on fresh documents filed for the first time before the Tribunal. It was

in this context that the High Court held that the process followed by the

Tribunal to consider the documents was not in accordance with law and

observed as follows:-

"No reason has been stated for receiving those documents at that stage."

13. The Court observed that it was competent for the Tribunal to admit

additional evidence in accordance with law but for reasons to be stated since

the parties would have fair and proper notice of the same thus causing the

Court to observe that ad-hocism cannot be countenanced in law. In our view,

Asian Techs (supra) and Travancore Titanium Products Ltd. (supra) offer no

assistance to the appellant's cause.

14. The Madras High Court in R.S.S. Shanmugam Pillai & Sons (supra) the

Tribunal observed that a letter sought to be relied upon cannot be received at

the appellate stage since its genuineness has not been tested at the stage of the

assessment. However, despite this the Tribunal had taken the very document

into consideration to decide the appeal against the party. This led the Court to

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observe "In this case the Tribunal adopted a somewhat curious procedure.

Having held the letters cannot be admitted and acted upon at the stages of the

appeal it chose to go through them and take a prima facie view that they are

against the assessee ......" In the present facts, there is no order passed stating

the additional evidence cannot be produced/accepted. In the present facts, the

evidence was produced by the Assessee and admittedly relied upon by the

appellant before us. Thereafter it takes the same into consideration while

disposing of the appeal. Although Mr. Shah had contended that this is a case

from which appellant could draw support, we find it to the contrary.

15. The Delhi Court decision in Maruti Udyog Ltd. (supra) the Tribunal

had admitted additional grounds in the appeal filed by the Revenue but

instead of recording whether additional grounds were allowed, observed that

the reasons could be incorporated in the order to be passed in appeal. The

issue was not in respect of production of additional documents but on the issue

of raising additional grounds before the Tribunal, therefore has no application

to the present facts.

16. Assam Hindu Mission Upper Nawprem (supra) has no relevance to the

instant facts. In Smt. Suhasinibai Goenka (supra) the Court had occasion to

consider Rule 29 of the ITAT Rules and observed that the Tribunal had

sufficient cause for receiving additional documents filed for fair and just

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disposal of the case and that the Tribunal should have allowed the assessee to

file additional document on record and should have given an opportunity to the

Revenue to place the material in support thereof. In Kum. Satya Setia (supra)

the Madhya Pradesh High Court had made reference while interpreting Rule

29 of the ITAT Rules, this Rule is in pari materia with Order 41 Rule 27 of the

CPC and reiterated that it is within the discretion of the appellate authority to

allow production of additional evidence and the Tribunal had jurisdiction in the

interests of justice to allow production of a crucial document. Mr. Shah had

submitted that the word "allow" found in Rule 29 of the ITAT Rules indicated

that the application would have to be made by the parties seeking to bring

additional evidence and the Tribunal could allow such application. We do not

find any merit in this submission inasmuch as it is only if the Tribunal so

requires it may allow additional evidence to be brought on record.

17. In Zenith Ltd. (supra) this Court observed an order passed by the

Tribunal declining to add additional grounds is procedural in nature and

cannot be said to affect the rights of the parties since such an order can always

be challenged in the appeal that may be preferred against the final order. We

have therefore considered the final order which effectively deals with the

merits of the Appellants' case and also takes into consideration the additional

document which admittedly the Appellants relied upon at the hearing. In a

recent judgment of this Court in Parkkot Maritima Agencies Pvt. Ltd.

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(supra) a Division Bench of this Court had allowed the assessee to place

additional material before the Assessing Officer instead of Tribunal. However,

we notice that this order came to be passed on request made on behalf of the

Revenue by its counsel who did not oppose the request seeking the leading of

additional evidence.

18. In the case of Hukumchand Mills Ltd. (supra) the Supreme Court

considered the power of the Tribunal under Section 33(4) of the Indian

Income Tax Act, 1922 and the Appellate Tribunal Rules, 1946 wherein it

was observed that provisions of Section 33(4) were in pari materia with

Section 254 of the Income Tax Act, 1961. In Arjan Singh (supra) the Supreme

Court observed that the discretion of the Appellate Court under Order 41 Rule

27 to admit and receive additional evidence is not an arbitrary one but is a

judicial one. Referring to M.M. Quasim (supra) Mr. Shah made reference to

quotation therein to the passage from Patterson Vs. Alabama (1934) 295 US

600 at Page 607 which reads as follows : "We have frequently held that in the

exercise of our appellate jurisdiction we have power not only to correct

error in the judgment under review but to make such disposition of the case

as justice requires. And in determining what justice does require, the Court is

bound to consider any change, either in fact or in, law, which has supervened

since the judgment was entered."

