2021 (2) TMI 674 - AT - Income Tax

Revision u/s 263 - Entitlement of deduction u/s 54 - assessee has made payments in instalments and some of the instalments were paid prior to one year window before the date of sale of the original assets - HELD THAT - Benefit under section 54 is available to an individual who has transferred a long term capital asset being a Residential House Property and the assessee has either purchased one residential house in India within a period of one year before or two years after the date of transfer of the original asset or constructed one residential house in India within a period of three years from the date of transfer of the original asset. In the instant case, the purchase of the new flat is evidenced by the purchase deed dated 10.03.2014 which is within a window of one year before the date of transfer of the house property on 24.11.2014 and it thus satisfies the requirement and mandate for claiming exemption under section 54. What is relevant to determine is the date of purchase and such date of purchase is evidenced by the purchase deed reflecting the final payment and taking over the possession of the flat. Merely because the assessee has made payments in instalments and some of the instalments were paid prior to one year window before the date of sale of the original assets would not debar the assessee from claim of deduction u/s 54. We are therefore of the considered view that all the relevant facts were on record, duly examined by the AO and the claim of deduction has been rightly allowed by the AO as per mandate of provisions of section 54 of the Act. The order so passed by the AO cannot therefore be held as erroneous in so far as prejudicial to the interest of the Revenue. Thus, the order of the Pr CIT is hereby set-aside - Decided in favour of assessee.

Issues Involved:
1. Exercise of revisionary powers by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
2. Eligibility for deduction under Section 54 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Exercise of Revisionary Powers by PCIT under Section 263:

The assessee challenged the order of the PCIT, who exercised revisionary powers under Section 263, setting aside the assessment order passed under Section 143(3) dated 16.10.2017. The PCIT's action was deemed illegal, unjustified, arbitrary, and against the facts of the case by the assessee. The appeal was filed with a delay of 26 days, which was condoned after considering the affidavit filed by the assessee.

The assessee argued that the case was selected for limited scrutiny, focusing on the deduction claimed under "Capital Gains" and Tax Credit mismatch. The assessee had claimed deduction under Section 54 by selling a house property and investing in another house property, providing necessary documents like the Sale Deed, Purchase Deed, and Possession Letter.

The Assessing Officer (AO) applied his mind to the material placed before him and accepted the claim of deduction under Section 54 after being satisfied with the factual and legal assessment. The PCIT, however, held that the AO's order was erroneous, claiming that the AO failed to apply her mind and allowed the deduction without proper verification.

The assessee contended that the AO's application of mind is subjective and depends on the factual matrix of each case. The AO can examine a claim even without raising a written query if the issue is apparent or obvious. In this case, the AO conducted limited scrutiny, and all relevant facts were evident from the documents provided. The PCIT's conclusion that the AO did not apply her mind was deemed contrary to normal human conduct.

The assessee further argued that for exercising jurisdiction under Section 263, the order must be erroneous and prejudicial to the interest of Revenue. In this case, neither condition was satisfied. The AO adopted a plausible view, supported by legal precedents, and the PCIT's attempt to replace her view with the AO's view was illegal.

2. Eligibility for Deduction under Section 54:

The PCIT observed that the assessee was not eligible for deduction under Section 54 because payments totaling ?36,70,320 were made prior to one year before the date of sale of the property. The PCIT held that the AO allowed the deduction without verifying the necessary details, rendering the assessment order erroneous and prejudicial to the Revenue.

The assessee argued that the deduction under Section 54 was claimed based on the purchase of a new flat, evidenced by the Purchase Deed dated 10.03.2014, which was within one year before the sale of the original property on 24.11.2014. The relevant date for claiming the deduction was the date of purchase, not the dates of installment payments.

The Tribunal referred to the provisions of Section 54, which allow deduction if the new residential house is purchased within one year before or two years after the date of transfer of the original asset. The Tribunal cited the decision of the Hon’ble Bombay High Court in Beena K Jain, which held that the relevant date is when the full consideration is paid, and possession is taken.

The Tribunal concluded that the AO rightly allowed the deduction under Section 54, as the purchase of the new flat was within the stipulated period. The AO's order was not erroneous or prejudicial to the interest of the Revenue. Therefore, the PCIT's order was set aside, and the AO's order was sustained.

Conclusion:

The appeal of the assessee was allowed, and the order of the PCIT under Section 263 was quashed. The AO's order allowing the deduction under Section 54 was upheld. The Tribunal emphasized that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue, and the PCIT's attempt to revise the order was unjustified.

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