2022 (5) TMI 601 - AT - Income Tax

Revision u/s 263 - claim of deduction u/s. 54F - HELD THAT - PCIT at best can be said to have entertained a suspicion however he has failed to point out any infirmity in the order. On the contrary considering the replies of the assessee on record including the submissions as advanced before the ld. PCIT himself we find that the claim allowed by the AO is fully supported on facts and evidences. The order under challenge fails to point out any error let alone such an error which can be said to be erroneous and prejudicial to the interests of the Revenue. The fact that the construction cost details were actually provided on query to the AO or not as they do not find any mention in the assessment order we find in the peculiar facts is neither here nor there. The fact remains that these were provided to the ld. PCIT. We do not need to cite any decisions to address the well accepted position that the assessee cannot be faulted on how the assessment orders are written. The writing of assessment orders are exclusively in the hands and the domain of the Revenue and merely because facts on which the AO is satisfied are not found mentioned in the order the absence of discussion thereon shall not by itself be an indicator of the fact that the AO has failed to examine the issue. Such an inference cannot be drawn. We have seen the queries raised in the course of the assessment proceedings. We have seen the responses given thereto. No doubt that the assessee is faced with a handicap that the counsel representing before the AO and before the ld. PCIT has passed away in the COVID times however the fact which remains to be demonstrated by the Revenue is the error and that too such an error which is prejudicial to the interests of the Revenue. These requirements cannot be said to have been met by the absence of discussion on facts on which the AO was satisfied after having raised the queries and considered the replies. How the assessment orders are to be written cannot be dictated to by the assessee. The remedy at best lies in providing better training if so deemed fit to the Revenue officers and hence lies in-house with the Revenue itself. The suspicion that it was possibly not seen by the AO cannot be the backbone of exercising the powers u/s. 263 of the Act. The fact remains that these calculations were provided to the ld. PCIT. It is seen that he has failed to find any infirmity in the claim. PCIT instead has set aside the order u/s. 143(3)/148 in order to grant one more inning to the Revenue to find some shortcoming in the claim on the suspicion that possibly the AO has missed something in the first round. Such an action cannot be supported. Powers u/s. 263 of the Income Tax Act are not on the Statute for such whimsical and arbitrary actions. The powers are expected to be necessarily exercised by pointing out clearly the error in the order passed which is sought to be set aside exercising the Revisionary powers and that too such an error which is prejudicial to the interests of the Revenue. Appeal of assessee allowed.

Issues Involved:
1. Jurisdiction under section 263 of the Income Tax Act.
2. Limited scrutiny and thorough examination of issues.
3. Consideration of replies and submissions by the Principal Commissioner of Income Tax (PCIT).
4. Examination of evidence by the PCIT.
5. Validity and correctness of the assessment order.
6. Overall legality and sustainability of the PCIT's order.

Detailed Analysis:

1. Jurisdiction under section 263 of the Income Tax Act:
The primary issue was whether the Principal Commissioner of Income Tax (PCIT) correctly assumed jurisdiction under section 263 of the Income Tax Act to set aside the assessment order dated 08.12.2017. The appellant argued that the order was neither erroneous nor prejudicial to the interest of the Revenue, thus rendering the assumption of jurisdiction beyond the PCIT's competence.

2. Limited scrutiny and thorough examination of issues:
The appellant contended that the case was picked up for limited scrutiny, and issues such as sale/purchase of property and indexed cost were thoroughly examined, making the assessment order neither erroneous nor prejudicial. The appellant’s counsel emphasized that the Assessing Officer (AO) had thoroughly reviewed the relevant facts and details during the assessment proceedings, as evidenced by the questionnaire issued on 05.12.2016 and the subsequent responses.

3. Consideration of replies and submissions by the Principal Commissioner of Income Tax (PCIT):
The appellant argued that the PCIT failed to consider the various replies and submissions placed on record properly. The PCIT's show cause notice and the appellant's detailed replies were discussed, highlighting that the renovation expenses and other relevant details were provided. The PCIT, however, concluded that the renovation expenses of Rs. 10.15 lakhs were an error prejudicial to the interests of the Revenue.

4. Examination of evidence by the PCIT:
The appellant claimed that the PCIT did not examine the evidence properly and arbitrarily set aside the assessment order without making any inquiry. The appellant provided detailed evidence, including construction costs and bank statements, which were not faulted by the PCIT. The PCIT’s failure to point out specific errors in the evidence led to the conclusion that the exercise of revisionary powers was whimsical and arbitrary.

5. Validity and correctness of the assessment order:
The appellant maintained that the assessment order was passed after due application of mind by the AO, considering various replies and material on record. The PCIT’s action to set aside the order was deemed unwarranted and uncalled for, as the AO had raised specific queries and received satisfactory responses. The appellant's counsel argued that the AO’s satisfaction with the responses should not be undermined merely because the AO did not explicitly mention every detail in the assessment order.

6. Overall legality and sustainability of the PCIT's order:
The Tribunal concluded that the PCIT’s order was erroneous and arbitrary, failing to point out any specific error that was prejudicial to the Revenue's interests. The Tribunal emphasized that the power under section 263 should be exercised with due care, pointing out specific errors and not based on mere suspicion. The Tribunal quashed the PCIT’s order, allowing the appellant’s grounds and emphasizing the need for the PCIT to clearly identify errors before setting aside an assessment order.

Conclusion:
The Tribunal found that the PCIT’s assumption of jurisdiction under section 263 was beyond competence, as the assessment order was neither erroneous nor prejudicial to the Revenue's interests. The Tribunal highlighted the thorough examination by the AO, the proper consideration of replies and evidence, and the arbitrary nature of the PCIT’s order. The appeal was allowed, and the PCIT’s order was quashed.

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