We do not find the above pronouncements advancing the case of the

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Appellant given the fact situation in the present case since according to us the

Tribunal had taken note of the Appellants submissions based on the AEPB.

19. Mr. Shah had relied upon the observations of the Supreme Court in M.

Laxmi & Co. (supra) quoted in Gopal Chandra Chaudhury (supra) to the effect

that the Court took notice of subsequent events due to altered circumstances to

shorten the litigation. In the instant case, the subsequent events namely the

issuance of the amended commencement certificate could not be brought to the

attention of the Assessing Officer or the Commissioner of Income Tax (Appeals)

and therefore it was necessary to take notice of the changed circumstances for

doing complete justice to the assessee and the Court ought not to shut its eyes to

such developments. We are unable to find merit in his submissions since we

do not see how this would make any material difference to the Appellants since

he had not complied with the mandatory conditions of Section 54.

20. No doubt ordinarily in an application seeking admission of additional

evidence one would expect an order to be passed on the application. This

would be the appropriate course of action so that parties are able to

understand whether the application was allowed or not. In this case the

appellant produced the additional evidence and admittedly after making

submissions in support of it being allowed to be produced, also made

submissions on merits. The petitioner/appellant did not call upon the Tribunal

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to pass an on order on his application to produce additional evidence contained

in the AEPB before making his submissions on merits and therefore proceeded

upon the understanding that the application has been allowed. The Tribunal

has taken into consideration the submissions of counsel for the appellants

based on the documents forming part of AEPB. There is no doubt in our mind

that the Tribunal had permitted the appellants to make submissions on the basis

of these documents. If that were not to be case, there may have been something

to be said in favour of the appellants, however, in the present case the

appellants were aware that the attention of the Tribunal had been invited to the

documents in question and the Tribunal had in fact considered contents of

the documents on merits and as to how it would affect the appellants' case.

Having done so, in our view no injustice has been caused to the appellants.

Had the Tribunal declined to consider the documents in our view it would

have been appropriate that some reasons will have to be given by them for

depriving the parties the benefit of the submissions to be made on the basis of

such additional documents. This, in our view is necessary since the rules itself

provide for the right to seek reliance upon additional documents. We have no

doubt that in the present case the Tribunal did not commit any error in the

facts and circumstances of the present case in not having passed the order on

the application for leading additional evidence contained in AEPB before

proceeding to pass the order on merits of the controversy in the appeal.

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We, therefore, answer question (A) in the negative, that is, in favour of the

Revenue and against the appellants.

The Second Question

21. According to Mr. Shah the second question deserves to be answered

in negative and in favour of the appellant - assessee. He submitted that while

dealing with second question one has to consider three aspects. Firstly, the

applicability of Section 54F(1) juxtaposed with Section 54F(4); Secondly, non-

completion of construction of the building in which the appellant - assessee

had agreed to purchase flats and Thirdly, contiguity of three flats which the

appellant - assessee had agreed to purchase. Mr. Shah referred to the

impugned order and submitted that relevant portions of the impugned order

are to be found in paragraph 8 to 11 thereof. He submitted that the assessee

surrendered tenancy on 13th September, 2005 and received net consideration

of Rs.1.66 crores. The assessee had invested a sum of Rs.1.33 crores towards

construction cost of the new flats before the due date for filing the return

under Section 139(4) of the Act. He submitted that even before the due date of

filing the return under Section 139(1), a sum of Rs.55 lakhs had been paid

over but the benefit was denied to him.

22. Mr. Shah drew our attention to the provisions of Section 54F and

submitted that Section 54F(4) provides that the net amount of consideration

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which is not appropriated by the assessee towards the purchase of the new asset

within one year or which is not utilized by him for the purchase or

construction of the new asset before the date of furnishing the return of

income under Section 139, shall be deposited by the assessee in a separate

account before furnishing the return of income under sub-section (1) of

Section 139. This provision according to Mr. Shah is to be read as a proviso

to Section 54F(1) and read as such, the appellant - assessee would be entitled

to benefit under section 54 F. He submitted that filing of a return has no

relevance since Section 54F (4) in its present form would be read as extension

to Section 139(1).

