2012 (2) TMI 83 - AT - Income Tax

Power of commissioner to invoke section 263 - deduction u/s 54F was wrongly allowed original assessment order framed u/s 147 r.w.s. 143(3) capital gains agricultural land sold in A.Y. 06-07 - amount deposited for purchase of plot before filing the return - ownership of the plot not transferred to the assessee by colonizer - non-construction of residential house Held that - Till the hearing of this appeal, no construction of the new asset has yet started, therefore the benefit of the exemption provided u/s 54F is not available to the assessee. The Legislation has specifically provided the period of three years, therefore, it cannot be enlarged to indefinite period even if non-construction is due to failure on part of colonizer to hand over the plot. Moreover, stipulated period of three years had already expired when the revisional jurisdiction by CIT was invoked. See CIT v. V. Pradeep Kumar (2006 - TMI - 13259 - Madras High Court), Usha Gupta v. CIT (2005 - TMI - 13751 - Rajasthan High Court) Further, allowing unproved deduction/exemption renders the order of A.O. both erroneous and prejudicial to the interest of Revenue therefore, we find justification in invoking the revisional jurisdictional u/s 263 by CIT Decided against the assessee.

Summary

Issues Involved:
1. Justification for invoking revisional jurisdiction under Section 263 by the CIT.
2. Compliance with the conditions of Section 54F for claiming exemption.
3. Examination of the assessment order's validity and its impact on the interest of the Revenue.

Issue-wise Detailed Analysis:

1. Justification for Invoking Revisional Jurisdiction under Section 263 by the CIT:
The primary issue is whether the CIT was justified in invoking revisional jurisdiction under Section 263 of the Income Tax Act. The assessee argued that the original assessment was conducted thoroughly by the Assessing Officer (AO) under Section 147/143(3) and that the order was neither erroneous nor prejudicial to the interest of the Revenue. The CIT, however, contended that the assessment order was prejudicial because the conditions under Section 54F for claiming exemption were not met, particularly the construction of a residential house within the prescribed three-year period. The Tribunal agreed with the CIT, noting that the revisional jurisdiction under Section 263 can be invoked when the assessment order is both erroneous and prejudicial to the interest of the Revenue, which was the case here.

2. Compliance with the Conditions of Section 54F for Claiming Exemption:
The second issue revolves around the compliance with Section 54F, which allows for exemption from capital gains tax if the assessee invests in a residential house within a specified period. The assessee claimed exemption under Section 54F but had not started construction of the house within the three-year period due to the plot not being handed over by the builder. The Tribunal highlighted that Section 54F requires either the purchase or construction of a residential house within the stipulated time frame. Since no construction had started even by the time of the hearing, the Tribunal concluded that the exemption under Section 54F was not applicable. The Tribunal emphasized that the language of the statute is clear and does not permit any extension beyond the specified period.

3. Examination of the Assessment Order's Validity and Its Impact on the Interest of the Revenue:
The third issue pertains to whether the assessment order was erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the AO had failed to ensure compliance with the conditions of Section 54F, which rendered the assessment order erroneous. The Tribunal also pointed out that the assessee had not utilized the capital gains for the construction of a residential house within the required period, nor was the plot registered in the assessee's name. The Tribunal referenced judgments from the Madras High Court and Rajasthan High Court, which supported the Revenue's stance. Consequently, the Tribunal affirmed the CIT's order, directing the AO to rework the total income of the assessee, thus validating the invocation of revisional jurisdiction under Section 263.

Conclusion:
The Tribunal upheld the CIT's decision to invoke revisional jurisdiction under Section 263, as the assessment order was found to be both erroneous and prejudicial to the interest of the Revenue due to non-compliance with Section 54F. The Tribunal emphasized the importance of adhering to statutory requirements and affirmed the CIT's directive to reassess the total income of the assessee.