ORDER
R.M. Mehta, Accountant Member
1. This appeal is directed against the order of the CIT( Appeals) and involves for our consideration two issues. The first of these is the reopening of the already completed assessment under Section 147(a) and the other is the assailing on merits the action of the tax authorities in reducing the exemption already granted under Section 54 to the extent of Rs. 1,20,624.
2. The relevant facts are that the original assessment in this case was completed on 14-9-1978 determining the total income at Rs. 1,56,718. In computing the aforesaid income exemption Under Section 54 was allowed to the tune of Rs. 6,26,868 in respect of the sale of a house property located at Borsali Apartments and the investment of the sale proceeds in a new residential property. Subsequently it came to the knowledge of the department that apart of the newly constructed residential property had been gifted away on 3-1-1976 and the same had been reflected in a gift-tax return filed on 30-6-76. According to the ITO the assessee should have filed a revised return of income recomputing the claim Under Section 54 vis-a-vis the value of the property that stood gifted. It was his opinion that the assessee had failed to disclose truly and fully the aforesaid fact. He accordingly sought permission from the Commissioner of Income-tax for reopening the assessment and subsequently issued a notice Under Section 147(a). In response to the said notice the assessee filed a return once again claiming the sum of Rs. 6,26,868 as deduction Under Section 54 this being the figure allowed at the time of the original assessment
2.1 The ITO also issued a show-cause notice dated 28-12-1984, to the assessee whereby he indicated a proposal to adopt a higher figure as the sale consideration than the one stated in the document for sale. He also made a proposal to withdraw the deduction Under Section 54 to the extent of Rs. 1,20,624 vis-a-vis the portion of the property which had been gifted away on 3-1-1976. In the said show-cause notice the ITO also proposed to adopt the cost of the new residential property at Rs. 4,90,840 that being the figure shown in the wealth-tax return as against the amount mentioned in the income-tax return viz., Rs. 6,26,868. It may be mentioned at this stage that the ultimate item which survived for consideration was the withdrawal of the deduction Under Section 54 to the tune of Rs. 1,20,624. In this view of the matter we need not spend any further time on discussing the other two items.
2.2 It was thereafter submitted by the assessee that she had disclosed truly and fully all the facts since the gift made on 3-1-76 had been duly indicated in the gift-tax return filed on 30-6-76. This plea was not accepted by the ITO as according to him the gift-tax proceedings were separate from the income-tax proceedings and a true and proper disclosure was required to be made in the income-tax return. The ITO also observed that the assessee did not withdraw the deduction Under Section 54 proportionate to the value of the gifted property by way of a revised return. In this view of the matter the ITO held that the provisions of Section 147(a) were fully applicable and an excess deduction of Rs. 1,20,624 Under Section 54 was required to be withdrawn. He thereafter proceeded to recompute the assessee’s taxable income.
3 The CIT (Appeals) confirmed the action of the ITO on both counts, namely, the reopening aspect as also the withdrawal of the claim on merits.
4 The learned counsel for the assessee at the outset stated that all relevant facts had been truly and properly stated in the original return as well as the two revised returns subsequently filed by the assessee. He in fact invited our attention to the copies of these returns appended on the paper book furnished by him. He thereafter referred to the objections filed against the draft assessment order vide letter dated 5-4-78. According to him, the assessee had clearly indicated in the aforesaid letter the fact of gifting away a portion of the newly constructed property the value thereof being Rs. 1,20,624. It was his submission thereafter that since a proper disclosure had been made in the course of the original assessment proceedings there was no justification on the part of the department to initiate action Under Section 147(a). The learned counsel for the assessee also referred to the fact that the gift-tax return had also been filed on 30-6-76 with the same ITO with whom the income-tax return had been filed. This also according to him amounted to a complete disclosure of the relevant facts. He thereafter made an impassioned plea for the quashing of the proceedings under Section 147(a) of the Act In support of his arguments the learned counsel placed reliance on the following authorities:-
(1) Gemini Leather Stores v. ITO [1975] 100 ITR 1 (SC)
(2) ITO v. Madnani Engg. Works Ltd. [1979] 118 ITR 1 (SC)
(3) Indian Oil Corporation v. ITO [1986] 159 ITR 956 (SC)
(4) CWT v. Ramniklal D. Mehta [1982] 136 ITR 729(Ori.)
(5) Chhotalal Vashram v. ITO [1984] 19 TTJ (Ahd.) 287
5. The learned D.R. on the other hand strongly supported the orders of the tax authorities. According to him the assessee had not cared to state the relevant facts at the time of filing the original as well as the two revised returns but proceeded to do so only at the belated stage of the proceedings under Section 144 B of the Act. In this connection he invited our attention to the copies of the various returns appended on the paper book filed by the assessee’s counsel. The learned D.R. also supported the viewpoint expressed by the Income tax officer to the effect that the filing of the gift-tax return did not tantamount to a disclosure in the income-tax proceedings. It was finally urged that the action of the ITO in initiating proceedings under Section 147(a) be upheld.
