2017 (11) TMI 1126 - AT - Income Tax

Revision u/s 263 - Validity of taking up of matters by the successor CIT - as per CIT-A deduction claimed under section 54F was not as per law and directed the Assessing Officer to recompute the income by denying the said deduction - Held that - Clearly and undisputedly this issue was examined by the Commissioner of Income-tax in proceeding initiated under section 263 of the Act vide his notice dated December 14, 2007 and due reply filed by the assessee, after considering which and after being satisfied by which the proceedings were dropped. The present proceeding having been initiated on the identical issue are clearly unsustainable in law since it simply tantamounts to review of the order of the Commissioner of Income-tax and not of the Assessing Officer. The co-ordinate Bench of the Income-tax Appellate Tribunal in the case of Satya Prakash Gupta (2014 (3) TMI 932 - ITAT DELHI) has in identical circumstances held that the successor Commissioner of Income-tax becomes functus officio in this regard after the exercise conducted by the predecessor Commissioner of Income-tax. Therefore, we have no hesitation in holding that the order passed under section 263 is not sustainable on this ground alone. The explanation given by the assessee in this regard vide its reply submitted to the Commissioner of Income-tax in the earlier proceeding and even in the present proceeding, we find is plausible and reasonable. A bare reading of sections 54 and 54F of the Act nowhere states that the surplus remaining after claiming deduction under section 54/54F on account of construction of house property undertaken in a year, would not be allowed set off against long-term capital gain earned in the succeeding year. There is no such specific bar provided in the section. The learned Departmental representative also agreed to this. Therefore, as long as the conditions specified under section 54F are fulfilled, the interpretation and understanding of section as taken by the assessee and also by the earlier Commissioner of Income-tax cannot be said to be perverse and grossly against law. Therefore, the argument of the learned Departmental representative that an error would be allowed to be perpetuated by setting aside the present order of the learned Commissioner of Income-tax on technical grounds, we find has no merit. - Decided in favour of assessee.

Issues Involved:
1. Legality of the revisionary proceedings initiated under section 263 of the Income-tax Act, 1961.
2. Validity of the claim for deduction under section 54F of the Income-tax Act, 1961.
3. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of the revisionary proceedings initiated under section 263 of the Income-tax Act, 1961:

The assessee filed an appeal against the order of the Commissioner of Income-tax (CIT) under section 263 of the Income-tax Act, 1961. Initially, the assessment for the assessment year 2005-06 was completed under section 143(3) of the Act. The CIT found the order erroneous and prejudicial to the interests of the Revenue due to the incorrect allowance of exemption under section 54F. The CIT issued a notice under section 263, stating that the deduction of ?15,06,457 was wrongly claimed against long-term capital gains for the year 2005-06, which pertained to transactions of the previous year.

The assessee responded, asserting that the claim was in accordance with section 54F and challenged the CIT's power under section 263. The CIT did not accept the assessee's contention and directed the Assessing Officer to recompute the income by denying the deduction.

The Tribunal noted that the same issue had been previously reviewed by the CIT, who had dropped the proceedings after considering the assessee's reply. The Tribunal held that initiating revisionary proceedings again on the same issue was unsustainable, as it amounted to a review of the CIT's order, not the Assessing Officer's. The Tribunal referenced the case of Satya Prakash Gupta v. ITO, where it was held that a successor CIT becomes functus officio after the predecessor CIT's exercise. Thus, the Tribunal set aside the order passed under section 263.

2. Validity of the claim for deduction under section 54F of the Income-tax Act, 1961:

The CIT found that the assessee had claimed a deduction under section 54F for the construction of a house, which was already claimed and allowed in the previous year. The CIT argued that any surplus from the deduction could not be carried over to the next year.

The Tribunal found that sections 54 and 54F do not explicitly bar the carryover of surplus deductions to the succeeding year. The Tribunal accepted the assessee's explanation that the deduction was claimed correctly as per the provisions of section 54F. The Tribunal noted that the earlier CIT had also accepted this interpretation, and thus, there was no error in the assessee's claim. The Tribunal concluded that the CIT's order under section 263 was not sustainable and directed the deletion of the addition of ?15,06,457.

3. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961:

The second appeal related to the penalty levied under section 271(1)(c) on the addition made by denying the deduction under section 54F. Since the Tribunal deleted the addition in the first appeal, the basis for the penalty no longer existed. Consequently, the Tribunal deleted the penalty amounting to ?3,38,050.

Conclusion:

Both appeals filed by the assessee were allowed. The Tribunal set aside the order passed under section 263 and deleted the addition of ?15,06,457. Consequently, the penalty levied under section 271(1)(c) was also deleted.

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