2021 (9) TMI 506 - AT - Income Tax

Revision u/s 263 - deduction u/s 54 - capital gains/ loss - specific finding that how the order passed by the AO is erroneous which resultant loss of the revenue - HELD THAT - As the case was selected for limited scrutiny on the reason Whether capital gains/ loss is genuine and has been correctly shown in the return of income. Not for deduction claimed under the head capital gain - as during the assessment proceedings the AO had also made substantial verification examination on the other issue as the case may be taken up for comprehensive scrutiny, without following legal procedure and necessary approval of the competent authority, conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO. Therefore, the reason on which the ld PCIT had issued the notice u/s 263 and acquired the jurisdiction is not only illegal but also against the circular issued by Hon ble CBDT and law decided by Hon ble Court. During the assessment proceedings as well as revision proceeding the assessee had submitted the documentary evidences and explanations in respect of genuineness of the claim of deduction u/s 54Fand the AO on meticulous appreciation of evidence on record has allowed the claim of deduction which is not only accordance with provision of law but also supported from documentary evidences and as such there is no error in the Assessment order. Also during the revision proceedings the assessee had explained with legal valid documentary evidences that claim made by assessee on the basis of which the AO had allowed the same - As pointed out before ld PCIT that the facts narrated in show cause notice is apparently incorrect and false as the assessee had constructed the house on other residential plot not on the purchase in the year under consideration and in support of same the assessee had furnished evidences. AO had exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion on the basis of legal valid documentary evidences and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion and also there was no revenue loss as the entire sales consideration had been disclosed and offered for taxation as per provisions of law by the respective parties. It is settled proposition of law that revisionary powers of CIT u/s 263 can be invoked only when the assessment order is erroneous as well as prejudicial to the interest of the Revenue. Since, in the case of assessee, the assessment order could not be established to be erroneous, by Pr CIT-. The sole ground of 263 jurisdiction by the Pr. CIT was that the AO did not make proper enquiry. This itself cannot be said to be erroneous and prejudicial to the interest of the Revenue since the AO was alive on all these questions and he has called upon the assessee to produce relevant material in regard to areas which were stated by the PCIT in his show cause notice. Order u/s 263 cannot be sustained as we find that the assessment order passed by the AO cannot be said to be erroneous or prejudicial to the interest of revenue, and accordingly the order made u/s 263 is quashed. - Decided in favour of assessee.

Issues Involved:
1. Legality of the order passed under Section 263 of the Income Tax Act, 1961.
2. Jurisdictional errors in initiating proceedings under Section 263.
3. Adequacy of inquiries and verification by the Assessing Officer (AO).
4. Validity of the disallowance of deduction under Section 54F.
5. Directions issued by the Principal Commissioner of Income Tax (PCIT) beyond the scope of the show cause notice.
6. Re-computation of capital gains and adherence to the principles of natural justice.
7. Applicability of beneficial provisions and the principle of liberal interpretation.
8. Specific findings of the PCIT on how the assessment order was erroneous and prejudicial to the interest of revenue.

Detailed Analysis:

1. Legality of the Order Passed Under Section 263:
The appellant challenged the order passed by the PCIT under Section 263, claiming it was "bad in law and bad in facts." The Tribunal noted that the AO had conducted a proper and judicial inquiry into the deduction claimed under Section 54F, supported by documentary evidence. The Tribunal found no error in the AO's assessment that would justify the PCIT's invocation of Section 263.

2. Jurisdictional Errors in Initiating Proceedings Under Section 263:
The appellant argued that the PCIT erred in assuming jurisdiction under Section 263, as the AO's order was neither erroneous nor prejudicial to the revenue. The Tribunal agreed, noting that the AO had made adequate inquiries and undertaken necessary verification. The Tribunal emphasized that the PCIT could not assume jurisdiction merely due to a change of opinion.

3. Adequacy of Inquiries and Verification by the AO:
The Tribunal observed that the AO had issued notices under Section 142(1) and raised specific queries regarding the deduction under Section 54F. The appellant had furnished all required documents and explanations, which the AO duly verified. The Tribunal concluded that the AO had conducted a thorough and proper inquiry, making the assessment order neither erroneous nor prejudicial to the revenue.

4. Validity of the Disallowance of Deduction Under Section 54F:
The PCIT had directed the AO to re-examine the allowability of the deduction under Section 54F. The Tribunal found that the AO had already verified the deduction claim with reference to documentary evidence. The Tribunal held that the PCIT's direction was unwarranted as the AO had allowed the deduction in accordance with the law.

5. Directions Issued by the PCIT Beyond the Scope of the Show Cause Notice:
The PCIT issued directions on issues not mentioned in the show cause notice, including the re-computation of capital gains. The Tribunal held that such directions were beyond the PCIT's jurisdiction and violated the principles of natural justice.

6. Re-computation of Capital Gains and Adherence to the Principles of Natural Justice:
The PCIT directed the AO to adopt 50% of the sale consideration for re-computing capital gains. The Tribunal found this direction to be beyond the PCIT's jurisdiction and contrary to the principles of natural justice, as it effectively imposed double taxation on the same transaction.

7. Applicability of Beneficial Provisions and the Principle of Liberal Interpretation:
The appellant argued that beneficial provisions should be interpreted liberally. The Tribunal noted that the AO had allowed the deduction under Section 54F based on a liberal interpretation supported by documentary evidence. The Tribunal held that the PCIT's stricter interpretation was not justified.

8. Specific Findings of the PCIT on How the Assessment Order Was Erroneous and Prejudicial to the Interest of Revenue:
The Tribunal observed that the PCIT failed to provide specific findings on how the AO's order was erroneous and prejudicial to the revenue. The Tribunal emphasized that the PCIT must record clear reasons for invoking Section 263, which was not done in this case.

Conclusion:
The Tribunal quashed the order passed under Section 263 by the PCIT, holding that the AO's assessment was neither erroneous nor prejudicial to the interest of revenue. The appeal by the assessee was allowed, and the directions issued by the PCIT were deemed invalid and beyond jurisdiction.

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