2020 (12) TMI 24 - HC - Income Tax

Revision u/s 263 - Deduction of rupees 1 crore u/s. 54EC denied - CIT directed the assessing officer to disallowed the deduction to the extent of rupees 50 lakhs holding that the phrase during any financial year means during any financial year after the first day of April 2007 and the intention of law was to identify any one of the financial years following 1.4.2007, and did not intend to include therein more than one financial year simultaneously? - HELD THAT - Twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 of the Act. Firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment. The aforesaid provision was considered by the Supreme Court in MALABAR INDUSTRIAL COMPANY VS. CIT , 2000 (2) TMI 10 - SUPREME COURT and it was held that the phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue. It was further held that where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, the order passed by the Assessing Officer cannot be treated as erroneous order prejudicial to the interest of the revenue. If the facts of the case in hand are examined, it is axiomatic that the view taken by the Assessing Officer was one of the possible views. Therefore, the Commissioner of Income-Tax has not rightly invoked the powers under Section 263 of the Act.- Decided in favour of the assessee.

Summary

Issues:
Interpretation of Section 54EC of the Income Tax Act for deduction eligibility.

Analysis:
1. The case involves an appeal under Section 260-A of the Income Tax Act, 1961, regarding the eligibility of an assessee for deduction under Section 54EC for the Assessment Year 2009-10. The substantial question of law raised was whether the assessee could claim a deduction of rupees 1 crore under Section 54EC, despite the Commissioner of Income Tax directing the assessing officer to disallow the deduction to the extent of rupees 50 lakhs. The key issue was the interpretation of the phrase "during any financial year" in relation to the eligibility criteria for the deduction.

2. The assessee, an individual deriving income from Capital Gains and other sources, filed the return of income for the relevant assessment year, declaring total income. The case underwent scrutiny, and the Assessing Officer accepted the income declared. However, the Commissioner of Income Tax later held that the assessee was eligible for a deduction under Section 54EC to the extent of rupees 50 lakhs, not the claimed rupees 1 crore. This discrepancy led to the order being set aside and remitted to the Assessing Officer.

3. Upon appeal to the Income Tax Appellate Tribunal, it was noted that the ambiguity in the language of the proviso to Section 54EC had been addressed by an amendment with prospective effect from a later assessment year. The Tribunal held that for the relevant assessment year, the assessee could claim the deduction by investing rupees 50 lakhs in each financial year within six months of the transfer. The Tribunal concluded that the Assessing Officer's view was one of the possible interpretations, thereby quashing the Commissioner's order.

4. The revenue contended that the Tribunal erred in allowing the deduction of rupees 1 crore under Section 54EC, citing reliance on a previous decision that was not final. On the other hand, the assessee argued that the Assessing Officer's view was one of the possible interpretations, and the Commissioner rightly invoked powers under Section 263. The intention of the Government, as per the assessee, was not to restrict the maximum exemption amount under Section 54EC.

5. The Court examined the provisions of Section 263 of the Act, emphasizing that for revisional jurisdiction to be exercised, the order must be both erroneous and prejudicial to the revenue's interests due to an error in assessment. Referring to relevant precedents, the Court reiterated that where two views are possible, and the Assessing Officer has taken one view, it cannot be deemed prejudicial to revenue. In this case, the Assessing Officer's view was considered a possible interpretation, justifying the Commissioner's action under Section 263.

6. Ultimately, the Court ruled against the revenue, upholding the assessee's eligibility for the deduction of rupees 1 crore under Section 54EC for the Assessment Year in question. The appeal was dismissed in favor of the assessee based on the analysis of the legal provisions and precedents cited.