Assessee entitled to option u/s 112(1)(a) for indexation/ non-indexation and pay tax on capital gains @20% or 10%. Benefit cannot be denied merely for not filing details in income return. This was ruled by ITAT Mumbai in a recent judgment as under.
Case Law Details:
ITA No. 5977/Mum/2013 Assessment Year : 2010-11
Sanju Verma vs. DCIT
Date of Order/Judgment: 06/05/2016
Important Case Law Referred:
CIT v. Pruthvi Brokers and Shareholders Private Limited reported in (2012)349 ITR 336(Bom. HC)
Brief Facts of the Case:
The assessee individual had declared income from salary only in the return of income filed. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2), the AO observed the credit entries amounting to Rs. 1,44,84,120/in the bank account of the assessee. Despite being asked , the assessee was not able to offer , any explanation except that the said amount was received from M/s HSBC Mutual Fun,d Mumbai.
HSBC, M.F. intimated the AO that the said amount represented redemption of HSBC Global Asset Management in which the assessee invested Rs. 1,29,00,000/-. The assessee did not dispute the income of Rs. 15,84,120/- arising from the redemption of the HSBC M.F. and offered to pay long term capital gain tax on the income Rs. 15,84,120/- as per the provisions of the Act. However, the AO added the entire capital gain to the total income of the assessee and taxed it at the rate of 20% without giving the benefit of cost inflation indexation.
Aggrieved by the assessment order , the assesssee filed an first appeal before the CIT(A) and pleaded that benefit of cost inflation indexation should be granted to the assesseee. However, CIT(A) held that the assessee has not disclosed the said income in the return of income filed with the Revenue and has not availed of the option of choosing of the method of calculation of the capital gains tax as reqired, therefore AO was free to adopt either method with or without applying cost inflation index.
Aggrieved by the orders of the CIT(A), the assesse filed second appeal with the Tribunal.
Contentions of the Assessee:
The assessee submitted that the long term capital gain was to be computed after allowing the benefit of cost inflation index as per second proviso to Section 48 of the Act and rate of tax should be 20% on long term capital gains arrived at after adjusting for cost inflation index, or at the tax rate of 10% without claiming the benefit of cost inflation index at the choice of the assessee. As per Section 112 of the Income Tax Act, 1961 read with the first proviso to Section 112(1) of the Act, the afore-stated benefit of option of paying tax on long term capital gains @20% after indexation or 10% without availing the benefit of indexation has to be granted to the assessee and merely because the gains were not declared in return of income, the benefit of choosing option of paying tax at the rate of 20% or 10% as the case may be cannot be denied to the assessee. The assessee relied upon the decision of Bombay High Court in Pruthvi Broker and submitted that the long term capital gain is to be charged to tax @ 10% without adjusting for cost inflation indexation or 20% after allowing for cost inflation indexation at the choice of the assessee, whichever is beneficial to the assessee.
Important Excerpts from ITAT Judgment:
……. The above stated chargeability to tax of long term capital gains with or without the benefit of indexation u/s 112 of the Act read with second proviso to Section 48 of the Act, is to be availed at the option of the tax-payer whichever is more beneficial to the taxpayer as is contemplated by the wordings used by the legislature in the aforestated relevant provisions of the Act.
The taxes are to be collected by the authority of law as per the mandate of the Act. Merely because the assessee has not filed the details of long term capital gain in the return of income filed with the Revenue , the assessee cannot be denied the benefit of provisions of Section 112(1)(a) of the Act read with the first proviso to Section 112(1) of the Act. The assessee being an individual is entitled to choose the option whichever is more beneficial to the assessee as are available u/s 112(1)(a) read with first proviso to Section 112(1) of the Act , provided other conditions are fulfilled.
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