2020 (10) TMI 407 - AT - Income Tax

Revision u/s 263 - deduction claimed by the assessee u/s 54F disallowed - case of the assessee was taken up for limited scrutiny as per the notice issued under section 143(2) - PCIT on perusal of the assessment record noticed that the deduction u/s 54F allowed by the AO in respect of purchase of agricultural land and construction of house which is not admissible - HELD THAT - When the enquiry in fact has been conducted and the AO has reached a particular conclusion, though reference to such enquiries has not been made in the order of assessment, but the same is apparent from the record of the proceedings, the invocation of jurisdiction by the ld. CIT was unsustainable. See DG HOUSING PROJECTS LTD 2012 (3) TMI 227 - DELHI HIGH COURT Where the AO has made an enquiry and taken a possible/permissible view, then the said order cannot be treated as erroneous and prejudicial to the interests of the revenue unless the view taken by the AO is unsustainable in law. In case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT has held that an order of ITO cannot be treated as prejudicial to the interests of the revenue if the ITO adopted one of the course permissible in law and it has resulted in loss of revenue or two views are possible and the ITO has taken one view with which the ld. CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. The view taken by the AO is a possible view though may not be the only view. Further once the issue of allowability of deduction under section 54F is a debatable issue and the AO has taken a possible view, then the ld. PCIT is not permitted to invoke the provisions of section 263 merely because he does not agree with the view of the AO. Hence we hold that the impugned order passed by the ld. PCIT is not sustainable and the same is liable to be set aside. - Decided in favour of assessee.

Issues Involved:
1. Legality of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the IT Act.
2. Whether the assessment order passed by the AO was erroneous and prejudicial to the interest of the revenue.
3. Validity of the proceedings initiated under section 263 of the IT Act.
4. Eligibility of the deduction claimed under section 54F of the IT Act.
5. Disallowance of indexed cost of construction expenses for the financial years 2007-08 and 2010-11.
6. Interpretation of beneficial provisions under tax law.

Detailed Analysis:

1. Legality of the Order Passed by PCIT under Section 263:
The assessee contended that the order passed by the PCIT under section 263 was bad in law and on facts. The PCIT invoked section 263 without considering that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal concluded that the PCIT's action was beyond the scope of the show cause notice issued and was not justified.

2. Whether the Assessment Order was Erroneous and Prejudicial:
The Tribunal found that the AO had conducted a proper enquiry and examined all relevant details before allowing the deduction under section 54F. The AO's order was not erroneous as it was based on a permissible view. The Tribunal emphasized that for invoking section 263, both conditions of the order being erroneous and prejudicial to the revenue must be satisfied, which was not the case here.

3. Validity of Proceedings under Section 263:
The assessee argued that the proceedings under section 263 were invalid as the AO had already conducted a thorough enquiry. The Tribunal agreed, noting that the PCIT's initiation of section 263 proceedings was based on a mere change of opinion. The Tribunal held that the PCIT cannot invoke section 263 merely to substitute the AO's view with his own.

4. Eligibility of Deduction under Section 54F:
The assessee claimed a deduction under section 54F for the purchase of agricultural land and construction of a residential house. The PCIT proposed to disallow this deduction, arguing that the construction did not qualify as a residential house. The Tribunal, however, referred to various judicial precedents and concluded that the deduction under section 54F is allowable for the cost of land and construction of a residential house, even if the land is agricultural.

5. Disallowance of Indexed Cost of Construction Expenses:
The PCIT proposed to disallow the indexed cost of construction expenses for the financial years 2007-08 and 2010-11. The assessee had provided all relevant details to prove the transactions as genuine. The Tribunal found that the AO had already verified these details and allowed the expenses. Therefore, the PCIT's proposal to disallow these expenses was not justified.

6. Interpretation of Beneficial Provisions:
The assessee argued that beneficial provisions of tax law should be interpreted liberally. The Tribunal supported this view, stating that the beneficial provisions under section 54F must be considered liberally to provide relief to the taxpayer. The Tribunal cited various judicial decisions supporting the liberal interpretation of such beneficial provisions.

Conclusion:
The Tribunal set aside the order passed by the PCIT under section 263, holding that the AO had conducted a proper enquiry and allowed the deduction under section 54F based on a permissible view. The Tribunal emphasized that the PCIT cannot invoke section 263 merely to substitute his view for that of the AO. The appeal of the assessee was allowed, and the PCIT's order was deemed unsustainable.

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