2021 (4) TMI 1000 - AT - Income Tax

Revision u/s 263 - exemption under section 54 was granted to the assessee without verifying the facts - cost of improvement inclusion/ exclusion - HELD THAT - It is not discernible from where the ld. Commissioner has brought report of Rs. 8/- per sq.ft representing the value of the land as on 1.4.1981. He has not made reference to any documentary evidence or sale instance. On the other hand he has ignored the report of the registered valuer by observing that registered valuer has not assigned any sale instance for arriving at a value of Rs. 196/- per sq.ft. The report of registered valuer has been placed on record by the assessee and justification for value of 1981 worked out by the registered valuer. The registered valuer has made a reference to a sale instance and thereafter worked out the value of the property as on 1.4.1981. Apart from this aspect the copy of the agreement dated 7.2.1981 has been placed on record. By way of this agreement the assessee and others have purchased the suit property from the seller viz. Maganbhai Gordhabhai Patel. In the Schedule-A attached with this agreement the rate prescribed was Rs. 180/- per sq.feet. The assessee has placed on record true copy of translation of the alleged banakhat- If we look into this agreement which is very closure to 1.4.1981 along with working of the registered valuer then it would reveal that in support of her working in indexation cost the assessee has evidence. On the contrary the ld. Commissioner did not refer to any sale instance for directing the AO to adopt Rs. 8/- per sq.ft. as on 1.4.1981 for working the cost of acquisition. Commissioner has observed that the assessee failed to show any documentary evidence about the improvement cost claimed at Rs. 11, 22, 325/-. The AO has not examined this aspect and allowed the claim. Though the assessee has demonstrated the facts as to how she has claimed the improvement cost and it was a very old claim the expenditure was incurred in the year 1993-94. It was duly recognized in the return of income for Asstt. Year 2006-07. AO has called for details regarding working of capital gain/loss. He has also called for investment made during the year. According to the assessee she has submitted all the details and discussed it with the AO. Thereafter he was satisfied and passed the assessment order under section 143(3) of the Act. It is a different matter that he has not elaborately discussed each and every aspect. But details are available in the record therefore it cannot be said that the AO had not applied his mind while allowing the claim of the assessee and such order cannot be said to be erroneous and prejudicial to the interests of the Revenue. The ld. Commissioner ought to have looked into those details and ought to have arrived at a firm conclusion as to how the assessment order is erroneous. He cannot relegate this aspect to the AO to find as to how his order is erroneous. As in the case of DG Housing Projects Ltd. 2012 (3) TMI 227 - DELHI HIGH COURT has held that the ld. Commissioner should have not relegated the point that assessment order is erroneous to the AO himself. The ld. Commissioner after analyzing the record ought to have recorded a categorical finding and provided valid reasons as to how the assessment order is erroneous. In other words the CIT has to examine the order of the Assessing Officer on merits and then form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the absence of the same original assessment order of the AO cannot be said to be erroneous and prejudicial to the interest of the Revenue. Accordingly we do not find any reason for invoking provisions of section 263 by the ld. CIT more so when relevant details and explanations were already available on the assessment record and based on which assessment order was passed by the AO. We quash the impugned order passed under section 263 restore that the original assessment order passed under section 143(3) - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of CIT(A)'s invocation of Section 263 of the Income Tax Act, 1961.
2. Validity of the assessee's claim for improvement cost.
3. Validity of the assessee's exemption claim under Section 54 of the Income Tax Act, 1961.
4. Validity of the indexed cost of acquisition claimed by the assessee.

Detailed Analysis:

1. Legitimacy of CIT(A)'s Invocation of Section 263 of the Income Tax Act, 1961:
The primary grievance of the assessee was that the CIT(A) erred in invoking Section 263, which allows the Commissioner to revise an assessment order if it is erroneous and prejudicial to the interest of the Revenue. The Tribunal analyzed the four compartments of Section 263: calling for records, examining the order, issuing a show cause notice, and passing an order after inquiry. The Tribunal emphasized that the Commissioner must record satisfaction that the order is erroneous and prejudicial to the Revenue. The Tribunal referred to various judicial principles, including those from the Supreme Court, to assert that mere dissatisfaction of the Commissioner is not enough; there must be material evidence showing the order is erroneous. The Tribunal concluded that the CIT(A) did not provide sufficient evidence to prove the assessment order was erroneous and prejudicial to the Revenue.

2. Validity of the Assessee's Claim for Improvement Cost:
The assessee claimed an improvement cost of Rs. 11,22,325, which was incurred in 1993-94 and recognized in the return for AY 2006-07. The CIT(A) contended that the claim lacked documentary evidence. However, the Tribunal noted that even if the improvement cost was disallowed, the overall exemption under Section 54 was higher than the claimed amount, resulting in no additional tax liability. Therefore, the Tribunal found no prejudice to the Revenue from this claim.

3. Validity of the Assessee's Exemption Claim under Section 54:
The CIT(A) argued that the assessee's claim for exemption under Section 54 was invalid because the purchased house was beyond the specified time limit. The assessee demonstrated that the sale proceeds were deposited in a capital gain account and used to construct a house within the three-year limit. The Tribunal found that the assessee had complied with Section 54 requirements and that the AO had verified all relevant documents. Thus, the Tribunal held that the exemption claim was valid and properly verified by the AO.

4. Validity of the Indexed Cost of Acquisition Claimed by the Assessee:
The CIT(A) objected to the indexed cost of Rs. 2,26,30,066 claimed by the assessee, suggesting a value of Rs. 8 per sq.ft as on 1.4.1981 instead of Rs. 196 per sq.ft adopted by the registered valuer. The Tribunal noted that the CIT(A) did not provide any documentary evidence for the Rs. 8 per sq.ft value, whereas the registered valuer justified the Rs. 196 per sq.ft value with a sale instance. Additionally, an agreement dated 7.2.1981 supported the higher value. The Tribunal concluded that the assessee's valuation was backed by evidence, and the CIT(A) failed to substantiate his lower valuation claim.

Conclusion:
The Tribunal quashed the CIT(A)'s order under Section 263, restoring the original assessment order under Section 143(3). It concluded that the AO had conducted proper inquiries, and the assessment order was neither erroneous nor prejudicial to the Revenue's interest. The appeal of the assessee was allowed.