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Judgment
The Assessee â€" Gopal S. Pandit, Proprietor - Pandit Developers, Mangalore, has filed this Appeal under Section 260-A of the Income Tax Act,
1961 ['Act' for short], raising the purported substantial questions of law arising from the Order of learned Income Tax Appellate Tribunal, Bangalore
Bench “Bâ€, dated 27.07.2016 for the Assessment Years 2005-06 to 2009-10.
The learned Counsel for the Assessee has suggested the following three substantial questions of law in the Memorandum of Appeal filed by the
Appellant.
I. Whether, on the facts and in the circumstances of the case, Appellate Tribunal was correct in holding that Addl./Joint Commissioner while granting
an approval u/s.153D of the Act, to an order to be passed u/s.153A of the Act, no opportunity need to be provided to the
II. Whether, on the facts and circumstances of the case, the Appellate Tribunal, notwithstanding the disclosure of transaction of sale of agricultural
land in the original return filed and in absence of any incriminating materials found in the course of search, is right in holding the transaction of sale of
agricultural land requires to be subjected to proceedings u/s.153A of the Act?
III. Whether, on the facts and in the circumstances of the case, rejection of claim made by the appellant u/s.54B of the Act is sustainable in law?
Mr. R. Chandrashekar, learned Counsel for the Appellant-Assessee has urged before us that Block Assessment Order was passed by the
Assessing Authority in the present case, namely, Deputy Commissioner of Income Tax, Central Circle, Mangalore on 27.12.2010 u/s. 153A read with
Section 143(3) of the Act for the block period of 2005-06 to 2009-10 in pursuance of search carried out at the residential premises of the Assessee at
Alangar, Moodabidri on 13.02.2009. The said Order was passed by the Deputy Commissioner of Income Tax with prior approval of the Joint
Commissioner of Income Tax, Central Range, Panaji, vide letter No.JCIT/ CR/ PNJ/ 153A/ C/ Approval/2010-11 dated 15.12.2010. But, the said
Authority, namely, Joint Commissioner did not give any notice and opportunity of hearing to the Assessee before granting approval to the Draft
Assessment Order of the Deputy Commissioner of Income Tax. Therefore, a substantial question of law arises in the present case.
Against the aforesaid Assessment Order passed by the Deputy Commissioner of Income Tax, the matter was taken by the Assessee before the
first Appellate Authority, namely, Commissioner of Income Tax [Appeals] before whom also the same question was raised, but the first Appellate
Authority negatived the said contention of the Assessee on the ground that the provisions of Section 153D of the Act, in its term, does not require any
such opportunity of hearing to be given to the Assessee by the Authority who is to approve the Draft Assessment Order to be passed by the
Assessing Authority. A similar contention though raised before the learned Tribunal by the Assessee was also negatived by the Tribunal.
Learned Counsel for the Assessee, however, submitted that Clause-9 of Manual of Office Procedure, Volume-II [Technical], February 2003 issued
by the Directorate of Income Tax on behalf of Central Board of Direct Taxes, Department of Revenue, Government of India, has laid down the
guidelines for giving such an opportunity of being heard to the Assessee by the Supervisory Officer to the proposed block assessment. He relies upon
the Order passed by the Tribunal, Pune Bench ‘B’, in the case of ‘Akil Gulamali Somji v. Income Tax Officer, Ward 4[5], Pune’,
decided on 30.03.2012. However, learned Counsel was not having the original Manual of Office Procedure for our perusal.
Section 153D of the Act relevant for our purposes is quoted below for ready reference:
“153D.: Prior approval necessary for assessment in cases of search or requisition. No order of assessment or reassessment shall be passed by an
Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of 21a sub-section (1) of section
153A or the assessment year referred to in clause (b) of sub-section (1) of section 153B, except with the prior approval of the Joint Commissioner.
Provided that nothing contained in this section shall apply where the assessment or reassessment order, as the case may be, is required to be passed
by the Assessing Officer with the prior approval of the Principal Commissioner or Commissioner under sub-section (12) of Section 144BA.â€
Learned Counsel for the Revenue Mr. Jeevan J. Neeralgi, however, has submitted that there being no specific requirement in the provisions of
Section 153D of the Act in giving any such opportunity of hearing to the Assessee before granting approval to the Draft Assessment Order to be
passed by the lower Assessing Authority, namely, Deputy Commissioner in the present case, such a requirement cannot be fastened upon the
Assessing Authority. He submitted that the act of approval is an administrative in nature and even if the same is treated as a quasi-judicial function, in
the absence of any specific provision in this regard, in Section 153D of the Act, no such inference can be drawn. He also submitted that undoubtedly
the Assessing Authority gave full opportunity of hearing to the Assessee in the present case, so also before the two Appellate Authorities below, who
have dealt with the said contention of the Assessee. He submitted that no substantial question of law arises in the present case in this regard.
