2015 (9) TMI 324 - AT - Income Tax

Revision u/s 263 - assessee claimed wrong exemption of ₹ 3,56,96,300/- against the total investment of ₹ 2,54,62,812/- under section 54 - Commissioner of Income Tax noted that the assessee had sold farm house, therefore, cannot claim deduction under section 54 of the Act and further the assessee is not entitled for deduction under section 54F - Held that - It is clear that the specific queries were raised by the Assessing Officer at assessment stage regarding long term capital gains and the Assessing Officer was satisfied with the explanation of the assessee. This itself would be an indication of application of mind by the Assessing Officer while passing the assessment order. When the Assessing Officer was satisfied with the explanation of the assessee with regard to the claim made under section 54 of the Act and he made part addition on the same, therefore, no fault could be found with the order of the Assessing Officer. When the Assessing Officer has adopted one of the courses permissible in law and the Commissioner do not agree with him, it cannot be treated as erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law Thus Assessing Officer examined the issue of long term capital gain in accordance with section 54 of the Act at assessment stage, therefore, assessment order cannot be said to be erroneous in so far as prejudicial to the interests of the assessee. The learned Commissioner of Income Tax was, therefore, not justified in cancelling the assessment order under section 143(3) of the Act. He should not have exercised the jurisdiction under section 263 of the Income Tax Act. - Decided in favour of assessee,

Summary

Issues Involved:
1. Validity of the order under Section 263 of the Income Tax Act.
2. Claim of exemption under Section 54 of the Income Tax Act.
3. Adequacy of evidence for expenses claimed by the assessee.
4. Examination of long-term capital gains by the Assessing Officer.
5. Investment in properties and Capital Gain Scheme.

Detailed Analysis:

1. Validity of the order under Section 263 of the Income Tax Act:
The appeal challenges the order under Section 263 of the Income Tax Act issued by the Commissioner of Income Tax-II, Chandigarh. The Commissioner issued a show cause notice under Section 263, noting discrepancies in the assessment order passed by the Assessing Officer, including the erroneous allowance of exemption under Section 54 and insufficient evidence for certain expenses. The Tribunal found that the Commissioner did not properly consider the detailed replies and evidence provided by the assessee. The Tribunal emphasized that the Assessing Officer had conducted detailed inquiries and made an addition of Rs. 2 lakhs to cover any discrepancies, indicating that the assessment was not erroneous or prejudicial to the interests of the Revenue. The Tribunal quashed the order under Section 263, restoring the original assessment order.

2. Claim of exemption under Section 54 of the Income Tax Act:
The Commissioner argued that the property sold by the assessee was a "gairmumkin shed" and not a residential house, thus disqualifying it from exemption under Section 54. The Tribunal reviewed the sale deed and jamabandi records, which described the property as "gairmumkin shed and house." The assessee had consistently declared rental income from the property as "income from house property" in previous returns, which the Revenue had accepted. The Tribunal concluded that the property qualified as a residential house, making the assessee eligible for exemption under Section 54. The Tribunal also rejected the applicability of Section 54F, as the case fell under Section 54.

3. Adequacy of evidence for expenses claimed by the assessee:
The Commissioner noted the lack of documentary evidence for certain expenses, including Rs. 8,70,000/- for transfer expenses and construction costs of Rs. 4,50,000/- and Rs. 12,00,000/- incurred in earlier years. The Tribunal found that the assessee had provided bank account details showing payment of Rs. 8,70,000/- through banking channels, which the Assessing Officer had verified. Regarding construction costs, the Tribunal noted that the Assessing Officer had discussed the issue at length and made a part addition, indicating that the matter was duly considered. The Tribunal held that the Commissioner should not substitute his opinion for that of the Assessing Officer.

4. Examination of long-term capital gains by the Assessing Officer:
The Commissioner argued that the Assessing Officer did not conduct necessary inquiries regarding long-term capital gains. The Tribunal examined the assessment records and found that the Assessing Officer had issued statutory notices, conducted inquiries, and made an addition of Rs. 2 lakhs after detailed discussions. The Tribunal concluded that the Assessing Officer had applied his mind and made a proper assessment, and the Commissioner's revision was unwarranted.

5. Investment in properties and Capital Gain Scheme:
The Commissioner questioned the investment of Rs. 1 crore in the Capital Gain Scheme, claiming no documentary evidence was available. The Tribunal found that the assessee had provided a copy of the FDR under the Capital Gain Scheme, which was available in the assessment record. The Tribunal also noted that the Commissioner did not raise the issue of purchasing two properties in the show cause notice, nor did he pass any order on it. The Tribunal held that such an issue could not be raised at this stage and rejected the Commissioner's findings on this point.

Conclusion:
The Tribunal set aside the impugned order under Section 263, restored the original assessment order, and allowed the appeal filed by the assessee. The Tribunal emphasized that the Assessing Officer had conducted a proper assessment, and the Commissioner's revision was not justified.