2023 (7) TMI 340 - AT - Income Tax

Revision u/s 263 - As per CIT AO had incorrectly allowed deduction of payment made to illegal occupants - as per CIT where property was not mortgaged by previous owner but by assessee himself, then amount paid to discharge mortgage debts could not be treated as cost of acquisition so as to allow same as deduction - HELD THAT - As given the fact that the proceedings in question are 263 proceedings, wherein the AO had given a thoughtful consideration on the issue whether the sum paid directly by the seller to Titco Ltd could be claim deduction while computing capital gains in the hands assessee, it cannot be held that there was any lack of enquiry on the part of AO while computing the assessment or that the view taken by the Assessing Officer was not a legally plausible. View taken by PCIT was perhaps a legally more plausible view, in light of the decision rendered in the case of VSMR Jagadish Chandran 1997 (7) TMI 6 - SUPREME COURT however, considering the fact that what is being analyzed is the scope of revisionary power vested with the PCIT under 263 of the Act, where during the course of assessment, AO gave a thoughtful consideration to the material placed on record and took a view which cannot be held to be absurd or legally implausible, then, in our considered view, the PCIT is not empowered to supplant his own view, with the view taken by the AO by taking recourse to proceedings u/s 263 of the Act. Scope of proceedings u/s 263 - Principal CIT cannot in 263 proceedings set aside an assessment order merely because he has different opinion in the matter. In our view, sec 263 of the Act does not visualise a case of substitution of the judgment of the Principal CIT for that of the AO who passed the order unless the decision is held to be wholly erroneous. Principal CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-visit the entire assessment and determine the income himself at a higher figure. No error in the order of Ld. AO so as to justify initiation of 263 proceedings by the Ld. Pr. CIT. Decided in favour of assessee.

Summary

Issues Involved:
1. Invocation of Section 263 by the Principal Commissioner of Income Tax (CIT).
2. Deduction of payment made to Titco Ltd while computing capital gains tax.
3. Scope of revisionary powers under Section 263 of the Income Tax Act.

Summary:

Invocation of Section 263 by the Principal Commissioner of Income Tax (CIT):
The assessee filed an appeal against the order of the Principal CIT, who invoked Section 263 to set aside the assessment order passed under Section 143(3). The Principal CIT deemed the order "erroneous and prejudicial to the interest of revenue" because the AO allowed a deduction of Rs. 1.50 crores paid to Titco Ltd, which the Principal CIT argued was contrary to the Supreme Court's decision in VSMR Jagadish Chandran 227 ITR 240.

Deduction of Payment Made to Titco Ltd While Computing Capital Gains Tax:
The assessee contended that the payment to Titco Ltd was not for discharging a mortgage but was made by the purchaser to clear the title of the property. This payment was deducted from the sale consideration while computing capital gains tax. The AO had accepted this deduction after examining the facts during the assessment proceedings. The assessee argued that the Principal CIT was attempting to substitute his own view for that of the AO.

Scope of Revisionary Powers Under Section 263 of the Income Tax Act:
The Tribunal observed that the AO had made a thoughtful consideration of the material on record and took a legally plausible view. It was noted that the Principal CIT cannot supplant his own view over the AO's view in 263 proceedings if the AO's view is not absurd or legally implausible. The Tribunal cited several judgments, including CIT Vs. Sunbeam Auto 332 ITR 167 (Del.) and Gabriel India Ltd. [1993] 203 ITR 108 (Bom), to emphasize that an order cannot be termed erroneous merely because the Commissioner has a different opinion. The Tribunal concluded that the Principal CIT's initiation of 263 proceedings was not justified as the AO had conducted adequate inquiries and applied the law correctly.

Conclusion:
The Tribunal allowed the grounds of appeal raised by the assessee and set aside the order of the Principal CIT. The appeal of the assessee was allowed, and the Tribunal pronounced the order in the open court on 05-07-2023.