2018 (12) TMI 129 - HC - Income Tax

Revision u/s 263 - grant of exemption u/s 54F for four residential units purchased by utilizing the assessable capital gains is incorrect and the re-assessment order was erroneous and prejudicial to the interest of revenue - Held that - In the process of considering as to what relief the assessee is entitled to, AO held that the assessee is entitled to claim deduction under Section 54F and assigned certain reasons for that. Therefore, the larger issue was pending before the Commissioner of Appeals, and in such circumstances, the Commissioner could not exercise power under Section 263 of the Act on account of the statutory bar. Therefore, on this ground also, the assumption of jurisdiction under Section 263 of the Act was wholly erroneous. AO while completing the re-assessment proceedings has assigned certain reasons for coming to a conclusion that the assessee is entitled for deduction under Section 54F and not under Section 54 of the Act. This reason assigned by the AO has been found by us to show due application of mind. As observed, we cannot expect an AO to write a judgment. Commissioner in his order u/s 263 has to be termed as a change of opinion, or in other words, the Assessing Officer adopted one of the two views possible and in such circumstances, it cannot be stated that the order is prejudicial to the interest of the Revenue as well as erroneous. For the purpose of exercise of jurisdiction under Section 263 the twin tests are to be satisfied and even assuming, the reassessment order is to be held as erroneous, it cannot be stated to be prejudicial to the interest of Revenue as every erroneous order cannot be subject matter of Revision under Section 263. Further more, if the order passed by the Commissioner under Section 263 of the Act as confirmed by the Tribunal is allowed to stand, then the very purpose of the remand order against the original re-assessment proceedings would become a fait accompli. Thus, we are fully satisfied that the assumption of jurisdiction by the Commissioner under Section 263 of the Act was wholly without jurisdiction as the twin tests have not been satisfied and consequently, the order dated 14.03.2012 as confirmed by the Tribunal by order dated 13.07.2012 calls for interference. In the result, the appeal filed by the assessee is allowed and the order passed by the Commissioner dated 14.03.2012, under Section 263 as confirmed by the Tribunal by order dated 13.07.2012 are set aside, and it is left open to the assessee to pursue her claim before the Assessing Officer. - Decided in favour of the assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961.
2. Validity of the reassessment order granting exemption under Section 54F of the Income Tax Act.
3. Procedural propriety in the issuance of notice under Section 263 while an appeal was pending.

Detailed Analysis:

1. Assumption of Jurisdiction by CIT under Section 263:
The primary issue was whether the CIT was correct in assuming jurisdiction under Section 263 to revise the reassessment order. The court noted that the CIT's notice did not explicitly state how the reassessment order was erroneous and prejudicial to the interest of the Revenue, merely quoting the statutory language. The CIT's order dated 14.03.2012 claimed that the Assessing Officer (AO) neither applied his mind nor made any verification/enquiry regarding the nature of the property. The court disagreed, stating that the AO had indeed examined the evidence and concluded that the property was residential, thus justifying the exemption under Section 54F. The court held that the AO's order showed due application of mind and could not be deemed erroneous or prejudicial to the interest of the Revenue. Therefore, the assumption of jurisdiction by the CIT under Section 263 was deemed unjustified and without jurisdiction.

2. Validity of the Reassessment Order Granting Exemption under Section 54F:
The reassessment order dated 31.12.2009 granted exemption under Section 54F, which the CIT later contested. The court observed that the AO had provided reasons for granting the exemption, including the conversion of the property to residential use within the stipulated time and supporting evidence from the Bangalore Development Authority and photos. The court emphasized that the AO is not expected to write a detailed judgment but must show application of mind, which was evident in this case. The court also referenced the Supreme Court's rulings in Malabar Industries Vs. CIT(A) and Commissioner of Income Tax Vs. Max India Limited, which clarified that if the AO adopts one of the permissible views, it cannot be deemed erroneous. Thus, the reassessment order was valid.

3. Procedural Propriety in Issuance of Notice under Section 263:
The court examined whether the CIT could issue a notice under Section 263 while an appeal against the reassessment order was pending. According to Section 263(1) explanation 1(c), the CIT's powers do not extend to matters already considered and decided in an appeal. The court found that the appeal against the reassessment order was pending when the CIT issued the notice, making the exercise of jurisdiction under Section 263 procedurally improper. The court stated that the larger issue of the claim under Section 54 was pending before the Commissioner of Appeals, thus barring the CIT from exercising jurisdiction under Section 263.

Conclusion:
The court concluded that the assumption of jurisdiction by the CIT under Section 263 was without jurisdiction as the twin tests of being erroneous and prejudicial to the interest of the Revenue were not satisfied. The reassessment order dated 31.12.2009 was valid, and the procedural propriety of issuing a notice under Section 263 while an appeal was pending was not maintained. Consequently, the court set aside the CIT's order dated 14.03.2012 and the Tribunal's order dated 13.07.2012, directing the AO to give effect to the reassessment order granting the benefit of Section 54F to the assessee. The appeal filed by the assessee was allowed, and the substantial questions of law were answered in favor of the assessee.