23. Mr. Shah relied upon the following decisions in support of his

submissions on the second question.

i) Commissioner of Income Tax vs. Rajesh Kumar Jalan (2006) 286 ITR

274;

ii) Commissioner of Income Tax vs. Punjab Financial Corporation

254 ITR 492;

iii) Commissioner of Income Tax vs. Kullu Valley Transport Co. P. Ltd.

77 ITR 518;

iv) Humayun Suleman Merchant vs. The Chief Commissioner of

Income Tax, Mumbai in Income Tax Appeal No.545 of 2002

decided on 18th August, 2016;

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v) K. P. Varghese vs. Income Tax Officer, Ernakulam and Anr. 131 ITR

596 (SC);

      vi)       CBDT and Others vs. Aditya V. Birla 170 ITR 137;

      vii)      Commissioner of Income Tax vs. J.H. Gotla 156 ITR 323;

      viii)     Commissioner of Income Tax vs. Mrs.Hilla J.B. Wadia (1995) 261

                ITR 376;

      ix)       Commissioner of Income Tax vs. R. L. Sood 2000 245 ITR 727;

      x)        Munibyrappa vs. Commissioner of Income Tax 265 ITR 560;

24. Mr. Shah submitted that important dates such as the date of approval of

the amended plan 8th March, 2002 was not taken into account by the

Tribunal. Although this date would have made a difference to the case. Mr.

Shah then made reference to the observations of the Tribunal in paragraphs

9 and 10 of the impugned order wherein the Tribunal had come to certain

conclusions apropos the assessee's entitlement to claim exemption under

Section 54F of the Act arriving at a decision but had failed to record whether

these documents had been admitted in evidence. According to him, had the

Tribunal decided the issue of admissibility by passing a reasoned order, the

appellant could have been able to clear any doubts with the Tribunal.

25. Mr. Shah submitted that the expression ' shall'' appearing in Section

54F(4) is not mandatory but only directory. To this effect, he relied upon the

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decision of Punjab and Haryana High Court in Commissioner of Income

Tax vs. Punjab Financial Corporation 254 ITR 6 and submitted that

the question as to whether a statute is mandatory or directory depends upon

the intent of the Legislature and not upon the language in which the intent is

clothed. He further submitted that in Section 54F the words 'shall' be

deposited by him before furnishing such return (such deposit being made

in any case not later than the due date applicable in the case of the assessee

for furnishing the return of income under sub-section (1) of Section 139), is

indicative of its directory nature and it is not mandatory to deposit such sum

before the specified date and non-deposit would not be fatal to the appellant

- assessee's claim for exemption.

26. According to Mr.Shah the interpretation placed on Section 54F by the

impugned order results in absurdity since the appellant - assessee had paid

entire consideration demonstrating his intention to purchase new premises.

Having paid the entire consideration he was not required to deposit monies

in any specified account. On account of construction of premises/building

being incomplete, the assessee was deprived of benefit of Section 54. Such

technical interpretation ought not to be placed on the section. He, therefore,

submitted that the second question is liable to be answered in the affirmative.

He submitted that making the investment is the critical requirement for

Section 54. In the present case the Appellant had remitted the entire price

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before the due date yet the impugned order while dealing with the assessee's

case had observed in paragraph 9 that the contention of assessee having

invested a sum of Rs.1.33 crores towards construction of flat before due date

of filing return under Section 139(4) cannot be accepted because sub-section

(4) of Section 54F clearly mentions that the amount of net consideration which

is not appropriated by the assessee towards construction of new premises

before the date of furnishing return under Section 139 'shall' be deposited by

him before furnishing the return (such deposit being made in any case not

later than the due date applicable in the case of the assessee for furnishing

the return of income under sub-section (1) of Section 139).

27. Mr. Shah submitted that this interpretation was incorrect and based

on improper appreciation of provisions. Merely because the Tribunal had

queried the assessee as to stage of construction and to which the assessee

responded that the construction was in progress, the Tribunal had proceeded

to hold that construction had not been completed even after a lapse of seven

years and declined to accept assessee's contention that three residential flats

which were adjacent to each other were contiguous and therefore to be

treated as one unit.

