During the reassessment proceedings, the Assessee had filed a letter dated 29/02/2016 through which the Assessee filed a revised return along with reasons wherein it excluded the amount of long-term capital gain declared on the sale of the said property. This gain was earlier offered to tax in the original return and subsequently reopening was conducted by AO to treat the same as short term capital gains. This exclusion of capital gain was done due to the failure on part of the buyer to make the payments pursuant to which the Assessee filed a suit before the Hon’ble Delhi High Court for mediation and conciliation. A settlement deed dated 30/05/2015 was executed between the Assessee and the buyer wherein the Hon’ble Delhi High Court cancelled the deeds for sale of above mentioned land. However, the lower authorities rejected this relief to the Assessee by relying on the judgment of the Apex court in CIT v. Sun Engg. Works (P.) Ltd. [1992] 64 Taxman 442/198 ITR 297. (SC)  

The Tribunal held that once the sale transaction is reversed and the asset is owned and held by the Assessee being the seller, ostensibly no capital gain can be said to have accrued to the Assessee at all. The sale of the property was cancelled on 06/06/2015 and therefore, the very basis to exclude the LTCG from taxable income was not available at the time of filing the return of income in response to notice under section 148 and in fact, it became available on account of the change in circumstances during the course of hearing in the reassessment proceedings itself.

Further, the Assessee had also argued that letter dated 29/02/2016 should be considered as a rectification application u/s 154 of the Act. However, the Revenue contended that such letter did not mention to be an application u/s 154 of the Act and therefore, cannot be considered as such.

The Tribunal held that there is no format prescribed under the law for filing a rectification application u/s. 154. It observed that what is relevant is that a mistake is brought to the knowledge of the AO. Further, it is a trite law that when substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred. When the substantive law confers a benefit on the Assessee under a statute, it cannot be taken away by the adjudicatory authority on mere technicalities. Hence, too hyper-technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered. The Article 265 of the Constitution of India lays down that no tax shall be levied except by authority of law. Hence, only legitimate tax can be recovered.

An old circular no. 14(XL35) dated 11th April 1955 issued by the CBDT instructs that officers should not take advantage of the ignorance of an Assessee as is one of their duties to assist taxpayer and they should take initiative in guiding the taxpayer. The advice contained in the circular is also legally binding on all the field officers. Therefore, the Tribunal directed the AO to treat the letter dated 29/02/2016 as an application u/s 154 and thereby exclude the long term capital gain on sale of the said property. (AY.2009-10, 2012-13)