2022 (6) TMI 75 - AT - Income Tax

Revision u/s 263 - deductions claimed u/s. 54 and 54EC - HELD THAT - As seen from the record that the return filed by the assessee was picked up for scrutiny for verification of the large deduction claimed u/s.54 and also the discrepancy in the tax credit appearing in Form 26AS and ITR. Notice dt.19-09-2016 issued by the AO pursuant thereto, u/s. 143(2) is filed and it shows that the AO simply stated that in view of the reasons for picking up the scrutiny on the aspect of deduction claimed under the head capital gains and tax credit mismatch, the assessee was given an opportunity to produce any evidence she desires. This notice does not specify any questionnaire having a bearing on the determination of the issues involved. AO did not refer to the amount of sale consideration receivable/received by the assessee nor did he obtain any explanation from the assessee as to the excess amount that was kept in deposit in bonds. AO did not make any enquiry into the aspect of transfer of title in the property claimed to have been acquired by the assessee. In all fairness, AO should have called for material to show how the assessee got Rs.70 lakhs whereas the entire sale consideration received was Rs.63.50 lakhs in respect of the property at Sainikpuri wherein, without any dispute the assessee had only half a share. If the assessee got any additional amount towards the furniture and fixtures in the said property and the AO having dealt with this issue by applying his mind, certainly this aspect would not be amenable for revision u/s. 263 - It is pertinent to note that neither the notice u/s. 143(2) of the Act calls for any information on this aspect, nor does the assessment order refer to any enquiries or material giving rise to the subjective satisfaction of AO on this aspect. There is nothing to contradict the opinion of the learned PCIT that there is failure on the part of the AO to make the minimum enquiry, let alone sufficient enquiry on this aspect. Acquisition of residential property by the assessee - As law requires that the transfer of title shall take place on the registration of an instrument duly stamped. Assessee is the partner of the firm, M/s.Matrika Hospital which is the transferor of the property. In fact, the land originally belongs to the assessee which was transferred to the firm wherefrom the assessee acquired it back. When once the document evidencing the transfer is not properly stamped or registered even after sufficient time, and that too when the transferee claims to have paid the entire sale consideration, it should have provoked a doubt in the mind of the AO to look at the genuineness of the transaction. AO have verified whether the payment of sale consideration, as claimed by the assessee, is supported by any evidence. Learned PCIT recorded at paragraph No.2(d) at point 4 that the firm did not disclose any capital gains for the relevant year in respect of the sale of undivided portion of land purported to have been transferred under the agreement of sale. At least the cursory consideration of the circumstances would definitely put the AO on guard prompting him to probe into the matter. Having conducted the necessary enquiries, if the AO reaches a conclusion, it should find its reflection on record either in the notice or questionnaire, if any, or the assessment order. Absolutely there is no support to the contention of the assessee that AO called for the material, applied his mind thereto and reached a plausible conclusion. It is, therefore, clear that for want of conducting enquiries, the assessment order is erroneous. Coming to the aspect of prejudice, contention of the assessee is that insofar as the acquisition of sixth floor of the hospital building is concerned, assessee gains the tax benefit at 20% whereas the hospital suffers the tax burden at 30% and there is no prejudice to the interest of Revenue. On this aspect, learned PCIT commented that the tax laws have to be applied correctly and anything done to the contrary would perpetuate the error. The assessee claiming 20% of tax in respect of the capital gains assumes that there is accrual of capital gains in a legal way. Here in this case, the acquisition of property is itself in doubt and, therefore, it would not be reasonable to jump to the conclusion that in this transaction Revenue is not put to prejudice. It is an admitted fact that the AO did not make any enquiries into the additional amount that was put in bonds out of the sale consideration of the Sainikpuri property and also there is no enquiry into the acquisition of the sixth floor of M/s.Matrika Hospital. All these factors well justify the order of the learned PCIT in exercise of section 263 of the Act and the irresistible conclusion that flows from our discussion is that the assessment order is not only erroneous but also prejudice to the interest of Revenue - Decided against assessee.

Summary

Issues:
1. Assessment order under section 263 of the Income Tax Act, 1961 for AY.2015-16 challenged by the assessee.
2. Discrepancies in deductions claimed under sections 54 and 54EC of the Act.
3. Lack of proper enquiry by the Assessing Officer into deductions claimed and tax credit discrepancies.
4. Erroneous assessment order prejudicial to the interest of Revenue.
5. Delay in filing the appeal and its condonation.

Analysis:
1. The assessee challenged the assessment order under section 263 of the Income Tax Act, 1961 for AY.2015-16. The Principal Commissioner of Income Tax, Hyderabad found discrepancies in the deductions claimed by the assessee under sections 54 and 54EC of the Act. The assessment was picked up for scrutiny to verify the large deductions and tax credit discrepancies. The assessment was completed by the Assessing Officer under section 143(3) of the Act, but the Principal Commissioner found that the Assessing Officer did not conduct a reasonable enquiry into the deductions claimed and the tax credit discrepancy.

2. The Principal Commissioner identified specific discrepancies in the deductions claimed by the assessee. Firstly, the assessee sold two properties and claimed deductions under sections 54 and 54EC of the Act. However, the Principal Commissioner found that there was no proper enquiry into the sources of investment for these deductions. Secondly, the assessee claimed deductions for long-term capital gains and investment in a residential property, but it was discovered that there was no registered sale deed for the property acquired, raising doubts about the nature of the property and the validity of the deduction claimed.

3. The Principal Commissioner concluded that the assessment order was erroneous in law and prejudicial to the interest of Revenue due to the lack of proper enquiry by the Assessing Officer. The order was set aside, directing the Assessing Officer to re-examine the deductions claimed under sections 54 and 54EC of the Act. The assessee filed an appeal challenging this decision, citing delays and relying on legal precedents for the exclusion of certain periods in the calculation of limitation.

4. The Revenue argued that the Assessing Officer's lack of enquiry into crucial aspects justified the Principal Commissioner's decision to set aside the assessment order. The Revenue contended that the conditions of section 263 of the Act, namely, an erroneous order prejudicial to the interest of Revenue, were satisfied in this case. The delay in filing the appeal was addressed by the exclusion of certain periods due to the pandemic, and the Revenue did not object to the condonation of the delay.

5. The Tribunal upheld the Principal Commissioner's decision, emphasizing the lack of proper enquiry by the Assessing Officer into the deductions claimed and the discrepancies in the tax credit. The Tribunal found that the assessment order was not only erroneous but also prejudicial to the interest of Revenue. Consequently, the appeal of the assessee was dismissed, affirming the decision of the Principal Commissioner.

This detailed analysis highlights the key issues, discrepancies, legal arguments, and the final decision rendered by the Tribunal regarding the assessment order challenged by the assessee under section 263 of the Income Tax Act, 1961 for AY.2015-16.