2019 (3) TMI 78 - AT - Income Tax

Revision u/s 263 - capital gain arising to assessee under collaboration agreement - no change in income computed by assessing officer prior to initiation of 263 proceedings and post initiation of 263 proceedings - CIT found that order passed by AO u/s 143 (3) is erroneous and prejudicial to interest of revenue - original order passed by AO has been carried forward by assessee before learned CIT (A) who has also passed an order - Merging of AO s order with CIT (A) - HELD THAT - Whatever has been considered and decided in appeal by appellate authorities, such matters cannot be subject to revision under section 263 of income tax act. Rationale behind exclusion of such orders from purview of section 263 of act (revisionary proceedings) is that, if CIT (A) decides issue against revenue, revenue has right to challenge it before higher appellate forum. Therefore, generally revenue cannot have dual power of revision as well as appeal on same issue, as generally they are mutually exclusive. In present case CIT has also passed an order under section 263 on issue of chargeability of income from house property and consideration of source of investment in mutual fund and bank deposit. On both cases income determined by learned assessing officer originally prior to order u/s 263 and assessment order under section 143 (3) of act pursuant to order under section 263 of income tax act is same. There is no change in income computed by assessing officer prior to initiation of 263 proceedings and post initiation of 263 proceedings. Hence, it is apparent that there is no error in order of AO. computation of capital gain by CIT - consideration received on sale of capital gain - appeal before learned CIT(A) - HELD THAT - Issue of net sale consideration has already been decided by learned assessing officer and adjudicated by learned CIT (A), it is out of purview of provisions of section 263 of income tax act, since matter has already been considered and decided by appellate authority. There is no dispute on indexed cost of acquisition. Therefore, it is apparent that on computation of capital gain learned CIT was not correct in assuming jurisdiction under section 263 of act as matter was considered and decided by appellate authority. Therefore, on this ground also order of learned CIT passed under section 263 of income tax act is not sustainable.

Summary

Issues Involved:
1. Jurisdiction of CIT under Section 263 of the Income Tax Act.
2. Computation of long-term capital gain.
3. Eligibility for deduction under Section 54 of the Income Tax Act.
4. Examination of additional issues by CIT under Section 263.
5. Validity of the assessment order passed by the AO.

Issue-wise Detailed Analysis:

1. Jurisdiction of CIT under Section 263 of the Income Tax Act:
The assessee contended that the CIT wrongly assumed jurisdiction under Section 263 regarding the computation of long-term capital gain, arguing that the order passed by the AO under Section 143(3) was neither erroneous nor prejudicial to the interest of revenue. The CIT's jurisdiction was challenged on the grounds that the issue had already been considered and decided by the CIT(A), and thus, the assessment order had merged with the appellate order, precluding revision under Section 263.

2. Computation of Long-term Capital Gain:
The AO initially computed the total income of the assessee, including the long-term capital gain, after denying the deduction under Section 54, and determined the total income at INR 53,668,531. The CIT(A) later decided in favor of the assessee, accepting the computation of capital gain and the deduction under Section 54. The CIT, however, found the AO's order erroneous and prejudicial, alleging that the property transferred was not a residential house but a right on a piece of land, thus disqualifying the assessee from claiming the deduction under Section 54. The CIT also questioned the total consideration received and the cost of acquisition.

3. Eligibility for Deduction under Section 54 of the Income Tax Act:
The CIT(A) held that the assessee was eligible for deduction under Section 54, as the property transferred was indeed a residential house. The CIT, in contrast, argued that the property was a right on a piece of land, not a residential house, thus disqualifying the assessee from the deduction. The CIT also noted that the assessee had purchased two residential houses on the day of the collaboration agreement, making the assessee ineligible for deduction under Section 54F.

4. Examination of Additional Issues by CIT under Section 263:
The CIT identified several other issues, such as substantial deposits in bank accounts, investments in mutual funds, and notional income from house property, which the AO allegedly failed to examine. The CIT issued a supplementary show cause notice and concluded that the AO's order was erroneous and prejudicial to the interest of revenue due to a lack of proper inquiry into these matters.

5. Validity of the Assessment Order Passed by the AO:
The Tribunal examined whether the original assessment order had merged with the appellate order of the CIT(A) and whether the CIT had the authority to revise the order under Section 263. It was noted that the issues of computation of capital gain and deduction under Section 54 were already decided by the CIT(A), and thus, the CIT could not assume jurisdiction under Section 263 for these matters. Furthermore, the Tribunal found that the AO had made due inquiries and that the CIT failed to show how the AO's order was erroneous or prejudicial to the revenue.

Conclusion:
The Tribunal quashed the order passed by the CIT under Section 263, stating that the CIT incorrectly assumed jurisdiction on matters already decided by the CIT(A) and failed to demonstrate any error in the AO's order. The appeal of the assessee was allowed, and the order under Section 263 was set aside. The Tribunal emphasized that the CIT could not revise the assessment order on issues already adjudicated by the appellate authority.