2020 (12) TMI 1196 - AT - Income Tax

Revision u/s 263 - LTCG - Assessee eligible for deduction u/s 54 - expenses incurred for furniture and Air Conditioners while constructing the residential house property - HELD THAT - So far exercising of powers u/s 263 of the Act is concerned, we find no infirmity in the order of Ld. PCIT as the Assessing Officer has wrongly allowed the claim without examining that how much deduction can be allowed. Ld. Counsel for the assessee argued that this order could be rectified by the Assessing Officer u/s 154 of the Act. However Ld. Counsel for the assessee did not bring to our notice any such action being taken by the Assessing Officer. Hence on this ground revision of the order is justified. Adoption of the cost of acquisition of new asset - A residential house may have many other things, other than civil construction and including things like furniture and fixtures, as its integral part and may also be on sale as an integral deal. Further if these things are integral part of house being purchased, the cost of house has to essentially include the cost of these things as well. In such circumstances, what is to be treated as cost of the residential house is the entire cost of house and it cannot be open to the Assessing Officer to treat only the cost of only civil construction as cost of house and segregate the cost of other things as not eligible for deduction u/s 54. In this case it was not a composite deal, we find that the Ld. PCIT has also considered these case laws. However it is not clear whether the assessee had entered into with a contract with the contractor that included the cost of furniture and other fixtures. Ld. PCIT has also not brought any such evidence on record. Under these facts we modify the direction of Ld. PCIT to the extent that the Ld. Assessing Officer would allow the expenses incurred for furniture and Air Conditioners if it is part and parcel of the contract for construction of new house. This ground of the assessee is partly allowed.

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act.
2. Determination of cost of construction for deduction under Section 54F.
3. Direction to allow deduction under Section 54F proportionately.
4. Setting aside the assessment order for fresh examination.
5. General grounds of appeal.

Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act:
The assessee contended that the Principal Commissioner of Income Tax (Pr. CIT) erred in invoking Section 263, arguing that the Assessing Officer (AO) had conducted a detailed and extensive enquiry. The AO verified transactions related to the sale of agricultural land and the construction of a residential house, applying his mind and making necessary verifications, including valuation reports and bills. The assessee cited various judicial precedents to support that an order cannot be deemed erroneous merely because the Pr. CIT has a different opinion. The Tribunal agreed, noting that the AO had conducted sufficient enquiry and applied his mind, making the assessment order neither erroneous nor prejudicial to the interest of revenue.

2. Determination of Cost of Construction for Deduction under Section 54F:
The Pr. CIT observed that the value adopted by the AO for determining the cost of construction was incorrect, stating that the valuation was based on the collector's guideline rate for a later financial year. The assessee argued that the cost of the new asset should include all expenses incurred to make the house habitable, including household items like air conditioners and furniture. The Tribunal noted that the Pr. CIT had not raised any doubt on the quantum of investment but only on its computation for deduction purposes. The Tribunal referenced judicial precedents supporting the inclusion of such expenses in the cost of the new asset.

3. Direction to Allow Deduction under Section 54F Proportionately:
The Pr. CIT directed the AO to allow the deduction proportionately, which the assessee argued was a computational error rectifiable under Section 154. The Tribunal noted that the Pr. CIT's direction was based on a computational mistake, which did not confer jurisdiction for revision under Section 263. The Tribunal found merit in the assessee's contention that the error could be rectified under Section 154, not requiring the Pr. CIT's intervention.

4. Setting Aside the Assessment Order for Fresh Examination:
The Pr. CIT set aside the assessment order, directing the AO to pass a fresh order. The assessee contended that this was unnecessary as the AO had already conducted a thorough enquiry and verification. The Tribunal found that the AO had indeed conducted sufficient enquiry and the assessment order was not erroneous or prejudicial to the revenue's interest. The Tribunal modified the Pr. CIT's direction, stating that the AO should allow expenses incurred for furniture and air conditioners if they were part of the construction contract.

5. General Grounds of Appeal:
The fifth ground was general in nature and required no separate adjudication.

Conclusion:
The Tribunal partly allowed the appeal, holding that the AO's order was not erroneous or prejudicial to the interest of revenue, and the computational error could be rectified under Section 154. The Tribunal modified the Pr. CIT's direction, allowing the AO to include expenses for furniture and air conditioners if they were part of the construction contract.

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