2022 (3) TMI 1447 - AT - Income Tax

Revision u/s 263 - deduction u/s 54 - submission that the assessee had constructed two residential houses and if at all what was available is only exemption u/s 263 in respect of one residential house - HELD THAT - A perusal of the order u/s 263 of the Act clearly shows that even before the Pr. CIT the assessee had brought out the issue as also the decision in the case of Gita Duggal 2013 (3) TMI 101 - DELHI HIGH COURT but the Pr. CIT has not countered the said decision either but has proceeded in para 7 to say that proper verification has not been done. In fact the wordings used by the Pr. CIT are it appears from the records. The words of Section 263 of the Act are if he considers that any order passed by the AO is erroneous in so far as it is prejudicial to the interest of Revenue . There is no question of making a prima facie view in the revision order. The error has to be specific. Also the issue raised by the Pr.CIT in the present case being a highly debatable issue the same cannot be considered as an issue which is erroneous or prejudicial to the interest of Revenue. Consequently, as the AO has taken one of the possible views it is not susceptible to the provision of revision under section 263 of the Act. The order passed under Section 263 stands quashed. Appeal filed by the assessee is allowed.

Summary

Issues:
Appeal against order under Section 263 of the Income Tax Act, 1961 for AY 2015-16.

Analysis:
The appeal was filed by the assessee against the order of the Principal CIT-2, Kochi under Section 263 of the Income Tax Act, 1961 for AY 2015-16. The assessee, an individual, sold ancestral property along with siblings and invested the proceeds in prescribed bonds and construction of a residential house. The original assessment under Section 143(3) involved a disallowance of supervision charges. The Principal CIT, in the revision under Section 263, raised concerns about the proper enquiry regarding the nature of the capital assets transfer and the eligibility of the new house property for exemption under Section 54. The Principal CIT also viewed the new construction as two separate properties, contrary to the assessee's claim of a single residential house eligible for exemption under Section 54. The assessee argued that the issue was debatable, and the AO's decision was a possible view, thus not erroneous or prejudicial to the Revenue's interest.

The contention between the assessee and the Principal CIT revolved around the interpretation of Section 54 of the Income Tax Act regarding the eligibility of the new construction for exemption. The assessee cited the case of Gita Duggal to support the claim that a residential house, not a unit, is required for exemption under Section 54. Additionally, various decisions were referenced to argue that multiple residential houses could be considered for the exemption. The Principal CIT's assertion that the new construction comprised two separate properties was challenged by the assessee, emphasizing the debatable nature of the issue and the AO's adoption of a plausible view.

The Tribunal analyzed the contentions and observed that the Principal CIT's order lacked specificity regarding the alleged error prejudicial to Revenue. The Tribunal highlighted that the revision under Section 263 required a specific error, not a prima facie view. As the issue raised was debatable and the AO's decision was one of the possible views, the Tribunal concluded that the order under Section 263 was not sustainable. Consequently, the Tribunal allowed the appeal filed by the assessee, quashing the order passed under Section 263.

In conclusion, the Tribunal's decision favored the assessee, emphasizing the debatable nature of the issue raised by the Principal CIT and the validity of the AO's decision under Section 54 of the Income Tax Act. The Tribunal's analysis focused on the lack of specific error prejudicial to Revenue, leading to the quashing of the order under Section 263 and the allowance of the assessee's appeal.