2019 (3) TMI 478 - AT - Income Tax

Revision u/s 263 - AO taxed sale of land partly as capital gain and partly as unexplained cash credit u/s.68- CIT directed to tax total as capital gain and allow exemption u/s.54F in respect of one flat - assessment order passed pursuant to the revisionary order has resulted in reduction of tax liability - whether the original assessment order can be considered as not prejudicial to the interest of the Revenue? - HELD THAT - Where the AO adopted one of several courses permissible in law or where two views are possible and the AO has adopted one with which the CIT does not agree, the order cannot be treated as erroneous as well as prejudicial to the interest of the Revenue unless a view taken is unsustainable in law. In a present case it is seen that the amount of tax determined pursuant to the revisionary order has been computed at ₹ 84.26 lakh, which is lower than the amount of tax computed pursuant to the original assessment u/s.143(3) at ₹ 95.57 lakh. Section 263 empowers the Commissioner of Income-tax to revise an assessment order which is erroneous as well as prejudicial to the interest of the Revenue. It is trite law that the revisionary power can be exercised only when the assessment order passed by the AO is both erroneous as well as prejudicial to the interest of the Revenue. If one of the two conditions is not satisfied, the power to revise is ousted. Here is a case in which the assessment order passed pursuant to the revisionary order has resulted in total tax liability of the assessee at ₹ 84.26 lakh, which is less than the amount of tax originally determined as payable at ₹ 95.57 lakh, which order became subject matter of revision by the ld. Pr. CIT. We find that the Department, by virtue of the revisionary order, is losing tax lawfully payable by the assessee. That being the position, the assessment order cannot be considered as prejudicial to the interests of the Revenue. Since the assessment order does not suffer from the second infirmity namely prejudicial to the interest of the Revenue , we hold that the revisionary power u/s.263 cannot be exercised as both the limbs of an order, being, erroneous and prejudicial to the interest of the Revenue are not cumulatively satisfied. We, therefore, set-aside the impugned order. - Decided in favour of assessee.

Summary

Issues Involved:
Assessment order u/s.263 of the Income-tax Act, 1961 for the assessment year 2013-14.

Analysis:

Issue 1: Assessment of Long Term Capital Gain and Unexplained Cash Credit
The appeal was filed against the order passed by the Principal Commissioner of Income-tax-1, Nashik u/s. 263 of the Income-tax Act, 1961. The assessee claimed to have received a total of &8377; 3.00 crore from the sale of agricultural land, but the Assessing Officer (AO) computed long term capital gain at &8377; 16,78,378/- and taxed the remaining amount as unexplained cash credit u/s. 68 of the Act. The Principal Commissioner found the assessment order erroneous and prejudicial to the Revenue's interest, directing the entire sale consideration to be considered for capital gain computation and granting exemption u/s.54F for investment in one flat.

Issue 2: Revisionary Order and Tax Liability
The revised assessment determined the total income at &8377; 2,96,55,130/-, with a tax payable amount of &8377; 84,26,510/-. Despite not granting the exemption u/s.54F as directed by the Commissioner, the tax liability in the revised assessment was lower than the original assessment. The question arose whether the original assessment order could be considered not prejudicial to the Revenue's interest.

Issue 3: Prejudicial to the Interest of the Revenue
The Tribunal considered the meaning of "prejudicial to the interest of the Revenue" as per the judgment in Malabar Industrial Company Ltd. vs. CIT. The Tribunal emphasized that loss of revenue due to an erroneous order causing a loss of tax lawfully payable would be prejudicial to the Revenue's interest. Referring to the judgment in CIT vs. Hindustan Lever Ltd., it was clarified that every loss of revenue is not prejudicial unless the view taken is unsustainable in law.

Conclusion:
The Tribunal held that since the Department was losing tax lawfully payable by the assessee due to the revisionary order, the original assessment order was not prejudicial to the Revenue's interest. As both the conditions of being erroneous and prejudicial were not cumulatively satisfied, the revisionary power u/s.263 could not be exercised, and the impugned order was set aside, allowing the appeal.