By TIOL News Service

ERNAKULAM, APRIL 17, 2018: THE ISSUE BEFORE THE HIGH IS - Whether exempted income mistakenly offered to tax, should not be retained by the Department, merely because of taxpayer's failure to show its inadmissibility through way of revised return. YES IS THE VERDICT.

Facts of the case:

The Assessee, an individual, had received a sum of Rs.1,28,43,192/- during the relevant year by way of compensation for a land acquired from him for the Kochi Metro Rail Project. He, at the relevant time was under the impression that the capital gains resulting from the acquisition of the land was exigible to tax under the Act. Consequently, in the return filed by him, the assessee disclosed the capital gains resulting from the acquisition of the said land and paid tax on that basis. For the said purpose, the assessee had worked out the indexed cost of land reckoning its fair market value at Rs.50,000/- per cent. Thereafter, the assessee was asked to establish the fair market value of the land as claimed by him. In the meanwhile, in the light of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, this Court held that compensation payable to persons for the lands acquired under the said statute was exempted from payment of tax. Taking note of the same, the assessee requested the ACIT to drop the proceedings initiated against him u/s 143. Since the ACIT had not considered such request, the assessee approached this Court, and resultantly an interim order was paased restraining the ACIT from continuing the proceedings. Disregarding the same, the ACIT completed the proceedings raising a demand for Rs.9,95,070/- on the basis that the cost indexation of the land made by assessee could not be accepted.

High Court held that,

++ the Revenue's counsel does not dispute the fact that in the light of Section 96 of the Land Acquisition Act, no tax is leviable on the capital gains resulting from the acquisition of land under the said statute. The counsel also does not dispute the fact that the only point on which the order has been issued is that the fair market value of the land adopted by assessee for cost indexation cannot be accepted. Nevertheless, it was contended by the counsel that in so far as the assessee has disclosed the capital gains resulting from the acquisition of land in the return filed by him and paid tax on that basis, in the absence of a revised return, the AO is precluded from considering the question whether the assessee is liable to pay tax on the said capital gains. The short question arising for consideration, therefore, is whether in the absence of a revised return, the AO is precluded from considering, in a proceedings u/s 143, the contention of assessee that the capital gains disclosed in the return filed by him is not exigible to tax and that therefore, there cannot be any assessment on the basis that the deduction claimed by him under that head is not admissible;

++ it is beyond dispute that the powers of AO under the Act are quasi-judicial in nature and they are duty bound, therefore, to act fairly in the discharge of their functions. They are also invested with the authority to do justice to the assessees. True, in a given case where the self assessment made by an assessee is proposed to be revised on the ground that the deduction made him in the return under a particular head is inadmissible, the AO in the absence of a revised return, would proceed on the basis of the facts disclosed by assessee in the return. But, in a case where it is apparent on the face of record that the assessee has included in his return, an income which is exempted from payment of income tax, on account of ignorance or by mistake, the AO is bound to take into account the said fact in a proceedings u/s 143. In other words, if the capital gains on a transaction is exempted from payment of tax, the assessing officer has a duty to refrain from levying tax on the said capital gains and the assessing officer cannot, in such cases, refuse to grant relief u/s 143 to the assessee on the technical plea that the assessee has not filed a revised return. It is all the more so in the light of the mandate under Article 265 of the Constitution that no tax shall be levied or collected except by authority of law;

++ in the present case, the assessee has not filed a revised return when he was made to understand that he has no liability to pay tax on the capital gains resulting from the acquisition of land. The reason is obvious that the time prescribed under the Act for submission of revised return had expired by that time. The case of the assessee, in the circumstances, is only that he shall not be penalised for having paid tax in terms of his return, on account of ignorance, on an income not exigible to tax. When the materials on record are analysed in such background, there is no hesitation to hold that it is a clear case where the ACIT has penalised the assessee for having paid tax on an income which is not exigible to tax.