2019 (5) TMI 735 - AT - Income Tax

Revision u/s 263 by CIT - excess claim of deduction u/s 54B - non application of mind by AO - HELD THAT - AO has not given any reason as to how purchase of land prior to transfer of capital asset is eligible for claim of deduction under s.54B(1) of the Act. Thus, as a corollary, the AO has accepted the claim of deduction by oversight and without any application of mind in this regard. No evidence has been adduced before us to show that the issue was present to the mind of the AO. A wrong acceptance of claim of deduction would not given inference towards application of mind. Secondly, the eligibility of deduction under s.54B in respect of land acquired prior to transfer of capital asset is clearly opposed to the plain provision of the Act and thus apparently not sustainable having regard to express the provision of the statute. The legislature in its own wisdom has used the expression before the transfer of long term asset as well as after the transfer of capital asset at appropriate places viz. Section 54. The intention of the legislature is thus quite clear. Therefore, claim of deduction accepted by the AO despite unequivocal language of the Act, in our view, is erroneous as contemplated u/s 263. Such error on the part of the AO has caused definite prejudice to the interest of the Revenue. The action of the Pr.CIT is thus within the realm of powers vested under s.263. The Pr.CIT has distinguished the case laws cited which is found to be in order. We do not see irregularity in the assumption of jurisdiction by the Pr.CIT under s.263 of the Act - Decided against assessee.

Summary

Issues:
Challenge to revisional order under Section 263 of the Income Tax Act regarding deduction under Section 54B claimed by the assessee.

Analysis:
The appeal was filed by the assessee against the revisional order passed by the Principal Commissioner of Income Tax-5, Ahmedabad under Section 263 of the Income Tax Act concerning the assessment order for AY 2012-13. The grievance of the assessee was that the revisional powers under Section 263 were not justified as it set aside the assessment order passed by the Assessing Officer (AO) under Section 143(3) of the Act, specifically regarding the deduction claimed under Section 54B. The AO had disallowed a portion of the deduction claimed by the assessee under Section 54B, leading to the revisional proceedings initiated by the Principal Commissioner.

The Principal Commissioner issued a show cause notice to the assessee, highlighting the alleged erroneous claim of deduction under Section 54B. The notice pointed out that the assessee had purchased assets before the sale of the land, making the exemption claimed not allowable. The Principal Commissioner contended that the assessment order was erroneous and prejudicial to the Revenue due to the excess deduction claimed. The assessee contested the notice, but the Principal Commissioner found the assessment order lacking due diligence and directed the AO to re-examine the matter.

The Tribunal considered the arguments of both parties. It was noted that the revisional powers under Section 263 are broad and aimed at addressing revenue risks objectively. The key issue was whether the Principal Commissioner could overturn the assessment order due to alleged errors in verifying deductions. The Tribunal found that the AO had overlooked the requirement of Section 54B(1) regarding the timing of land purchase in relation to the capital asset transfer. The acceptance of the deduction claim for land purchased before the asset transfer was deemed erroneous and prejudicial to Revenue. The Tribunal upheld the Principal Commissioner's decision, emphasizing the clear legislative intent behind Section 54B and the AO's failure to apply due diligence in verifying the deduction claim.

In conclusion, the Tribunal dismissed the appeal of the assessee, affirming the Principal Commissioner's decision under Section 263. The Tribunal found no irregularity in the assumption of jurisdiction by the Principal Commissioner and declined to interfere with the revisional order.