2021 (3) TMI 997 - AT - Income Tax

Revision u/s 263 - AO has not examined whether the parcel of land sold as well as parcel of land subsequently purchased were being used for agricultural purposes for claiming deduction u/s 54B of the Act and secondly, the expenditure incurred on improvement of the land sold was not verified - HELD THAT - The precondition for invoking the jurisdiction under section 263 is that the ld. PCIT must come to the conclusion that the order of the AO is erroneous and is unsustainable in law. When the order passed by the AO is not erroneous for want of an enquiry, then it is incumbent upon the ld. PCIT to give a concluding finding and reasons that the order is not sustainable in law. An identical issue was considered in case of GANPAT RAM BISHNOI. 2005 (8) TMI 106 - RAJASTHAN HIGH COURT held that the ld. CIT can cancel the order of the AO and require the concerned AO to pass a fresh order in accordance with the law after holding a detailed enquiry. But 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. 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. Hon ble Supreme Court in case of Malabar Industrial Co. Ltd. vs. CIT 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 courses 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. Once the AO has taken a possible view on the issue of allowability of deduction under section 54B and 54F, 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 in the facts and circumstances of the case as well as the foregoing discussion about the settled principles of law laid down by the Courts, 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.

Summary

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. Invocation of Explanation 2(a) to Section 263 of the Income Tax Act, 1961.

Detailed Analysis:

1. Exercise of Revisionary Powers by PCIT under Section 263 of the Income Tax Act, 1961:
The assessee filed an appeal against the order of the Principal Commissioner of Income Tax (PCIT), Jaipur, dated 31.01.2020, under Section 263 of the Income Tax Act, 1961, for the Assessment Year 2015-16. The PCIT had set aside the order passed under Section 143(3) dated 22.12.2017. The PCIT issued a show-cause notice under Section 263, questioning whether the Assessing Officer (AO) had properly examined the use of the land sold and purchased for agricultural purposes to claim deductions under Section 54B and whether the expenditure on land improvement was verified. The PCIT also questioned the nature of the investment made in a new house for claiming deduction under Section 54F. Despite the assessee's submissions, the PCIT found the AO's order erroneous and prejudicial to the interest of the Revenue, remanding the matter back to the AO.

During the hearing, the assessee argued that the AO had conducted adequate enquiries and allowed deductions under Sections 54B and 54F after examining the necessary documents. The assessee submitted various documents, including sale deeds, purchase agreements, and valuation reports, which were scrutinized by the AO. The assessee contended that the PCIT had not identified any fault in the AO's examination of these documents.

The Tribunal noted that the AO had conducted the required enquiry for the limited scrutiny case, issued notices under Sections 143(2) and 142(1), and examined the documents provided by the assessee. The Tribunal found that the AO had properly verified the details and allowed the deductions after satisfying himself with the evidence. The Tribunal held that the PCIT could not invoke Section 263 merely because he disagreed with the AO's view unless the AO's view was unsustainable in law. The Tribunal cited several judicial precedents, including the Hon'ble Rajasthan High Court's decision in CIT vs. Ganpat Ram Vishnoi and the Hon'ble Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, to support its conclusion that the AO's order was not erroneous or prejudicial to the Revenue's interest. Therefore, the Tribunal set aside the PCIT's order and allowed the assessee's appeal.

2. Invocation of Explanation 2(a) to Section 263 of the Income Tax Act, 1961:
The PCIT invoked Explanation 2(a) to Section 263, introduced by the Finance Act, 2015, which allows the PCIT to revise an order if it is erroneous and prejudicial to the interest of the Revenue. The assessee argued that this explanation could not override the established principles laid down by the Supreme Court and various High Courts regarding the conditions for invoking Section 263. The Tribunal agreed with the assessee, stating that the explanation did not change the fundamental requirement that the PCIT must demonstrate that the AO's order was unsustainable in law. The Tribunal found that the AO had conducted adequate enquiries and taken a permissible view, and therefore, the PCIT's invocation of Explanation 2(a) was not justified.

Conclusion:
The Tribunal concluded that the AO had conducted the necessary enquiries and allowed the deductions under Sections 54B and 54F after examining the relevant documents. The PCIT's order under Section 263 was set aside as it did not meet the conditions for revision, and the assessee's appeal was allowed. The Tribunal emphasized that the PCIT could not invoke Section 263 merely because he disagreed with the AO's view unless the view was unsustainable in law.