6. On the merits of the case the learned counsel for the assessee stated that all that was required by Section 54 was a “substantial” use of the property and not in its entirety. According to him, it was only the garage and out-house which had been gifted and a substantial portion of the property was used for the assessee’s own residential purposes. In support of these arguments he placed reliance on the following two decisions of the Hon’ble Gujarat High Court :-
(i) CIT v. Natu Hansraj [1976] 105 ITR 43
(ii) CIT v. Kodandas Chanchlomal [1985] 155 ITR 273
In summing up his arguments the learned counsel for the assessee made an impassioned plea for the restoration of the original order passed by the ITO whereby a deduction of Rs. 6,26,868 had been allowed Under Section 54.
7. The learned DR on the other hand strongly supported the orders of the tax authorities. His subsequent arguments were in fact a reiteration of the reasons recorded by these authorities in rejecting the viewpoint canvassed by the assessee.
8. We have examined the rival submissions and have also perused the orders of the tax authorities. The paper book furnished by the assessee’s counsel has also been considered by us in disposing of the present appeal. In our opinion, insofar as the reopening aspect is concerned, the same is not justified on the facts and circumstances of the case. It is an accepted fact between the parties that the assessee at the draft assessment stage did indicate in categorical terms that she had gifted away a part of the property the value thereof being Rs. 1,20,624. It would be worthwhile reproducing the following extract from the letter dated 5-4-78 addressed to the ITO after the receipt of the draft assessment order:
It may be pointed out that the portion of land with small construction thereon has been gifted on 3-1-1976 (as per Gift-tax return filed on 30-6-76) out of the total land admeasuring 3569 sq. yds. The figures of gifted property in respect of cost of land and cost of construction are as under:
Gifted Property Land Value Construction cost of land gifted --------------- ------------ --------------------------------- 1767 sq.yds. Rs. 93,128 Rs. 27,496 = Rs. 1,20,624
The aforesaid information was duly given to the ITO and could have been taken cognizance of by the ITO as also by the IAC in issuing directions Under Section 144B and if so warranted Under Section 144-A. According to us the assessee was not required to revise the income-tax return for the asst. year under consideration since the adjustment, if any, which was required to be made Under Section 54(1 )(i) would have come about in the year in which the transfer of the “new” property took place viz., AY1976-77. The previous year with which we are concerned in the present appeal ends on 31-3-1975 whereas the gift took place on 3-1-1976 that being a date relevant to AY 1976-77. A detailed discussion on this aspect of the matter would come about in the later part of our order when we discuss the issue on merits. In the final analysis we opine, that the voluntary disclosure of the factum of gift at the draft assessment stage tantamounts to a true disclosure of primary and relevant facts and does not call for any action under Section 147(a). In case the notice is treated as one Under Section 147(6) then also it would be barred by limitation. That apart the notice Under Section 148 would also become invalid on the ground that the same should have been issued in AY 1976-77 that being the year in which the gift took place. This would become clear from the discussion in the subsequent paras. We accordingly strike down the proceedings initiated by the ITO under the aforesaid section.
9. On the merits of the case we are of the view that even if for the time being we presume that the proceedings Under Section 147(a) were validly initiated still nothing would be required to be withdrawn from the exemption under Section 54 granted at the time of the original assessment. This would be so in view of the specific provisions of Section 54(1)(i)/(ii) which envisage a situation where the newly acquired asset is transferred within a period of three years of its purchase or construction. This section speaks of a capital gain to be computed in the year in which the newly acquired asset is transferred. It is an accepted fact that a part of the newly acquired asset in the present case was transferred by way of a gift in the subsequent asst. year, viz., 1976-77. In view of the provision of Section 54 (1)(i)/(ii) the ITO was required to take suitable section under the provisions of law in AY 1976-77 and not AY 1975-76 as has been done in the present case. We find it rather strange that the aforesaid provisions have been overlooked by the tax authorities and we have had to suo motu take note of them. The two decisions of the Hon’ble Gujarat High Court relied upon by the assessee’s counsel are not relevant for taking a decision since the provisions of law themselves are absolutely clear. In this view of the matter nothing would be required to be withdrawn out of the exemption already granted by the ITO Under Section 54 at the time of the original assessment. The action to be taken by the department would come about in AY 1976-77 only. The addition of Rs. 1,20,624 made by the ITO in the course of the re-assessment proceedings is accordingly deleted on merits as well.
10. The appeal is allowed.