28. Mr. Shah further submitted that the provisions similar to Section 54F

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to be found in Section 22 of the 1922 Act were in pari materia with Section

139. Section 24(2) is pari materia to Section 72 and Section 22(2a) of 1922

Act was in pari materia to Section 80 which dealt with withdrawal of losses

and considering this aspect, the Supreme Court in Commissioner of

Income Tax vs. Kullu Valley Transport Co. P. Ltd. 77 ITR 518

held that Section 24(2) confers benefit of losses being set off and carried

forward and there is no provision in Section 22 of that Act for determining

losses for the purpose of Section 24(2). Section 22(2A) simply says that in

order to get the benefit of Section 24(2) the assessee must submit his loss

return within the time specified under Section 22(1). Thus, a return so

submitted is a valid return. It further held that if two views are possible, the

view one which is favourable to the assessee must be accepted. In that case the

appellant assessee had two points to urge, firstly, that the delay in submission

of the return be condoned and return should have been treated as having made

under Section 22(3) which Mr. Shah submitted is similar to Section 139(4). In

such case there would have been valid return under Section 22(2A). He

submitted that Section 22(2A) was in pari materia to Section 80. Furthermore,

Mr. Shah pointed out that Section 24(2) which was in pari materia to section

22, providing for carrying forward of business loss, contained a specific

provision whereunder, if the assessee sustains a loss of profit or gain

in any year being a previous year, in any business, profession or

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vocation, the loss cannot be partly or wholly set off or the whole loss,

(where the assessee had no other head of income) could be carried forward to

the following year demonstrating a beneficial interpretation.

29. Mr.Shah submitted that provisions of Section 54 should have been

interpreted in manner beneficial to the assessee. The Court held that there is

no requirement when the question is submitted to the opinion of the High

Court it found that it consisted two, (i) whether the loss returned by the

assessee was determined by the Income Tax Officer for the relevant assessment

year and (ii) whether those losses could be carried forward after being set off

under Section 24(2) of the Act. The Court relied that Section 22(3) is merely a

proviso to Section 22(1) and thus, a return submitted at any time before the

assessment is made is a valid return. Relying upon the said observation Mr.

Shah submitted that in the present case also the date of filing the return is of

no relevance and Section 139(4) should be read as extension of Section 139(1)

and to that effect he submitted that the date of filing return is of no relevance

provided other conditions had been satisfied, namely, that of investing amount

received from the sale of old property. He, therefore, submitted that second

question is liable to be answered in the affirmative.

30. When his attention was drawn to the fact that this Court had in case of

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Humayun Merchant (supra) had delivered a judgment dated 18th

August, 2016 which would cover the issue, Mr. Shah submitted that the said

decision could be differentiated. He further submitted that the decision in

Humayun Merchant (supra) was per incuriam inasmuch as it had not

appreciated the judgment of the Guwahati High Court in Commissioner of

Income Tax vs. Rajesh Kumar Jalan (2006) 286 ITR 271 which has

been referred to on behalf of the assessee. He then proceeded to attempt

differentiation, referring to the facts of the case of Humayun Merchant

(supra). He submitted that relevant dates in that case were 29th April,

1995 but the appellant sold plot of land for consideration. The petitioner

paid two installments of Rs.10 lakhs each in July 1996 and October 1996

before the due date of filing the return under Section 139(1) of the Act, the

due date being 31st October, 1996. On 1st November, 1996 a further

installment was paid to the developer and the applicant filed his return of

income on 4th November, 1996 which was after the due date of filing the

return of income. Apropos Mr. Shah's submission that the decision in

Humayun Merchant (supra) was per incuriam having failed to notice that the

decision in the Supreme Court in case of Rajesh Kumar Jalan (supra) we are

unable to agree.

31. In our view the submission of Mr. Shah that the expression 'shall'

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appearing in Section 54F(4) is not mandatory but only directory has no merit

inasmuch as not only Section 54F(4) used the word 'shall' be deposited it is

followed by the bracketed portion which reads :

"(such deposit being made in any case not later than the due

date applicable in the case of the assessee for furnishing the

return of income under sub-section (1) of Section 139)"

In view of this clarification Mr.Shah's submitted that the word 'shall' is not

mandatory but only directory cannot be sustained and reliance placed on K.P.

