2016 (9) TMI 206 - AT - Income Tax

Revision u/s 263 - exemption under section 54EC - Held that - Commissioner in the present case has purported to act in exercise of power under section 263 on the ground that the order of the Assessing Officer in granting exemption under section 54EC to the extent of ₹ 1 crore is without any enquiry and therefore erroneous in so far as prejudicial to the interests of the Revenue. We notice that there are several judicial precedents on the issue of allowability of exemption to the extent of ₹ 50 lakhs each in one or more financial years under section 54EC of the Act. The action of the assessee in making investments of ₹ 50 lakhs each in two different financial years is therefore not out of sync with these judicial precedents. Hence, there is an apparent plausibility in the action of the Assessing Officer in accepting the claim of ₹ 1 crore under section 54EC. Thus, the action of the Assessing Officer in adopting a view expressed by the superior forum cannot be viewed as arbitrary or unreasonable. The issue involved is pre-dominantly legal in nature and does not require any factual enquiry. On objective consideration of the facts on record, it is difficult to hold that action of the Assessing Officer was erroneous per se and hostile to the interest of the Revenue. Thus, source of power to set-aside the assessment order is not traceable to section 263 of the Act. In view of upholding the exemption to the extent of ₹ 50 lakhs each invested in long term specified asset in two different financial years for the purposes of section 54EC and in the light of subsequent amendment carried in the Act, the action of the Assessing Officer is clearly plausible in law. Accordingly, no error can be inferred in the assessment order per se. Resultantly, we find merit in the plea of the assessee on this issue and hence the order of the Commissioner under section 263 dated 10.10.2014 is set-aside and quashed. - Decided in favour of assessee.

Summary

Issues Involved:
- Validity of invoking section 263 of the Income Tax Act by the Commissioner based on alleged errors in the assessment order under section 143(3).
- Allowability of exemption under section 54EC for investments made in two different financial years.

Analysis:

Issue 1: Validity of invoking section 263
The appeal challenged the Commissioner's order under section 263, deeming the assessment order under section 143(3) as erroneous and prejudicial to Revenue interests. The Commissioner contended that the Assessing Officer failed to conduct proper inquiries regarding the exemption claim under section 54EC. The assessee argued that staggered investments of ?50 lakhs in two financial years were permissible for the exemption. The Tribunal found that the Assessing Officer's decision aligned with judicial precedents allowing such investments. As the issue was predominantly legal and did not require factual inquiry, the Tribunal held that the Assessing Officer's action was not erroneous or against Revenue interests. Consequently, the Commissioner's order under section 263 was set aside and quashed.

Issue 2: Allowability of exemption under section 54EC
The primary contention revolved around the interpretation of section 54EC regarding the exemption for investments made in two different financial years. The assessee relied on judicial precedents and subsequent amendments to support the claim that investments of ?50 lakhs in each financial year were permissible. The Tribunal concurred with the assessee's argument, emphasizing the legal permissibility of such investments under section 54EC. The Assessing Officer's decision to allow the exemption was deemed legally plausible, especially considering the judicial precedents and subsequent legislative amendments. Consequently, the Tribunal upheld the assessee's plea, setting aside the Commissioner's order and allowing the appeal.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the legal validity of staggered investments in two financial years for claiming exemption under section 54EC. The Commissioner's order under section 263 was overturned, highlighting the alignment of the Assessing Officer's decision with legal precedents and legislative provisions.