Having heard the learned Counsel for the parties, we are satisfied that the internal guidelines issued by the Central Board of Direct Taxes, as urged
by the learned Counsel for the Assessee, bereft of the statutory provisions in Section 153D of the Act cannot bind the approving Authority, namely,
the Joint Commissioner to comply with the principles of natural justice by the said Authority. The Assessing Authority undoubtedly has of course given
adequate and reasonable opportunity of hearing to the Assessee and all objections on merits were considered by him. Merely because, Section 153D
of the Act requires a prior approval of the Draft Assessment Order by the higher Authority, namely, the Joint Commissioner in the present case,
because the Assessment Order was passed by the Authority below the rank of the Joint Commissioner, the provisions of the Act do not mandate that
a fresh round of opportunity of hearing should be given to the Assessee by such Authority, namely, Joint Commissioner also even for approving Draft
Assessment Order. It is not a case where the Assessee did not have any opportunity of hearing before any of the Authorities to defend his case and
some assessment of tax has been made against him fastening the liability of tax against the Assessee. The Assessing Authority as well as the two
Appellate Authorities who have concurrent powers of assessment as are available with the Assessing Authority, have admittedly heard the Assessee
on the merits of the case. Therefore, we are of the opinion that no substantial question of law in this regard can be said to be arising on the basis of
the office guidelines which are for internal purposes of the Department. They are not even statutory instructions issued u/s. 119 of the Act, which if
beneficial to Assessee have been held to be binding on the Authorities of the Department. The Assessee has also not been able to point out any
prejudice caused to him on account of approving Authority not giving him an opportunity of hearing.
The second issue raised by the learned Counsel for the Assessee is with regard to claim of deduction u/s. 54B of the Act with regard to sale of
agricultural land by him. The Authorities below have found against the Assessee that since the land in question situated at Adyar Village, Mangalore,
sold by the Assessee in the relevant period was never used as agricultural land, for a period exceeding two years, therefore the Assessee was not
entitled to the benefit of deduction u/s. 54B of the Act. For this reason also, the said finding of fact which is upheld by the two Appellate Authorities
as well, we are of the opinion that no substantial question of law arises. We quote below the provision of Section 54B of the Act for ready reference.
“54B.: Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases.
(1) [Subject to the provisions of sub-section (2), where the capital gain arises] from the transfer of a capital asset being land which, in the two years
immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his for agricultural purposes
[(hereinafter referred to as the original asset)], and the assessee has, within a period of two years after that date, purchased any other land for being
used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took
place, it shall be dealt with in accordance with the following provisions of this section, that is to say,â€
(i) if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between
the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose
of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the
purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall
be reduced, by the amount of the capital gain.]
(2) The amount of the capital gain which is not utilised by the assessee for the purchase of the new asset before the date of furnishing the return of
income under section 139, 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] in an account in any such bank or
institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official
Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if
any, already utilised by the assessee for the purchase of the new asset together with the amount so deposited shall be deemed to be the cost of the
new asset :
Provided that if the amount deposited under this sub-section is not utilized wholly or partly for the purchase of the new asset within the period
specified in sub-section (1), then,â€
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of two years from the date of
the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.â€
It would be also appropriate to quote the findings of the Assessing Authority in this regard, who has clearly found that the land in question was not
used as agricultural land for a period of more than two years.
 “5.9.1. Disallowance of exemption claimed u/s 54B of the I.T.Act.
5.9.2. In the return of income filed, the assessee computed the short term capital gain of Rs.11,97,996/- from sale of Adyar Property treating the same
as capital asset and claimed exemption u/s 54B of the I.T.Act. The assessee also in his letter dated 03.05.2010 pleaded that he is eligible for
exemption u/s 54B of the I.T.Act as he has invested the capital gain from sale of land used for Agricultural purposes for purchase of any other land
for being used for agricultural purpose. Accordingly, the assessee claimed that he has purchased an agricultural land in Moodabidri. However, on
perusal of the sale deed for purchase and sale of Adya land, it is noticed that the assessee sold this land within two years from the date of its
purchase. The date of purchase of this land was 03.09.2002 and date of sale was 15.07.2004. Therefore, the assessee was holding this land for one
year and 315 days only. As per the provisions of section 54B of the I.T.Act, the assessee or the assessee’s parents have to use the land for
agricultural purposes for a minimum period of two years. Here in this case, the assessee has not used the land for agricultural purposes for a minimum
period of two years before its sale. Moreover, from the expenses incurred as reproduced above, it can be proved that the said land was never used for
agricultural purposes after it was purchased by the assessee as the assessee was concentrating on its improvement rather than cultivation. Moreover,
the assessee, in his submissions vide dated 03.05.2010 has stated that the Adyar site was purchased for the purpose of making a farm house and guest
house for him and his family and it was not a commercial transaction. This submission of the assessee also shows that the assessee has not used this
property of agricultural purposes. Therefore, conditions specified in section 54B of the I.T.Act for claiming exemption is not fulfilled in this case and
accordingly the exemption claimed under that section is not allowable to the assessee.â€
The said findings have been upheld by the two Appellate Authorities, namely, Commissioner of Income Tax [Appeals] as well as the learned
Tribunal.
In view of the aforesaid provisions and facts, we are of the clear opinion that no substantial question of law arises in the present case.
 The appeal filed by Assessee is devoid of merit and is liable to be dismissed and the same is accordingly dismissed. No costs.