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2022 (9) TMI 297 - AT - Income TaxRevision u/s 263 by CIT - income on sale of the 7 vacant sites - Correct head of income - Deduction u/s 54F - As per CIT treated as income from business rather than income under the head capital gain - whether the assessee would be entitled to the deduction u/s 54F and in this context examine whether the assessee owned more than 2 properties and the nature of the property owned by the assessee? - HELD THAT - The law is well settled that the limited scrutiny scope cannot be extended by the AO - decision in the cae of Balvinder Kumar 2021 (3) TMI 649 - ITAT DELHI followed. - the Assessing Officer could not go beyond reason for selection of matter for limited scrutiny. Therefore it was not open to the PCIT to pass revisionary order and remit matter to AO on other aspects other than the reason for selection of case for scrutiny. Therefore, the directions of the PCIT in so far as it relates to the examination of whether the income on sale of plots would give rise to LTCG or income from business cannot be sustained and the said directions are directed to be deleted and are hereby quashed. Deduction u/s 54F - Assessee owning more than one house property or other property belongs to HUF - HELD THAT - It appears that the PCIT has confused himself with the return of the individual and that of the HUF. - If the assessee owned only one house property and that was also a commercial property, then there is no necessity to examine the claim for deduction u/s.54F on the ground that the assessee owned more than one house property other than the new asset as on the date of transfer. - Matter restored back to CIT.
Issues Involved:
1. Entitlement to deduction under section 54F of the Income Tax Act, 1961. 2. Classification of income from the sale of plots as either Long Term Capital Gains (LTCG) or business income. 3. Validity of the Principal Commissioner of Income Tax's (PCIT) exercise of revisionary powers under section 263 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Entitlement to Deduction under Section 54F: The assessee, a Hindu Undivided Family (HUF), filed a return for the Assessment Year (AY) 2015-16, declaring a total income of Rs. 5,41,170/-. The assessee claimed a deduction under section 54F of the Income Tax Act, 1961, on the long-term capital gains (LTCG) derived from the sale of 7 vacant sites, asserting that the sale proceeds were used for constructing a house in Jayanagar, thereby declaring the LTCG as Nil. The Assessing Officer (AO) accepted this claim after verifying the details provided by the assessee. The PCIT, however, found the AO's order erroneous and prejudicial to the interests of the Revenue, as the assessee reportedly owned more than one residential house at the time of the property transfer, which would disqualify the deduction under section 54F. The PCIT issued a show-cause notice, and the assessee responded, clarifying that one of the properties was a commercial shop, not a residential house. Despite this, the PCIT directed the AO to re-examine whether the assessee owned more than two properties and the nature of these properties. The Tribunal found that the PCIT's observation that the assessee held two residential properties was incorrect. The property at No.3, Basaveshwara Nilaya, was owned by Shivanna in his individual capacity, not by the HUF. The Tribunal set aside the PCIT's order on this issue and remitted it back for fresh consideration, emphasizing that if the HUF owned only one commercial property, the deduction under section 54F should not be denied. 2. Classification of Income from Sale of Plots: The PCIT also directed the AO to examine whether the income from the sale of the 7 plots should be treated as business income rather than LTCG. The assessee argued that the lands were held as capital assets, inherited from ancestors, and thus the gains should be classified as LTCG. The Tribunal noted that the case was selected for limited scrutiny under CASS specifically to examine the deduction under section 54F, and the AO could not extend the scope to reclassify the income from the sale of plots. The Tribunal referenced decisions from the ITAT and CBDT instructions, which restrict the AO from expanding the scope of limited scrutiny. Consequently, the Tribunal quashed the PCIT's direction to reclassify the income as business income. 3. Validity of PCIT's Exercise of Revisionary Powers: The Tribunal scrutinized the PCIT's exercise of revisionary powers under section 263, which allows the PCIT to revise an AO's order if it is erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the PCIT's observations regarding the ownership of multiple properties were based on incorrect assumptions and confusion between the individual and HUF returns. Additionally, the Tribunal held that the PCIT could not direct the AO to examine issues beyond the scope of the limited scrutiny, as per CBDT instructions and relevant case law. Therefore, the Tribunal partly allowed the appeal, setting aside the PCIT's directions related to the classification of income from the sale of plots and remitting the issue of deduction under section 54F back to the PCIT for fresh consideration. Conclusion: The Tribunal's judgment addressed the improper exercise of revisionary powers by the PCIT, reaffirmed the limited scope of scrutiny under CASS, and provided clarity on the distinction between individual and HUF property ownership for tax purposes. The appeal was partly allowed, with specific directions for fresh consideration on the deduction under section 54F.
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