2024 (11) TMI 306 - AT - Income Tax

Revision u/s 263 - deduction u/s. 54/54F has been allowed without proper examination of relevant details and materials - difference between no enquiry and inadequate enquiry - HELD THAT - AO framed assessment u/s 143(3) and he has taken a conscious decision that the assessee entitled for deduction u/s 54F of the Act on going to the details of assets sold during the financial year 2016-017 relevant to assessment year 2017-18 and its cost of acquisition of said property. Assessee has furnished details of investment in new residential property vide notice u/s 142(1) - assessee has furnished the bills/vouchers. AO/NFAC after examining all the relevant details concluded on the allowability of deduction u/s 54F of the Act. It is also be seen that as noted by ld. PCIT assessee has furnished the details of investments in huge amount of Rs. 6,66,50,852/-, out of which deduction has been claimed amounting to Rs. 4,64,71,744/- without specifying the details of expenses against which deduction u/s 54F of the Act has been claimed. Once the ld. PCIT himself has noted that assessee has furnished the details of expenditure it cannot be said that there is no enquiry or inadequate enquiry on the issue of exemption u/s 54F of the Act. We note that notice u/s. 263 of the Act issued by the Pr. CIT is vague and only for making deeper enquiry and re-considering the evidences already on record duly considered during assessment proceedings based on purported proposal that fresh facts have been emerged subsequent to the order of assessment which is factually incorrect and untenable and the conditions or the factors enabling the Ld. Pr. CIT to invoke his jurisdiction u/s 263 have not been satisfied. Though Explanation provides for an extra discretionary power to the Commissioner in his revisionary powers under section 263 of the Act. This discretion cannot be assumed arbitrarily by the ld. PCIT. At least something he should bring on record to show the error and the prejudice to revenue caused by that error while assuming jurisdiction under section 263 of the Act. This can be done to the least by him by making independent inquiry/ investigation to conclusively bring on record such error and also the prejudice. In view of this we hold that exercising of jurisdiction u/s 263 of the Act is not justified. Accordingly, we quash the order passed by PCIT u/s 263 of the Act for the assessment year 2017- 18. Assessee appeal allowed.

Summary

Issues Involved:

1. Invocation of revision proceedings under Section 263 of the Income Tax Act.
2. Principles of natural justice and adequacy of opportunity provided to the assessee.
3. Examination of deduction claimed under Section 54 of the Income Tax Act.
4. Adequacy of inquiry conducted by the Assessing Officer (AO) during assessment proceedings.
5. Interpretation and application of Explanation 2 to Section 263 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Invocation of Revision Proceedings under Section 263:
The Principal Commissioner of Income Tax (Pr. CIT) invoked revision proceedings under Section 263, asserting that the assessment orders for the years 2017-18 and 2018-19 were erroneous and prejudicial to the interests of the revenue. The Pr. CIT contended that the AO had allowed deductions under Section 54 without conducting necessary inquiries or verifications. The Tribunal, however, found that the AO had indeed conducted inquiries and obtained details from the assessee during the assessment proceedings. The Tribunal emphasized that the mere difference in opinion between the AO and the Pr. CIT does not justify invoking Section 263 if the AO's view was a plausible one.

2. Principles of Natural Justice and Adequacy of Opportunity:
The assessee argued that the notice for revision proceedings was issued with insufficient time for compliance, thus violating principles of natural justice. The Tribunal noted that the assessee had responded to the notice to the best extent possible within the limited time frame. The Tribunal underscored that the revision proceedings must adhere to principles of natural justice, and any violation thereof could render the proceedings invalid.

3. Examination of Deduction Claimed under Section 54:
The Pr. CIT challenged the deduction claimed under Section 54, stating that the AO did not verify the details adequately. The Tribunal found that the AO had called for and received detailed information regarding the sale of assets and the subsequent investment in a new residential property. The Tribunal noted that the AO had exercised his discretion in allowing the deduction based on the evidence presented, and the Pr. CIT's disagreement with the AO's conclusions did not warrant a revision under Section 263.

4. Adequacy of Inquiry Conducted by the AO:
The Tribunal distinguished between "lack of inquiry" and "inadequate inquiry," stating that Section 263 could only be invoked in cases of lack of inquiry. The Tribunal observed that the AO had made inquiries and obtained responses from the assessee, indicating that there was no lack of inquiry. The Tribunal held that the AO's decision, based on the inquiries conducted, was within the permissible scope of his discretion and could not be deemed erroneous merely because the Pr. CIT had a different view.

5. Interpretation and Application of Explanation 2 to Section 263:
Explanation 2 to Section 263 deems an order erroneous if it is passed without necessary inquiries or verification. The Tribunal clarified that this provision does not grant unfettered powers to the Pr. CIT to revise every order. The Tribunal emphasized that the Pr. CIT must demonstrate that the AO's order was unsustainable in law due to lack of inquiry. The Tribunal found that the AO had conducted inquiries and, therefore, the Pr. CIT's invocation of Section 263 was not justified. The Tribunal quashed the revision orders for both assessment years, emphasizing that the AO's assessment orders were neither erroneous nor prejudicial to the interests of the revenue.

Conclusion:
The Tribunal allowed the appeals for both assessment years, quashing the revision orders under Section 263. It held that the AO had conducted adequate inquiries, and the Pr. CIT's invocation of revisionary powers was not justified based on the facts and circumstances of the case. The Tribunal reinforced the principles that revision under Section 263 requires clear evidence of error and prejudice to the revenue, which were not established in this case.