2023 (11) TMI 1273 - AT - Income Tax

Revision u/s 263 - as per CIT AO never examined the claim of deduction u/s 54B/54F and AO has also not examined whether the land purchased was used for agricultural purposes or not - AO himself has recommended to the PCIT to initiate proceedings u/s 263 - root cause for initiation of the impugned proceedings is the audit objection by the audit party HELD THAT - A plain reading of section 263 of the Act would show that the PCIT may call for and examine the record of any proceedings under this Act whereas in the case in hand, we find that it was the Assessing Officer who recommended the PCIT to initiate proceedings u/s 263 of the Act for which it can be safely concluded that the PCIT did not apply his mind. Even the recommendation of the AO is based upon the audit objection when the Assessing Officer was well aware of the questions raised during the assessment proceedings which have been duly verified and examined by him before framing the impugned assessment order. Thus, we do not find any error or infirmity in the assessment order which could make it erroneous and prejudicial to the interest of the Revenue. Therefore, we set aside the order of the PCIT and restore that of the AO - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Assessment order being erroneous and prejudicial to the interest of the Revenue.
3. Examination of capital gains and exemptions under Sections 54B and 54F.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The primary grievance of the assessee was that the Principal Commissioner of Income Tax (PCIT) erred in assuming jurisdiction under Section 263 of the Income Tax Act, 1961. The PCIT issued a notice and directed the Assessing Officer (AO) to re-examine issues related to the taxation of capital gains and exemptions claimed under Sections 54B and 54F. The assessee contended that these issues were already addressed during the original assessment proceedings, and thus, the order was neither erroneous nor prejudicial to the interest of the Revenue.

2. Assessment Order Being Erroneous and Prejudicial to the Interest of the Revenue:
The PCIT held that the assessment order dated 29.12.2019 was erroneous and prejudicial to the interest of the Revenue. The PCIT's direction was based on the assertion that the AO did not adequately examine the claim of deductions under Sections 54B and 54F, particularly whether the land purchased was used for agricultural purposes. The assessee argued that specific queries were raised by the AO during the assessment, to which detailed replies were provided, including documentary evidence. The Tribunal considered the Supreme Court's ruling in Malabar Industrial Co. Ltd. and the Bombay High Court's decision in Gabriel India Ltd., which established that for an order to be revised under Section 263, it must be both erroneous and prejudicial to the Revenue. The Tribunal found that the AO had indeed conducted inquiries and applied his mind to the facts, thus the assessment order could not be deemed erroneous.

3. Examination of Capital Gains and Exemptions under Sections 54B and 54F:
The Tribunal reviewed the detailed queries raised by the AO and the comprehensive responses provided by the assessee, which included sale deeds, income computation statements, bank statements, and other relevant documents. The Tribunal noted that the AO had made specific inquiries regarding the capital gains and the exemptions claimed under Sections 54B and 54F. The Tribunal referenced several judicial precedents, including the Delhi High Court's ruling in Sunbeam Auto and the Gujarat High Court's decision in Nirma Chemical Works Ltd., which emphasized that an order cannot be termed erroneous if the AO has applied his mind and conducted an inquiry, even if the inquiry was not exhaustive. The Tribunal concluded that the AO had exercised his quasi-judicial powers appropriately and that the PCIT's order for a re-examination was unwarranted.

Conclusion:
The Tribunal set aside the PCIT's order under Section 263, finding no error or infirmity in the original assessment order dated 29.12.2019. The appeal of the assessee was allowed, and the assessment order was restored. The judgment underscores the principle that revisional powers under Section 263 can only be exercised when the assessment order is both erroneous and prejudicial to the interest of the Revenue, and not merely because the PCIT has a different opinion on the matter.