Tax authorities must consider assessee's bona fide rectification plea for alternate exemption provision despite initial error.

(Judgment of the Court was delivered by Dr.G.Jayachandran J.)

This Appeal is filed by the assessee being aggrieved by the order passed by the Income Tax Appellate Tribunal, Chennai in ITA.No.336/Mds/2009 dated

27.11.2009.

2. The facts of the case are as follows:

For the assessment year 2000-01, the assessee filed a return of income on

30.01.2003, declaring acquisition of 1.22 acres of land during the financial year 1991-1992. Out of this, an extent of 70 cents was sold during the previous year 1999-2000. The assessee claimed exemption under Section 54B of the Income Tax Act, in respect of long-term capital gains reinvested under the Capital Gains Accounts Scheme. Subsequently, the Commissioner of Income Tax, exercising power under Section 263 of the Act, issued a notice to the assessee to show cause why the assessment should not be revised in view of a wrongful allowance of exemption under Section 54B to the tune of Rs.14,70,000/-. 3. According to the Commissioner of Income Tax, Section 54B of the Income Tax provides an exemption only to an individual assessee and does not extend to Hindu Undivided Family (HUF). The assessee, on receipt of notice, has responded stating that the claim for exemption under Section 54B was erroneous and instead it should be considered under Section 54EB. However, the Commissioner remanded the matter to the Assessing Officer to redo the assessment after granting the assessee an adequate opportunity to be heard. Subsequently, the Assessing Officer, the Appellate Authority and the Tribunal consistently held that the exemption claimed by the assessee in the status of an HUF cannot be permitted under Section 54B of the Act.

4. The assessee is before this Court stating that immediately on receipt of notice issued by the Commissioner under Section 263 of the Act, a submission was made stating that the claim should be considered under Section 54EB of the Act. It is the case of the assessee that this submission was consistently ignored throughout the proceedings. Without considering the request for such rectification, the impugned order was passed.

5. This Court, at the time of admission, framed the following substantial questions of law:

“(i) Is not the word “assessee” used in Section 54B of the Income Tax Act includes HUF?

(ii) Is not the Appellate Tribunal bound to consider the plea of the assessee that they claimed exemption only under 54EB and not 54B?”

6. The learned Standing Counsel appearing for the Department submits that for the Assessment Year 2000-01, the exemption under Section

54B was not available to an assessee with the status of an HUF. It is contended that as the law stood prior to the 2013 amendment, the assessee who claims to be an HUF could not resort to the benefits of Section 54B. To support this contention, the learned counsel placed reliance on the unamended provisions of Section 54B, which read as follows:

“54B- Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases:- [Subject to provisions of sub-section (2), where the capital gain arises] from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his for agricultural purposed [( hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say:-

(i) if the amount of the capital gain is greater than the cost of th