2021 (9) TMI 531 - AT - Income Tax

Revision u/s 263 by CIT - eligibility of deduction u/s 54F - CIT concluded that the assessee is eligible for deduction under s. 54F of the Act in respect of only one residential unit and two adjoining flats cannot be regarded as one residential house - AO has failed to initiate penalty u/s 271(c) - HELD THAT - It is the case of the assessee that while two adjoining flats can be regarded as two residential units constructed by the developer, but in effect, constitutes only one residential 'house' of the assessee. The view has been consistently taken in large number of judicial precedents and hence, the action of the AO is consistent with the plausible view as held by the Courts and Tribunals. Where the AO has taken a view which is possible and plausible, the action of the AO cannot be regarded as erroneous per se. Consequently, the twin conditions of order being (i) erroneous as well as (ii) prejudicial to the interest of the Revenue, does not co-exist. Hence, the jurisdiction usurped by the PCIT is not sustainable in law. The reliance placed on the amendment carried out by Finance (No. 2) Act, 2014 is grossly misplaced. The interpretation rendered by the co-ordinate benches and the Hon'ble High Courts is on the point as to what constitutes a residential house. A residential house may comprise of several residential units if used and consummated collectively as residential house. The decisions quoted on behalf of the assessee squarely apply to the fact situation. The amendment in Section 54F of the Act has merely curtailed the holding of residential house at the sale of original asset. The interpretation of what constitutes 'residential house' has not been displaced by the amendment per se - no error in the action of the AO - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction assumed by the PCIT under Section 263 of the Income Tax Act.
2. Eligibility of deduction under Section 54F of the Income Tax Act concerning investment in two adjoining flats.
3. Alleged failure of the AO to initiate penalty under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction assumed by the PCIT under Section 263 of the Income Tax Act:
The appeal was filed by the assessee challenging the jurisdiction assumed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT issued a show-cause notice dated 22.02.2021, proposing to revise the assessment order passed by the Assessing Officer (AO) on 04.09.2018 under Section 143(3) of the Act for AY 2016-17. The PCIT's contention was that the assessment order was erroneous and prejudicial to the interest of revenue. The Tribunal noted that for the PCIT to assume jurisdiction under Section 263, the assessment order must be both erroneous and prejudicial to the interest of revenue. The Tribunal found that the AO had taken a view that was plausible and consistent with judicial precedents, thus the conditions for invoking Section 263 were not met. Consequently, the Tribunal held that the jurisdiction assumed by the PCIT was not sustainable in law and cancelled the revisional order.

2. Eligibility of deduction under Section 54F of the Income Tax Act concerning investment in two adjoining flats:
The primary issue raised by the PCIT was the eligibility of the assessee for deduction under Section 54F of the Act. The assessee had sold an immovable property and invested the sale proceeds in two adjoining flats (B-501 & B-502) at Golden Glory, Shriram Nagar, Raipur, and claimed deduction under Section 54F. The PCIT argued that the deduction should be restricted to one residential unit as per the amended provisions of Section 54F by the Finance (No. 2) Act, 2014. However, the Tribunal observed that the flats were adjoining, combined, and used as a single residential unit with a common kitchen. The Tribunal referred to several judicial precedents, including ITO vs. Sushila M. Jhaveri and Kamal Murlidhar Mokashi vs. ITO, which supported the view that two or more residential units could constitute one residential house if used collectively. The Tribunal concluded that the AO's view was plausible and consistent with judicial interpretations, and thus, the assessment order was not erroneous.

3. Alleged failure of the AO to initiate penalty under Section 271(1)(c) of the Income Tax Act:
The PCIT also alleged that the AO failed to initiate penalty proceedings under Section 271(1)(c) of the Act for concealment of income or furnishing inaccurate particulars of income. The Tribunal, however, did not find merit in this contention as the AO's decision regarding the deduction under Section 54F was found to be plausible and in line with judicial precedents. Since the primary issue of deduction under Section 54F was resolved in favor of the assessee, the question of initiating penalty under Section 271(1)(c) did not arise. The Tribunal thus did not uphold the PCIT's direction for initiating penalty proceedings.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the jurisdiction assumed by the PCIT under Section 263 was not sustainable in law. The Tribunal found that the AO's view regarding the eligibility of deduction under Section 54F was plausible and consistent with judicial precedents. Consequently, the revisional order passed by the PCIT was cancelled, and the assessment order passed by the AO was upheld.