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Judgment
Dr. Satish Chandra, J.—This appeal u/s 260A of the IT Act has been filed by the assessee against the judgment and order dated 29-12-2006 passed by the Tribunal in ITA No. 187/Luck/2006 for the assessment year 2001-02. On 24-7-2007, a Co-ordinate Bench of this Court has admitted the present appeal on the following substantial questions of law :
Whether on true and correct interpretation of the provisions to section 250 of the Act the Tribunal was legally correct in holding that the assessees claim for being assessed as per second proviso to section 112(1) could not have been considered and allowed from the stage of the first appellate authority?
Whether there existed any basis for the Tribunal to hold that there arose no cause of action from the order passed by the AO and the first appellate authority was not legally correct in allowing the relief to which the assessee was undisputedly entitled in law?
The brief facts of the case are that during the assessment year under consideration, the assessee had sold 16,000 equity shares of M/s Viraj Credit Capital Ltd. on 15-9-2000 for a consideration of Rs. 14,91,320 which was purchased for Rs. 88,168 on 3-7-1999. The sales resulted in long-term capital gain of Rs. 12,34,006. At the rate of 20 per cent, which was shown by the assessee on the basis of indexation, the AO accepted long-term capital gain and passed assessment order on 25-3-2004. However, being aggrieved, the assessee has filed an appeal before the first appellate authority, where a legal ground was raised that the long-term capital gain will have to be computed @ 10 per cent as per the proviso of section 112(1) of the IT Act. The assessee also submitted an application dated 4-4-2005 under rule 46A(1)(c)/(d) of the IT Rules to this effect. Finally, the first appellate authority has accepted the plea of the assessee and directed the AO to compute the long-term capital gain @ 10 per cent in accordance with the Circular No. 14 (XL-35) dated 11-4-1955 read with proviso to section 112(1) of the Act.
Not being satisfied, the Department has filed an appeal before the Tribunal, who observed in its impugned order that the assessee has shown the long-term capital gain @ 20 per cent. The assessee has not filed any revised return, so assessee cannot raise the ground before the first appellate authority. By relying on the ratio laid down by Hon''ble Supreme Court in the case of Goetze (India) Ltd. Vs. Commissioner of Income Tax, , the appeal of the Department was allowed. Being not satisfied, the assessee has knocked the door of this Court by filing the present appeal.
With this background, Sri Asish Bansal, holding brief of Sri S.K. Garg, learned counsel for the assessee submits that as per proviso of section 112(1), the long-term capital gain will have to be computed @ 10 per cent. This is a statutory right of the assessee which was raised before the first appellate authority. For this purpose, he relied on the ratio laid down in the following cases:
National Thermal Power Co. Ltd. Vs. Commissioner of Income Tax, ;
Commissioner of Income Tax Vs. Jai Parabolic Springs Ltd., ;
Commissioner of Income Tax Vs. Ramco International, ;
Abdul Qayume Vs. Commissioner of Income Tax, ;
Commissioner of Income Tax, Delhi Vs. Mahalaxmi Sugar Mills Co. Ltd., ;
CIT v. Mahalaxmi Sugar Mills Co. Ltd. (supra).
Lastly, he made a request to uphold the order of the CIT(A).
On the other hand, Sri D.D. Chopra, learned counsel for the Department has relied the impugned order passed by the Tribunal. On specific query raised on by the Bench, he accepted that the transaction in question is not disputed as AO has verified the same.
After hearing both the parties at length and on perusal of record, it appears that the assessee has sold 16,000 shares of M/s Viraj Credit Capital Ltd. The AO got the confirmation from the purchaser vide letter dated 16-3-2004. The payment was received through banking Channel, so the transaction in question is not disputed.