Varghese (supra) that in interpreting Section 54 we must eschew literalness

in interpretation of the section and arrive at an interpretation which is not

absurd, is of no avail.

32. In Aditya V. Birla (supra) the court observed that an exemption

provision must be interpreted as the situation demands and not in a technical

sense. We do not see how this decision assists Mr. Shah. As far as possible a

beneficial provision should be liberally but not if to the extent that renders the

intent of the provision redundant. The restrictions on the time within which the

conditions of Section 54 have to be complied with are reasonable. If we were to

take a different view it would result in dilution of the statutory provision and

promote misuse.

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33. In J.H. Gotla (supra) the Court observed that interpretation of a

taxing Statute would submit to equitable construction where strict literal

construction leads to an unjust result. We do not find that the Appellant has

faced an unfair result or that the interpretation of the provisions was improper.

In Mrs.Hilla J.B. Wadia (supra) the assessee had satisfied the material test of

having domain over the flat and having made an investment therein. In that

behalf we hasten to add that the scheme of Delhi Development Authority

clearly provided for an allotment letter to be issued on the first installment

being paid and that the allotment letter is final unless it is cancelled or the

allottee withdraws from the scheme. It further observed that under the scheme,

the allottee would get title to the property on the issuance of the allotment

letter and that the payment of installment is only a follow up action and taking

delivery of possession is only a formality.

34. In the fact situation at hand we are afraid the assessee can derive no

benefit from the provisions of circular No.672 dated 16 th December, 1993

inasmuch as the scheme contemplated in paragraph 2 of circular No.471 is

not available to the appellant. The appellant has to obtain the allotment letter

from the developer under the provision of Maharashtra Ownership of Flats Act,

1963 (MOFA) and not from the co-operative society. The allotment letter

issued by the developer does not confer title until the agreement for sale under

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the provisions of the MOFA is registered. In the present case, however, it is not

in dispute that the agreement for sale was entered into only on 24th November,

2008 beyond the period of three years from the date of surrender of tenancy

which was 13th September, 2005. Moreover, the developer had no approval

for construction of the 9th floor of Wing 'C', wherein the assessee had booked

three flats and such approval was received by the builders only on 7th

September, 2010. Thus, according to us there is no question of assessee

establishing the title over the property which was not been approved for

construction at the material time.

35. In R. L. Sood (supra) it was held that a substantial amount being paid,

the assessee acquired substantial domain over new premises and merely

because the builder failed to hand over possession of the flat within the period

of one year, the assessee cannot be denied the benefit of the benevolent

provisions of Section 54. We observed in that case, an agreement of purchase

had been entered into within one year of sale of old residential home. On

facts, therefore, it clearly can be differentiated. Moreover, the assessee in that

case had the benefit of board circular no.471 which clarifies that under the

allotment letter issued by DDA under the self-financing scheme, the allottee

gets title to property which is not so in the case at hand. We are of the view

that the issue pertaining to incomplete construction and that of contiguity of

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flats need not be gone at this stage since on very first issue, we are not satisfied

with the eligibility of the appellant assessee to claim exemption under Section

54F. Such being the position, in our view it is not necessary to consider the

aspect of non-completion of construction and flat being reportedly contiguous

since these are aspects in any case did not arise in the assessment year under

consideration. We must not lose sight of the fact that we are presently

concerned with assessment year 2006-07 in which year these issues did not

arise.

36. We have also considered the submission of Mr. Shah based on the case

of Munibyrappa (supra) that the case laws relied upon by the appellant before

the Tribunal was not considered and the Tribunal had brushed aside case laws

in a single sentence. We noted that grievance of the assessee is based on the

observations of Tribunal in paragraph 11 that they have not relied on the

decisions cited. Every decision cited may not be relevant. We find that the

decisions cited were relating to contiguous units being treated as one residential

unit. We have already observed that we are not required to go into this aspect

in order to answer the question, since on first principles, we find that the

assessee had not complied with Section 54F. In our view it is not necessary to

consider this aspect of challenge and hence reference to said decision is of no

avail to the assessee. The other cases enlisted by us in this judgment have no

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bearing on the facts of the case of the Appellant herein.

