2023 (12) TMI 1032 - AT - Income Tax

Revision u/s 263 - LTCG - admissibility of deduction u/s 54F - CIT broadly observed that the Assessing Officer has wrongly accepted the methodology of computation of capital gains and consequent deduction u/s 54F - HELD THAT - As pointed out on behalf of the assessee, two pre-requisites must coexist before the designated authority could exercise the revisional jurisdiction conferred on him namely; the order should be (i) erroneous (ii) the error must be such that it is prejudicial to the interests of the Revenue. However, an erroneous order does not necessarily mean an order with which the Pr.CIT is unable to agree. The AO while passing an order of assessment, performs judicial functions. An order of assessment passed by the AO cannot be interfered only because some other view is also possible on the issue as held in CIT vs. Greenworld Corporation 2009 (5) TMI 14 - SUPREME COURT If in given facts and circumstances of the case, two views are possible and one view as legally plausible has been adopted by the AO then existence of other possible view alone would not be sufficient to exercise powers under s.263 of the Act by the Pr.CIT /CIT concerned. Hence, there can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO. It is only when an order is erroneous and causing prejudice, that the Section will be attracted. An incorrect assumption of facts or incorrect application of law will satisfy the requirements of the order being erroneous. In the instant case, it is sought to be demonstrated on behalf of the assessee that necessary inquiries were made towards computation of Long Term Capital Gains and deduction claimed u/s 54F of the Act. It was further pointed out that although two separate agreements have been executed due to demarcation of share in single property to different persons due to gift or bequeath by will, the property remains only one and therefore eligible for deduction under Section 54F - assessee has advanced justification for cost of improvement of Rs. 25 lakhs claimed under Section 54F of the Act. Eligibility of deduction towards two units under two different agreements sought to be questioned by the Pr.CIT - Reasons are not far to seek. Both the agreements have been claimed to have been entered at the same time and in respect of same property. The kitchen continues to be only one and therefore, two different agreements will not give rise to different residential property. The electricity bill is also common as demonstrated. The background facts for division of property has also been narrated. These facts could have been easily appreciated by the Pr.CIT with some minimal inquiry. CIT has simply shifted the burden on the AO and eventually on the assessee without discharging his judicial duties expected in law. Besides, such allegation does not appear in the show cause notice issued at the first instance. While it is true that the directions are not necessarily required to be restricted to the show cause notice alone but however in the same vein, opportunity must be given to the assessee in some form to meet the point in issue in the course of revisional proceedings. In the absence of notice to the assessee that the purchase of residential property is being considered as two different residential units, the assessee had no occasion to rebut the ground raised directly in the revisional order. The directions at this point given to the Assessing Officer without opportunity to assessee in the course of revisional proceedings thus requires to be set aside on this score too. We hardly see any merit in the plea of the assessee that amount of Rs. 25 lakh set apart and kept in the Capital Gain Account Scheme towards cost of improvement of residential property acquired is eligible for deduction under Section 54F of the Act. Such cost of improvement can, at best, be treated as cost of improvement deductible at the time of sale of such property as and when happens. The direction of Pr.CIT on the point thus cannot be assailed. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Jurisdiction assumed by the Pr.CIT under Section 263 of the Income Tax Act.
2. Directions given in the revisional order regarding the deduction claimed under Section 54F of the Act.

Summary:

Jurisdiction Assumed by Pr.CIT under Section 263:
The assessee challenged the jurisdiction assumed by the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act. The Pr.CIT reviewed the assessment records and found that the claims made towards deduction under Section 54F were not in accordance with the law. The Pr.CIT issued a show cause notice indicating that the assessment order was erroneous and prejudicial to the interest of revenue due to the failure of the Assessing Officer (AO) to verify the facts regarding the deduction claimed.

Directions Given in the Revisional Order:
The Pr.CIT observed that the assessee had sold a property and claimed deductions under Section 54F for investments made in two adjoining properties, which was contrary to the provisions of the Act. Additionally, the Pr.CIT noted that the assessee had deposited Rs. 25 lakhs in the Capital Gain Account Scheme for the improvement of the newly purchased property, which was not allowable under Section 54F. The Pr.CIT set aside the assessment order and directed the AO to redo the assessment after thorough inquiries.

Tribunal's Findings:
The Tribunal considered the rival submissions and perused the revisional and assessment orders. It was noted that for the Pr.CIT to exercise revisional jurisdiction under Section 263, the order must be both erroneous and prejudicial to the interests of the Revenue. The Tribunal found merit in the assessee's plea regarding the eligibility of deduction for two units under two different agreements, as the property was essentially one residential unit. The Pr.CIT failed to make minimal inquiries to ascertain the veracity of the concern and shifted the burden onto the AO and the assessee.

However, the Tribunal did not find merit in the assessee's plea regarding the Rs. 25 lakhs set apart for the cost of improvement, as such cost can only be treated as deductible at the time of the property's sale. The Tribunal modified the revisional order accordingly.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal setting aside the directions of the Pr.CIT regarding the two residential units but upholding the disallowance of the Rs. 25 lakhs claimed for the cost of improvement.