TMI Blog2004 (8) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... d 'escapement of income' was non-existent; and (b) a valid return was pending at the time of initiation of action under section 147. Should have held that initiation of proceedings under section 147 was wholly unlawful and the assessment order passed in pursuance of the same was null and void. 3. Because in any case, owing to non-issuance of notice under section 143(2) in relation to the return filed on 16th August, 2002 in compliance with the notice dated 16th July, 2000, under section 148, the assessment order dated 26th March 2003 was liable to be declared as nullity. WITHOUT PREJUDICE TO THE AFORESAID 4. Because the authorities below have erred in law and on facts in holding that the investment made in 'remodelling, renovation of house No. 3/3/74, Rekabganj, Faizabad did not amount to investment in construction of house' and in holding that a sum of Rs. 3,45,000 (as had been received by the appellant on transfer of capital asset) was liable to taxation under the head 'capital gain'. 5. Because the appellant's claim about investment in construction of house property (by utilizing the sale proceeds amounting to Rs. 3,45,000) was fully supported by the relevant documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2000-01. 4. The learned counsel for the assessee, Shri S.K. Garg, submitted that the initiation of proceedings under section 147 by issue of notice dated 18-7-2002, was bad in law, for the reason that such a notice had been issued during the pendency of valid return. With reference to the chronology of dates and events, it was pointed out that the return in this case had been filed voluntarily, although belatedly, on 30-7-2001, after claiming exemption from capital gain as per the following narration as appearing in the statement showing 'Computation of Income'. ---------------------------------------------------------------- 2. Capital gains ---------------------------------------------------------------- (i) Sale proceed realized on 31-7-1999 from Ravi Kapoor etc. of Edward Medical Hall's shop 45,000 (ii)Sale proceed realized on 5-8-1999 from Ravi Kapoor etc. of Edward Medical Hall's shop 3,00,000 -------------- 3,45,000 -------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .); S.P. Kochhar v. ITO [1984] 145 ITR 255 (All.); Trustees of H.E.H. the Nizam's Supplemental Family Trust v. CIT [2000] 242 ITR 381 (SC) and CIT v. M.K.K.R. Muthukarauppan Chettiar [1970] 78 1TR 69 (SC) etc." 6. It was further clarified by the learned Counsel that the earlier decision of the Hon'ble Allahabad High Court in the case of Pradeep Kumar Har Saran Lal v. Assessing Officer [1998] 229 ITR 46 wherein their Lordships had laid down the following proposition: "We have already found that whatever exercise was done by the Assessing Officer to bring the profits computed under section 44AC to tax was ab initio void and, therefore, by virtue of that exercise it cannot be said that the profits had been assessed to tax and if that is so, the plain conclusion is that the profits having accrued to the petitioner from the business of alcoholic liquor during the relevant financial year which according to the Assessing Officer were liable to tax, had escaped assessment. If the Assessing Officer had reason to believe that such profits had escaped assessment, then we see no good reason why reassessment proceedings could not have been initiated against the petitioner. The submission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in section 147. In the statement of total income as had been filed alongwith the return on 30-7-2001, the assessee had clearly stated that the sale proceeds had been "invested in remodel and renovation of residential house No. 3/3/74, Rekabganj, Faizabad." Without there being any material on record or any information having come to the knowledge of the Assessing Officer to the contrary, the Assessing Officer could not have held the investment of Rs. 3,47,000 in the 'remodel and renovation' in the present case did not amount to construction of a residential house and, therefore, the 'reasons recorded' by him do not meet the requirement of law. In support of this contention, the learned Counsel referred to and relied upon the following cases: (a) Sheo Nath Singh v. AAC [1971] 82 ITR 147(SC) (b) ITO v. Lakhmani Mewal Das [1976] 103 ITR 437(SC) and (c) Ganga Saran Sons (P.) Ltd v. ITO [1981] 130 ITR 1(SC) as had earlier been referred to and relied upon before the Authorities below also. 9. It was further submitted that in any case the assessment order dated 26-3-2003 itself is illegal for the reason of non-issuance/non-service of mandatory notice under section 143(2), af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make assessment. If yes, then such decision is to be implemented within the period prescribed in the proviso. In the second part, it contains the procedural aspect, i.e., the mode for exercising the jurisdiction. In such case, the Assessing Officer is required to serve the notice." 10. On the other hand, the ld. DR, referred to and relied upon the findings of the ld. CIT(A) as given in para 2 of the appellate order dated 28-8-2003, which is the subject matter of the present appeal, which are reproduced hereunder: "The Assessing Officer has pointed out that although the appellant had claimed exemption from capital gain, but in his return or in the computation sheet, there was no mention of the section under which the exemption was claimed. Since the assessee had invested the sale proceeds of the property in remodelling and renovation of an already existing house, the Assessing Officer held that the appellant was not entitled for any exemption. Therefore, holding that income chargeable to tax had escaped assessment, the Assessing Officer initiated proceedings under section 147. The argument of the appellant that the reasons recorded by the Assessing Officer cannot be said to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted candidly that no such notice was issued, after the assessee had filed the return in compliance with the notice under section 148, in terms of its letter dated 16-8-2002. However, such a notice had duly been issued on 13-8-2002, after initiation of proceedings under section 148, which had gone to meet the requirement of law. Without prejudice to this, the ld. DR submitted that non-service of notice under section 143(2) in the present case, can at best be said to be an irregularity which is curable even at the stage of the Hon'ble ITAT and the assessee's plea for annulment of assessment on this score, therefore, deserves to be rejected. In support of his plea, reliance was placed on the following decisions: (a) Sant Baba Mohan Singh v. CIT [1973] 90 ITR 197 (All.); (b) Rattan Lal Tiku v. CIT [1974] 97 ITR 553 (J K). 