2022 (4) TMI 340 - AT - Income Tax

Revision u/s 263 - claim of deduction u/s.54 without carrying out any examination and verification of the genuineness of the said claim for deduction - HELD THAT - We find substance in the view taken by the Pr. CIT that the Assessing Officer had summarily accepted the assessee s claim for deduction u/s.54 i.e, investment made by her towards construction of a new house at Nehru Nagar, Korba. As the summarily acceptance of the assessee s claim for deduction u/s.54 by the AO i.e., without making any enquiry or necessary verification which should have been made by him, clearly falls within the sweep of Clause (a) of Explanation 2 to Section 263 of the Act, therefore, we concur with the view taken by the Pr.CIT that the assessment order passed by the Assessing Officer u/s.143(3) r.w.s 147 is erroneous in so far as it is prejudicial to the interest of the revenue under Section 263. But then, as a word of caution, we may herein observe, that as the assessee had admittedly sold the property for a consideration of ₹ 65 lacs, therefore, her disentitlement for claim of deduction u/s.54 of the Act has to be restricted considering the said actual sale consideration and the capital gain arising therefrom. In sum and substance, though the provision of Section 50C would override the normal provisions for the purpose of quantification of the amount of long-term capital gain, but then, we cannot remain oblivious of the fact that the entitlement of the assessee for claiming deduction u/s.54 of the Act would continue to remain dependant on the amount of actual consideration received by the assessee on sale of the property in question. We, thus, subject to our aforesaid observations uphold the order passed by the Pr. CIT u/s. 263 of the Act. - Decided against assessee.

Summary

Issues:
1. Validity of the order passed by the Principal Commissioner of Income Tax under Section 263 of the Income-tax Act, 1961.
2. Assessment of long-term capital gain and deduction claimed under Section 54 of the Act.

Issue 1: Validity of the order under Section 263:
The appeal was filed against the order passed by the Principal Commissioner of Income Tax, challenging its legality. The case was reopened under Section 147 due to the non-filing of income tax return by the assessee after transferring a property. The Principal Commissioner found the assessment order prejudicial to revenue as the Assessing Officer accepted the deduction claim under Section 54 without proper verification. The Principal Commissioner directed a fresh assessment after verifying the claim's authenticity. The Tribunal concurred with the Principal Commissioner's view, noting the lack of verification by the Assessing Officer, leading to the order being erroneous under Section 263.

Issue 2: Assessment of long-term capital gain and deduction under Section 54:
The assessee declared a net long-term capital loss from the property transfer, but the Assessing Officer determined a net long-term capital gain using Fair Market Value under Section 50C. The Principal Commissioner found the claim for deduction under Section 54 false, as the construction of the residential house was incomplete and unfit for habitation. The Tribunal upheld the Principal Commissioner's decision, emphasizing that the Assessing Officer's summary acceptance of the deduction claim without proper verification was erroneous under Section 263. However, it noted that the deduction under Section 54 should be based on the actual consideration received by the assessee from the property sale, despite the application of Section 50C for capital gain quantification.

In conclusion, the Tribunal dismissed the appeal, upholding the order passed under Section 263 of the Income-tax Act, 1961, due to the erroneous acceptance of the deduction claim under Section 54 without adequate verification.