2018 (1) TMI 863 - HC - Income Tax

Court rules petitioner in Kochi Metro case; assessing officer must act fairly; excess tax refund duty emphasized.

The court ruled in favor of the petitioner in a case involving the assessment of capital gains for compensation received for land acquired for the Kochi ... Capital gains resulting from the acquisition of land - revised return not filed - whether in the absence of a revised return, AO is precluded from considering, in a proceedings under Section 143 the contention of the assessee that the capital gains disclosed in the return filed by him is not exigible to tax? - there cannot be any assessment on the basis that the deduction claimed by him under that head is not admissible - Held that:- 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 under Section 143 to the assessee on the technical plea that the assessee has not filed a revised return. It is so since the paramount duty of the assessing officer is to complete the assessments in accordance with law. 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 instant case, the petitioner 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 petitioner, 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. No hesitation to hold that Ext.P12 order, which is impugned in the writ petition, is a clear case where the first respondent has penalised the petitioner for having paid tax on an income which is not exigible to tax. The said order, in the circumstances, is liable to be interfered with. - Decided in favour of assessee Issues involved:1. Assessment of capital gains for compensation received for land acquired for Kochi Metro Rail Project under the Income Tax Act.2. Validity of the notice issued under Section 143(2) of the Act for scrutiny of the return filed by the petitioner.3. Exemption from tax under Section 96 of the Land Acquisition Act for compensation received for land acquired.4. Challenge to the order raising a demand based on cost indexation of the land.5. Allegation of pre-dated order issued maliciously to defeat a pending writ petition.6. Jurisdiction of the assessing officer to consider the contention of the assessee without a revised return in a Section 143 proceeding.7. Duty of the assessing officer to act fairly and refrain from levying tax on exempted income.8. Applicability of the decision in Goetze (India) Ltd case to the present case.Detailed Analysis:1. The petitioner received compensation for land acquired for the Kochi Metro Rail Project and disclosed capital gains in the return filed under the Income Tax Act. The petitioner claimed deduction based on indexed cost of the land. The first respondent issued a notice for scrutiny of the return, focusing on the deduction claimed under capital gains.2. The petitioner responded to the notice reiterating the fair market value of the land as on 01.04.1981. The petitioner cited Section 96 of the Land Acquisition Act, which exempts compensation for acquired land from tax. The petitioner requested to drop the proceedings, leading to a writ petition challenging the continuation of the proceedings under Section 143.3. A subsequent order was issued raising a demand based on a different valuation of the land. The petitioner alleged the order was pre-dated to defeat the pending writ petition. The petitioner challenged the order on the grounds of being unsustainable and not considering the exemption under the Land Acquisition Act.4. The first respondent argued that the order was issued after the petitioner's representative appeared and submitted a written statement. The petitioner's contention of the order being pre-dated was disputed.5. The court examined the circumstances and concluded that the order was not issued maliciously. However, considering the pending writ petition and the alternative remedy of appeal, the court decided to review the correctness of the order in the current proceedings.6. The main issue was whether the assessing officer could consider the petitioner's contention of non-taxability without a revised return. The court emphasized the duty of the assessing officer to act fairly and refrain from levying tax on exempted income, even without a revised return.7. The court referenced a Supreme Court decision emphasizing the obligation of the revenue to refund excess tax paid due to mistakes or exemptions. In this case, the petitioner had paid tax based on ignorance of the exemption. The court held that the order penalizing the petitioner for paying tax on non-taxable income was unjust.8. The court distinguished the present case from the Goetze (India) Ltd case, as it dealt with a different issue of deduction claim. The court allowed the writ petition and quashed the order assessing capital gains on the acquired land.