2022 (7) TMI 170 - AT - Income Tax

Revision u/s 263 - eligibility of Deduction u/s 54F - construction of a new residential property from the sale of the land - CIT found that the AO has not made proper inquiry before allowing deduction under section 54F viz. whether the assessee has deposited capital gain amount in the specified capital gain tax account, whether the assessee spent the money for construction of a residential house; whether the assessee is entitled to claim deduction under section 54F for more than one residential house; AO failed to verify whether the land sold was an agriculture land two years before the date of transfer of the said land not verified that no agriculture income has been shown by the assessee from the above agriculture land - HELD THAT - From scrutiny sheet of the Income Tax Department relating to the assessee wherein the reason on which cases selected for scrutiny is given as AO should examine the sources of investment in property as appearing in AIR . However, it is seen from the assessment order dated passed by the AO that it is very cryptic order confined to two paragraphs only without making any discussions and justification for the relief granted to the assessee either under section 54B or under section 54F of the Act. In the assessment order passed by the AO, there is no whisper on the inquiries made by him, before passing regular assessment order. Probably for this reason, the ld.CIT has reopened the assessment under section 263 We find that the ld.CIT also has not verified assessment record properly and simply carried out the objections made by the Internal Audit Party of the department, and thereby initiated the Revision proceedings. It can be seen from the show cause notice issued under section 263 of the Act, wherein the ld.CIT has categorically mentioned that the AO did not verify the facts and allowed the deduction under section 54B 54F of the Act. This observation by the ld.CIT is not correct, for the reason that the ld.AO has called for the details from the Sub-Registrar and received reply from Sub-Registrar on 24.1.2011 and 7.9.2011 respectively. AO though made inquiry about the claim made by the assessee, however, not discussed the same while passing assessment order. Thus, we find that the ld.CIT has initiated Revision proceeding based on the Internal Audit Party report only, which is not maintainable in law following jurisdictional High Court in the case of N.K. Roadways P.Ltd. ( 2014 (6) TMI 188 - GUJARAT HIGH COURT - Hon ble Supreme Court 1970 (4) TMI 4 - SUPREME COURT also held that revision made by the Commissioner simply following direction of the Board, which may control exercise of power of officers of department in administrative matters but not quasi-judicial matters. In case of judicial matters, the Commissioner should apply his mind and initiate proceedings in accordance with law and not merely carry out directions of the Board. Thus, any order passed pursuant to the directions of the Board is liable to be set aside as Commissioner has not applied his independent judgments in invoking revision proceedings. We hold that revision order passed by the ld.CIT is not in accordance with law and the same is hereby quashed. Appeal of assessee allowed.

Issues Involved:
1. Whether the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of Revenue.
2. Whether the Assessing Officer (AO) made proper inquiries before allowing deductions under sections 54F and 54B.
3. Whether the Commissioner of Income Tax (CIT) was justified in invoking section 263 of the Income Tax Act, 1961, to revise the assessment order.
4. Whether the assessee satisfied the conditions for the allowability of deductions under sections 54F and 54B.

Detailed Analysis of the Judgment:

Issue 1: Erroneous and Prejudicial to the Interest of Revenue
The CIT found that the AO had not made proper inquiries before allowing deductions under sections 54F and 54B, making the assessment order erroneous and prejudicial to the interest of the Revenue. The CIT invoked clause (b) to Explanation 2 of section 263, which states that an order is erroneous if it allows any relief without proper inquiry.

Issue 2: Proper Inquiries by the AO
The AO accepted the returned income of the assessee without making detailed inquiries into the deductions claimed under sections 54F and 54B. The AO's assessment order was cryptic and lacked discussions or justifications for the relief granted. The CIT noted that the AO did not verify whether the assessee had deposited the capital gain amount in the specified capital gain tax account, whether the assessee spent the money for constructing a residential house, and whether the land sold was used for agricultural purposes two years before the transfer.

Issue 3: Justification of CIT in Invoking Section 263
The CIT invoked section 263 based on the findings that the AO had not conducted proper inquiries. However, the Tribunal noted that the CIT had not formed an independent belief but relied solely on the audit objections raised by the Revenue Audit Party. The Tribunal referenced the jurisdictional High Court judgment in N.K. Roadways Pvt Ltd. v. Income-tax Officer (OSD), which held that reopening based solely on audit objections without independent belief is invalid. The Tribunal also cited the Supreme Court's judgment in Sirpur Paper Mill Ltd. v. Commissioner of Wealth-tax, emphasizing that the Commissioner must exercise independent judgment and not merely follow directions from the Board.

Issue 4: Satisfaction of Conditions for Deductions under Sections 54F and 54B
The assessee provided detailed submissions and evidence to support the claims for deductions under sections 54F and 54B. The CIT(A) found that the assessee had complied with the conditions for these deductions. The CIT(A) noted that the agricultural land was indeed used for agricultural purposes, as evidenced by government records, and that the assessee had spent the capital gains on constructing a new residential property within the stipulated time frame.

Conclusion:
The Tribunal quashed the revision order passed by the CIT under section 263, holding that the CIT did not apply independent judgment and relied solely on audit objections. Consequently, the giving-effect order and the appellate order passed by the CIT(A) became infructuous. The assessee's appeal was allowed, and the Revenue's appeal and cross-objection were dismissed. The Tribunal emphasized the need for the AO to make detailed inquiries and provide a speaking order, and for the CIT to exercise independent judgment when invoking revisionary powers.

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