2023 (6) TMI 1402 - AT - Income Tax

Revision u/s 263 - deduction u/s 54B - inadequate v/s no enquiry - as per CIT AO had not examined the claim of deduction u/s 54B of the Act made by the AO, thereby making reassessment order erroneous and prejudicial to the interest of the Revenue - HELD THAT - We find that the assessee in the original return of income filed had duly disclosed the capital gains showing the lesser consideration. Therefore, the case was reopened and assessee filed his return in response to notice u/s 148 of the Act offering the correct figure of sale consideration and disclosing the capital gains correctly. In the said return, the assessee had also made the claim of deduction u/s 54B on acquisition of agricultural land which is evident from the computation of income enclosed. AO in the course of re-assessment proceedings had even issued notice u/s 142(1) of the Act dated 13.11.2014 specifically making enquiries particularly into the details of property purchased by the assessee and also calling for making for capital gains on sale of property. The assessee duly replied to the same furnishing all the requisite details together with claim of deduction u/s 54B of the Act. After being satisfied with the various replies given by the assessee, AO proceeded to accept the claim of the assessee with regard to computation of capital gain and claim of deduction u/s 54B of the Act. Hence, it could be safely concluded that the Ld. A.O. had indeed made sufficient enquiries with regard to the capital gains and claim of deduction u/s 54B of the Act. Hence, in our considered opinion, the action of the Ld. PCIT invoking the revision jurisdiction u/s 263 on the ground that no enquiries made by the AO is factually incorrect. By placing reliance on the decision of Malabar Industrial Company Ltd. 2000 (2) TMI 10 - SUPREME COURT we hold that when adequate enquiries were indeed carried out by the Ld. A.O., the same cannot be subjected to revision by the Ld. Pr. CIT u/s 263 of the Act. Hence, the revision order passed by the Ld. PCIT deserves to be quashed on this point. Assessee appeal allowed.

Summary

Issues Involved:
- Revision jurisdiction u/s 263 of the Income Tax Act
- Examination of claim of deduction u/s 54B of the Act
- Validity of revision order passed by Ld. PCIT

Detailed Analysis:

Revision Jurisdiction u/s 263 of the Income Tax Act:
The appeals were filed against separate orders of the Principal Commissioner of Income Tax (PCIT) for Assessment Year 2010-11. The key issue was whether the PCIT was justified in assuming revision jurisdiction u/s 263 of the Act. The Tribunal found that the AO had conducted sufficient inquiries regarding the claim of deduction u/s 54B made by the assessee. The Tribunal held that when adequate inquiries were carried out by the AO, the revision by the PCIT under section 263 was not warranted. Citing the decision of the Supreme Court in Malabar Industrial Company Ltd. vs. CIT, the Tribunal concluded that the revision order passed by the PCIT was incorrect in this regard and deserved to be quashed.

Examination of Claim of Deduction u/s 54B of the Act:
The assessee had disclosed capital gains and claimed deduction u/s 54B in the return of income filed in response to the notice u/s 148. The AO had issued several notices under section 142(1) to examine the claim of deduction u/s 54B, and the assessee had duly replied with necessary details and documents. After thorough examination, the AO accepted the claim of the assessee regarding the computation of capital gains and deduction u/s 54B. The Tribunal noted that the AO had made sufficient inquiries into the matter, and the claim of the PCIT that no inquiries were made was factually incorrect.

Validity of Revision Order Passed by Ld. PCIT:
The Tribunal observed that the revision proceedings under section 263 were initiated based on a proposal from the ITO, and not due to an independent examination of records by the PCIT. The Tribunal held that the revisionary authority must independently apply their mind to the materials on record before concluding that the order is erroneous and prejudicial to revenue. Relying on various decisions, the Tribunal declared the exercise of powers under section 263 in this case as invalid. The Tribunal quashed the order passed under section 263 and restored the assessment order.

In conclusion, the Tribunal allowed both appeals of the assessee, finding that the revision proceedings by the PCIT were unsustainable and invalid. The decision rendered for one co-owner applied equally to the other co-owner, and the assessment order was restored.

Order pronounced in the open court on 28th June, 2023.