13. In his rejoinder, Shri S.K. Garg submitted that the cases of Sant Baba Mohan Singh and Rattan Lal Tiku do not have any application in the present case, as the same related to the assessments prior to 1-4-1989. It was only with effect from 1-4-1989 that a time limit has been set down for issuing notice under section 143(2), which has materially changed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in assuming jurisdiction under section 147 of the Act. As per this Explanation also, the re-assessment could be made where the return has been filed but the assessment was not done. If somebody goes by the arguments of the learned Counsel, where an intimation under section 143(1)(a) was issued but no notice under section 143(2) is issued, it will be deemed that no assessment has been made. Under these circumstances, clause (b) of Explanation 2 will be attracted and the Assessing Officer will be justified in assuming powers under section 147 of the Act. In case the intimation under section 143(1)(a) was treated as assessment, clause (c) of Explanation 2 would be invoked. But neither the section nor the Explanation thereunder put any embargo on the Department that unless the time limit for issue of notice under section 143(2) has expired no notice under section 148 could be issued. We, therefore hold that the learned Counsel's arguments in this behalf have no force and these are rejected. 16. However, a very interesting situation has arisen in this case. The notice under section 143(2) has been issued prior to filing of the return (the date on which the assessee informed the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 148 itself." 17. Keeping in view the above judicial pronouncements, we have examined the facts of the case. Admittedly, in the assessee's case, no notice under section 143(2) was issued after the date on which the assessee informed the Assessing Officer of treating the original return a return in response to notice under section 148. It is also settled law that notice under section 143(2) could be issued only if the return has been filed. The notice under section 143(2) issued prior to the filing of return was non est. The notices under section 148 or 142(1) could be issued prior to filing of the return of income also. But it was not so in the case of notice under section 143(2). Thus, the re-assessment order passed under section 143(3)/148 without the issue of a valid notice under section 143(2) was illegal and the same is cancelled. 18. However the learned Counsel has challenged the following issues on merits also: (a) denial of appellant's claim for exemption from capital gain, in relation to the sale consideration aggregating Rs. 3,45,000 as had been received on sale of two shops known as Edward Medical Hall's shops on 31st July, 1999 and 5th August, 1999 which had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the two words are read jointly, then the same will mean nothing but 'buildings something new'. 6. In legal parlance also, the said terms have been interpreted to have the same in 'The Law Lexicon' by Justice Y.V. Chandrachud, second edition (Report) 2001. 'Construction and reconstruction and interchangeable terms and the only difference is that the phrase "construction" will be used where a new building is put up where none existed before, but reconstruction will apply to a building which is rebuilt in the place of an existing building, but in both these cases there would be construction. Sadha Singh S. Mulla Singh v. District Board AIR 1962 Punj. 204, 215 (East Punjab Urban Rent Restriction Act 3 of 1949 (S.3)'. Thus, from whatever angle the case is examined, 'remodel renovation' amounts to construction of house and this is more so in the present case where an altogether new portion has been built after razing old construction, to the ground. Therefore, the claim for exemption had rightly been made in the return filed by the assessee and there was no escapement of income within the meaning of section 147 of the Act. The proposed proceedings, therefore, deserve to be drop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer was obliged to find out the same and give due benefit to the assessee, at an indexed figure. As this has not been done, the inference is that the 'capital asset' did not have any 'cost of acquisition'. If an 'asset' which is subject matter of transfer does not have any cost then the very measure of computation of capital gain fails and result would be that there would be no capital gain exigible to tax as has been held by the Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Shetty [1981] 128 ITR 294. 24. From a perusal of the appellate order dated 28-8-2003 (which is the subject matter of appeal before us), it is seen that the said ground has not been adjudicated upon by the ld. CIT(A). In normal course we would have restored the matter back to the file of the ld. CIT(A) to adjudicate the said ground. However, we are refraining ourselves from doing so as we find that the decision of Hon'ble Supreme Court in the case of B.C. Srinivasa Shetty is squarely applicable to the facts of this case, as contained in the assessment order itself. In this view of the matter, we hold that the sum of Rs. 3,45,000 could not have been subjected to capital gain, even if, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sented sale proceeds realized by the assessee on transfer of long term capital asset. Like the assessment year 2000-01, the benefit of cost has not been given by the Assessing Officer which by implication means that the asset had been held to be having no cost at all. The principle as has been laid down in the case of B.C. Srinivasa Shetty was applicable and the said sum of Rs. 10,000 cannot be exigible to long term capital gains tax. 31. In relation to the similar investment made by the assessee in the immediately preceding year, we had held vide our order of even date in ITA No. 643/LUC/03 that investment in remodel and renovation to house amounted to construction of new house as the similar investment had been made in this year as well. Under the circumstances it is held that the assessee is entitled to exemption under section 54F of the Act. Such a claim for exemption is not defeated in this year as the proviso to section 54F has undergone a change with effect from 1-4-2001. In this year, it was permissible for the assessee to construct another house even though on the date of transfer he already held the residential house. Therefore keeping in view the change in law, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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