2023 (9) TMI 1608 - AT - Income Tax

Revision u/s 263 - AO had not examined the claim of deduction u/s 54B of the Act made by the Ld. AO, thereby making reassessment order erroneous and prejudicial to the interest of the Revenue - HELD THAT - The words used in section 263 of the Act clearly indicate that the revisionary authority has to independently apply his mind to the materials on record before coming to a conclusion that the order sought to be revised is erroneous and prejudicial to the interests of revenue. The decision making process u/s 263(1) has to be that of the revisionary authority and cannot be at the behest of some other subordinate authority. In the facts of the present appeal, it is abundantly clear that the exercise of powers under section 263 of the Act is not due to any independent application of mind by the revisionary authority, but at the behest of the Income-tax Officer. Had the Assistant Commissioner of Income Tax not sent any proposal for initiating proceedings under section 263 of the Act, it is quite probable, the revisionary authority may not have exercised his powers under section 263 of the Act. That being the factual and legal position, in our view, the exercise of powers under section 263 of the Act in the present case has to be declared invalid. PCIT has mentioned that agreement to purchase agricultural land from Smt. Sangeeta Singh cannot be made the basis for deduction u/s 54B of the Act. It is not in dispute that in the instant case, an agreement to sell cum with possession deed was duly executed on 30.07.2009. The observation of the Ld. PCIT gives raise to the legal question whether any right is created in favour of the purchaser on execution of agreement to sell. As relying on Sanjeev Lal 2014 (7) TMI 99 - SUPREME COURT we hold that the exemption u/s 54B of the Act is admissible since the assessee sold agricultural land and made payment for purchase of another agricultural land and took possession of land thereon. Thus, we hold that the impugned order passed under section 263 of the Act is unsustainable. Accordingly, the order passed under section 263 of the Act is quashed and the assessment order is restored.

Summary

Issues Involved:

1. Validity of the jurisdiction assumed under Section 263 of the Income Tax Act.
2. Examination of the deduction claimed under Section 54B.
3. Legality of the reassessment proceedings under Section 147.

Detailed Analysis:

1. Validity of the Jurisdiction Assumed under Section 263:

The primary issue in this appeal was whether the Principal Commissioner of Income Tax (PCIT) was justified in assuming revision jurisdiction under Section 263 of the Income Tax Act. The PCIT invoked Section 263 on the grounds that the Assessing Officer (AO) had not adequately examined the deduction claimed under Section 54B, rendering the reassessment order erroneous and prejudicial to the interest of the revenue. However, the tribunal found that the AO had indeed conducted sufficient inquiries regarding the capital gains and the deduction under Section 54B during the reassessment proceedings. The AO had issued notices and sought clarifications, which the assessee duly addressed with supporting documents. The tribunal, therefore, concluded that the action of the PCIT was factually incorrect, as adequate inquiries were made by the AO. The tribunal quashed the revision order, relying on the precedent set by the Supreme Court in Malabar Industrial Company Ltd. vs. CIT, which holds that orders cannot be revised if adequate inquiries have been conducted.

2. Examination of the Deduction Claimed under Section 54B:

The assessee claimed a deduction under Section 54B for the purchase of agricultural land, which was initially accepted by the AO. The PCIT challenged this deduction, suggesting that the agreement to purchase agricultural land could not justify the deduction. However, the tribunal referred to the Supreme Court's decision in Sanjeev Lal vs. CIT, which established that an agreement to sell creates enforceable rights for the purchaser, qualifying as a transfer under Section 2(47) of the Act. The tribunal held that the exemption under Section 54B was admissible since the assessee had sold agricultural land, purchased another, and took possession, thereby fulfilling the necessary conditions. Consequently, the tribunal upheld the assessee's claim for the deduction.

3. Legality of the Reassessment Proceedings under Section 147:

The assessee contended that the reassessment proceedings initiated under Section 147 were invalid, as the reasons recorded did not justify the belief of income escapement. The tribunal noted that the reassessment was triggered by a proposal from the Assistant Commissioner of Income Tax, rather than an independent examination by the PCIT. This procedural flaw indicated a lack of independent application of mind by the revisionary authority, rendering the exercise of powers under Section 263 invalid. The tribunal emphasized that the decision-making process under Section 263 must originate from the revisionary authority's independent examination, not from subordinate proposals.

Conclusion:

The tribunal found the PCIT's invocation of Section 263 to be unsustainable due to the adequate inquiries made by the AO and the procedural deficiencies in the revision proceedings. The tribunal quashed the revision order, restored the original assessment order, and allowed the appeal of the assessee. The decision aligns with similar cases of co-owners, reinforcing the tribunal's standpoint on the legal and factual aspects of the case.