37. In the course of the submissions in support of the Appellants' case over

exemption under section 54F Mr. Shah has strenuously argued and tried to

draw a parallel between the provisions of Section 24(2) of the 1922 Act and

Section 72 contending they are in pari materia. Likewise Sections 22 and

22(2A) were in pari materia with Sections 139 and 80 respectively of the 1961

Act. However, in our view this does not come to assistance of Mr. Shah

inasmuch as the language of Section 54 will not admit of such an

interpretation. We have already taken a view that the consequences of the

amount of capital gains or difference between amount spent for purchase of

house and the total amount of capital gains not being deposited in the

specified account in the case of Humayun Suleman Merchant (supra). We

find no reason to take a different view in the facts and circumstances of the

present case. Accordingly, for all the reasons set out above question (B) is

answered in the affirmative in favour of the Revenue and against the Assessee.

The Third Question

38. As far as the third question is concerned, as to whether the Tribunal

infringed the principles of natural justice in not providing an opportunity to

rebut the conclusion of the Tribunal based on circular no.495, Mr. Shah

submitted that the assessee had no opportunity to deal with contents of the

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circular referred to by the Tribunal in its order. He relied upon circular dated

28th September, 1987 which dealt with scheme for 100% deduction in cases

of long term capital gain fell to new scheme of deposit of capital gain under

Section 54B, 54D and 54F and submitted that the Tribunal ought not to have

relied upon said circular to decide the issue against the assessee. In support of

his submission on question (C) Mr.Shah placed reliance on the observations of

House of Lords in Breen Vs. Amalgamated Engineering Union (1971) 1 All

England Reports 1148 to buttress arguments that providing reasons was a

basic rule of natural justice and one of the fundamentals of good

administration. Relying upon this observation Mr. Shah submitted that

although the impugned order dealt with documents the same were held

against the appellant without providing the appellant an opportunity to meet

any doubt that the Tribunal may have had.

39. We do not find that the Tribunal has based its decision on the effect of

circular No.495 on the other hand only reference to the said circular is to be

found in paragraph 9 of the impugned order which read as follows :

".... ..... This view is also supported by the departmental

Circular No.495 dt. 22.9.1987 by which the Board has

clarified that the amount has to be deposited before the due

date of filing of the return under Section 139(1) of the Act.

The assessee fails on this count also."

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40. We find that the Tribunal has referred to the said circular in passing

the order only by way of clarification that the amount has to be deposited in

specified account was required to be deposited before due date of return under

Section 139(1). Since it is the case of the Appellants that the deposit has not

been so made, the question of the assessee being affected, by the said circular

does not arise.

41. We enquired of Mr. Shah as to whether the appellant's application for

leading additional evidence was heard separately before the main appeal was

taken up for hearing to which he replied that the application for additional

evidence was heard along with the main appeal and that all arguments on the

main appeal on behalf of the parties had been concluded on 8 th October, 2012.

To a specific query as to whether he canvassed the appellant's case based in

the AEPB, he fairly stated reference was made to the additional documents but

submitted that if a reasoned order is passed allowing or disallowing the AEPB

the appellant could have been better placed while making the submissions

before the Tribunal. Mr. Shah fairly conceded that all arguments on the appeal

has been advanced before the Tribunal on the same date and that there was no

occasion for separately considering the application for leading additional

evidence.

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41. Thus, it becomes evident that the appellant had argued his appeal

entirely. Therefore we believe that if the appeal had been decided in favour of

the appellant the appellant, he probably may not have considered the

procedure followed by the Tribunal as ad-hocism. The Revenue could have

possibly objected to the course followed by the Tribunal. In the circumstances

we do not find that the Tribunal infringed upon the principles of natural justice

in not providing an opportunity to the Appellants to rebut the conclusions

described as detrimental. In any event this Court is not in a position to verify

whether in fact the contents of the circular were put to the assessee or whether

the assessee had dealt with the submissions before the Tribunal. These are

matters within knowledge of the Tribunal and if a diligent assessee would have

approached the Tribunal for rectification, if he felt there was justification.

However, that not having been done, we do not find that the Tribunal can be

faulted in present set of facts. We, therefore, answer question (C) in the

negative in favour of the Revenue and against the Assessee.

42. The Appeal is disposed of accordingly. No order as to costs.

          (A. K. MENON, J.)                    (M. S. SANKLECHA, J.)