2015 (4) TMI 1275 - AT - Income Tax

Revision u/s 263 - Deduction u/s 54F filled in revised return - AO's order except a reference about a letter of revised computation there is no discussion or observation about the merits of allow ability of the claim u/s 54F qua acquisition of house property - HELD THAT - It is a settled law that income tax assessment shall be fair and reasonable; the valid claim which are due to the assessee should be allowed to it. In Goetz case 2006 (3) TMI 75 - SUPREME COURT , the claim of the assessee was refused to be entertained by the AO as no revised return was filed. Hon'ble Supreme Court held that the AO may refuse to entertain the claim in the absence of revised return. The appellate authorities i.e. ITAT can entertain the same as they have the vested power provided by the statute. Various CBDT circulars and other judicial precedents also enjoin a duty on the AO to consider lawful claims of the assessee though they may not have been claimed in the return. The legal position which emerges from the above is to the extent that AO may refuse to entertain the claim by way of revised return. However, if this claim is valid then there is no bar on his power to allow any claim in terms of above judgments and CBDT circulars . In this case what we find is that the AO has allowed the claim without commenting on the merits of the claim of the assessee and there is no observation in this behalf and what facts were filed along with return of income. AO should have made proper observation about the validity of the claim and eligibility of the assessee which is totally missing. Thus we are inclined to hold that the AO s order is erroneous and prejudicial to the interest of the Revenue. CIT looking at the lack of inquiries, instead of disallowing the claim outright should have set aside the erroneous issue back to the file of the AO to properly conduct inquiries and decide the merits of the claim. Consequently, we uphold the order of the ld. CIT but we modify the order by a direction of setting aside the issue to the file of the AO to decide it afresh after conducting proper inquiries in accordance with law by providing reasonable opportunity of being heard to the assessee. Thus the appeal of the assessee is partly allowed.

Summary

Issues:
Challenge to order u/s 263 - Deduction u/s 54F allowed by AO - Validity of revised computation - Jurisdiction of AO - Prejudicial to revenue interest - Board's Circular - Entertaining fresh claim without revised return - Merits of claim u/s 54F - AO's observations - Appellate authority's power - Legal precedents - CBDT circulars - Fair assessment - Valid claims to be allowed.

Detailed Analysis:

The judgment involves an appeal by the assessee against an order passed under section 263 of the Income Tax Act, challenging the deduction of Rs. 1.30 crores u/s 54F allowed by the Assessing Officer (AO). The case revolves around the validity of the revised computation filed by the assessee, the jurisdiction of the AO, and whether the order was prejudicial to the interest of revenue.

The assessee, an individual, had initially failed to claim the deduction u/s 54F for acquiring a residential house amounting to Rs. 1.30 crores. The AO, during assessment proceedings, allowed the corrections made by the assessee in the revised computation without thorough verification or discussion on the merits of the claim u/s 54F.

The ld. Commissioner of Income Tax (CIT) invoked his power under section 263, considering the AO's order as erroneous and prejudicial to revenue interest. The CIT emphasized that the AO exceeded his jurisdiction by allowing the deduction u/s 54F without a valid revised return filed by the assessee, as per the legal proposition established by the Hon'ble Supreme Court in the case of Goetze (India) Ltd.

The assessee contended that the revised return was not accepted due to time limitations, and relied on the Board's Circular to argue that the AO should have allowed the relief suo moto. However, the CIT rejected this explanation, highlighting the AO's failure to consider the legal provisions and the merits of the claim u/s 54F.

Upon appeal, the ITAT upheld the CIT's order, acknowledging the AO's error in allowing the deduction without proper verification. The ITAT emphasized the importance of fair assessment and lawful claims, but directed the issue to be sent back to the AO for reevaluation, providing the assessee with a reasonable opportunity to be heard.

In conclusion, the appeal was partly allowed, emphasizing the need for proper inquiries and adherence to legal provisions in allowing deductions, while also recognizing the importance of fair assessment practices.

This detailed analysis covers the issues of jurisdiction, validity of claims, legal precedents, and the importance of fair assessment practices, as highlighted in the judgment delivered by the ITAT Jaipur.