Needless to mention that proviso of section 112(1) was introduced with effect from 1-4-2000 by the Finance Act, 1999. In other words, it was introduced during the assessment year under consideration and assessee was not aware about latest amendment introduced by the Finance Act, 1999 with effect from 1-4-2000. Though ignorance of law has no excuse, but it can be excused in tax matter as per the ratio laid down in the case of P. Vs. Devassy V. Commissioner of Income Tax, . It is not expected that the Department shall take the advantage of assessees ignorance as per CBDT Circular No. 14 (XL-35) 1955, dated 11-4-1955. Even under the bona fide belief, the assessee has shown the long-term capital gain @ 20 per cent, but it was expected from the AO to know the latest amendment. The mistake might have been corrected by passing an order u/s 154 of the Act. In the case of CIT v. Mahalaxmi Sugar Mills Co. Ltd. (supra), it was observed that :
There is a duty cast on the ITO to apply the relevant provisions of the Indian IT Act for the purpose of determining the true figure of the assessees taxable income and the consequential tax liability. That the assessee fails to claim the benefit of a set off cannot relieve the ITO of his duty to apply section 24 in an appropriate case.
In the instant case, assessee wants to take advantage of amended provision. The said amended provision is reproduced as under :
Proviso to section 112(1)
Provided that where the tax payable in respect of any income arising from the transfer of a long-term capital asset, being listed securities exceeds ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee.
Moreover, as per CBDT Circular No. 794 dated 9-8-2000 [(2000) 162 CTR (St) 9], it was explained that :
42.1 Under the existing provisions contained in the proviso to the sub-section (1) of section 112 of the IT Act, tax on long-term capital gains arising out of transfer of listed securities shall not exceed 10 per cent of the capital gains before allowing adjustment for Cost Inflation Index. The definition of securities follows the definition given in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956.
42.2 The Act amends the proviso to sub-section (1) of section 112 to provide that long-term capital gains arising from transfer of units of Unit Trust of India and units of mutual funds specified u/s 10(23D) of the IT Act shall also not exceed 10 per cent of the capital gains before allowing adjustment for Cost Inflation Index.
42.3 This amendment takes effect retrospectively from the 1-4-2000 and shall accordingly apply in relation to the assessment year 2000-01 and subsequent years.
In the instant case, the Tribunal heavily relied on the ratio laid down in the case of Goetze (India) Ltd. v. CIT (supra), where a Division Bench of Hon''ble Supreme Court observed that:
The decision in question is that the power of the Tribunal under s. 254 of the IT Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the AO to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Tribunal u/s 254 of the IT Act, 1961. There shall be no order as to costs.
Further, in the case of Goetze (India) Ltd. (supra) it was observed that :
Deduction claimed by way of a letter before the AO, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of the assessing authority to entertain claim for deduction otherwise than by a revised return, and did not impinge on the power of the Tribunal.
[These are observations made by the Delhi High Court in the case of Commissioner of Income Tax Vs. Jai Parabolic Springs Ltd., , with reference to Goetze (India) Ltd.--Ed.]
From the above, it is clear that Hon''ble Apex Court has discussed the power of AO only but made no comment regarding the power of Tribunal. So, the said ratio is not applicable in the instant case.
Further, a Larger Bench of Hon''ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra) observed that the question of law which arose from the fact as found by the IT authority and legal issue can be raised at any stage. Hon''ble Supreme Court observed that :
Where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.
Similarly, in the case of CIT v. Jai Parabolic Springs Ltd. (supra) it was observed that :
There was no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arose in the matter and for the just decision of the case. There was no infirmity in the order of the Tribunal.
It is also pertinent to mention that in the case of Jute of Corporation of India Ltd. Vs. Commissioner of Income Tax and another, it was observed that :
An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.
In the light of above discussion, we are of the view that the assessee is entitled to raise the legal issue before the first appellate authority, which possessed co-terminus powers similar to the AO as per ratio laid down by Hon''ble Supreme Court in the case of Jute Corporation of India Ltd. (supra). Hence, CIT(A) has rightly adjudicated the statutory right of the assessee and directed to allow the long-term capital gain @ 10 per cent. The justice must not only be done but seem to have been done as observed by Lord Hewart, C.J. in R. v. Susses Justices (1924) 1 KB 256.
Therefore, we set aside the impugned order passed by the Tribunal and restore the order of the CIT(A).
The answer to the substantial question of law is affirmative in favour of the assessee and against the Revenue. In the result, appeal is allowed. No cost.