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2022 (6) TMI 1154 - AT - Income TaxRevision u/s 263 - Erroneous allowance of deduction u/s 54B - distinction between lack of inquiry and inadequate inquiry - AO without making inquiries or verification with respect to the deduction/exemption claimed under section 54 thus assessment is erroneous insofar prejudicial to the interest of the Revenue and thus requiring revision by Pr. CIT u/s 263 - as per CIT the new property purchased by the assessee at Talluka Vejalpur Ahmadabad is a developed land and not an agricultural land as the same falls in Town Planning Scheme-5 (Bodakhedev- Makraba-Vejalpur) within Ahmadabad Municipal Corporation and as per the provision of section 54B of the Act, the exemption is available if there is a transfer of agricultural land and purchase of a new agricultural land - HELD THAT - An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon ble High Courts in this regard. Delhi High Court in the case of CIT Vs. Sunbeam Auto 2009 (9) TMI 633 - DELHI HIGH COURT made a distinction between lack of inquiry and inadequate inquiry. The Hon ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. Thus the principle which emerges is that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Assessing Officer adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind. Now in the facts before us, in the case of the assessee the AO during the course of assessment proceedings, made enquiries on this issue and after consideration of written submissions filed by the assessee and documents / evidence placed on record, the Ld. AO framed assessment under section 143(3) accepting the return of income - it is not the case that the AO has not made enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of exemption claimed under section 54B of the Act. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the Ld. AO had made enquiries and after consideration of material placed on record accepted the genuineness of the claim of the assessee. Thus, the revisional order passed by the learned PCIT is not sustainable and therefore we quash the same. Hence the ground of appeal of the assessee is allowed.
Issues Involved:
1. Whether the assessment order under section 143(3) was erroneous and prejudicial to the interests of the Revenue. 2. Whether the exemption claimed under section 54B of the Income Tax Act was valid. Issue-wise Detailed Analysis: 1. Whether the assessment order under section 143(3) was erroneous and prejudicial to the interests of the Revenue: The Principal Commissioner of Income Tax (PCIT) held that the assessment framed under section 143(3) was erroneous and prejudicial to the interests of the Revenue. The PCIT observed that the Assessing Officer (AO) failed to verify crucial facts such as whether the land sold was used for agricultural purposes and whether the new property purchased was agricultural land intended to be used for agricultural activities. The PCIT noted that the AO accepted the details submitted by the assessee without necessary verification, which included the acceptance of agricultural income without substantiating that the land was used for agricultural activities. The PCIT also relied on reports from various authorities, including the Talati and Bhaskaracharya National Institute for Space Application & Geo-Informatics, which indicated that the land sold and the new property purchased were not used for agricultural purposes. 2. Whether the exemption claimed under section 54B of the Income Tax Act was valid: The exemption under section 54B is available if there is a transfer of agricultural land and the purchase of new agricultural land. The PCIT found that the new property purchased by the assessee was a developed land within the Town Planning Scheme and not agricultural land. The PCIT also noted that there was no evidence submitted by the assessee to establish the use or intended use of the purchased land for agricultural activities. Consequently, the PCIT concluded that the AO failed to make proper inquiries and verification regarding the exemption claimed under section 54B, making the assessment order erroneous and prejudicial to the interests of the Revenue. Tribunal's Findings: The Tribunal examined whether the AO made adequate inquiries or verification regarding the deduction/exemption claimed under section 54B. The Tribunal referred to various judicial precedents, emphasizing that an order cannot be deemed erroneous if the AO made inquiries and applied the law correctly, even if the inquiries were considered inadequate by the PCIT. The Tribunal noted that the AO issued multiple notices under section 142(1) and received detailed replies from the assessee, indicating that inquiries were made regarding the capital gain and exemption under section 54B. The Tribunal highlighted that the AO had made inquiries and applied his mind to the facts and circumstances of the case before accepting the assessee's claim. The Tribunal cited the Delhi High Court's distinction between "lack of inquiry" and "inadequate inquiry," stating that an order cannot be set aside under section 263 merely because the PCIT had a different opinion on the adequacy of the inquiry. The Tribunal concluded that the AO had made inquiries and considered the material placed on record before framing the assessment. Therefore, the assessment order was not erroneous or prejudicial to the interests of the Revenue. The Tribunal quashed the revisional order passed by the PCIT and allowed the appeal filed by the assessee. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the assessment order under section 143(3) was not erroneous or prejudicial to the interests of the Revenue. The Tribunal emphasized that the AO had made inquiries and applied his mind to the facts before accepting the assessee's claim for exemption under section 54B.
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