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2023 (1) TMI 406 - AT - Income TaxRevision u/s 263 by CIT - lack of enquiry on part of the AO to verify the claim of deduction u/s. 54 - case was selected for limited scrutiny for examining the value of consideration for computation of capital gains and secondly, whether the deduction from capital gains has been claimed correctly by the assessee - HELD THAT - The case of the assessee is that the matter has been thoroughly examined by the AO and thereafter, after considering the information/documentation submitted by the assessee during the course of assessment proceedings, the claim of deduction u/s. 54 has been allowed by the AO which is demonstrated by the fact that the quantum of claim of deduction has been restricted to Rs. 2,00,53,041/- by the AO as against claim of Rs. 2,05,93,405/- made by the assessee. As taken note of the various notices/questionnaires issued by the AO matter has been thoroughly examined by the AO during the course of assessment proceedings and thereby through a speaking order, the claim of deduction u/s. 54 has been allowed by the AO though with a restricted amount of Rs. 2,00,53,041 disallowing a sum of Rs. 5,40,364/- as evident from the assessment order. We are therefore, unable to agree with the findings of the ld. PCIT that it is a case of lack of enquiry on part of the AO to verify the claim of deduction u/s. 54 made by the assessee. How the order passed by the AO has been held as erroneous in so far as prejudicial to the interest of the Revenue? - PCIT has merely referred to the show-cause notice and summarily recorded his findings stating that the AO has failed to conduct the enquiries and to bring on record the relevant evidences in respect to the issues raised in the show-cause notice and it has been held that it is a case where the AO had failed to apply his mind. In the instant case, it is an admitted fact that the assessee has purchased a residential house measuring 225 sq. yards at Aggar Nagar, Ludhiana on 15.11.2011. As per evidences placed on record and are part of the assessment records and available at the time of examination before the ld. PCIT, in terms of building plan of the said residential house, demolition of the residential structure thereon in May 2014 on the said plot of land, request for approval of the new building plan to Municipal Corporation on 10/06/2014, approval granted thereafter on 16/06/2014, subsequent construction of new structure measuring 6500 sq. feet in financial year 2017-18 as evident from the property tax receipts, we find that it is a case of construction of new house after demolition of old structure and well within the framework and having the necessary attributes and specification of a residential house eligible for deduction u/s. 54 - The preliminary findings of the ld. PCIT in the show-cause notice that it is a case of modification of an old house and which has been summarily turned into conclusive findings in the impugned order is therefore not borne out of records and is without appreciating the material and evidence on record and is hereby set-aside. Time period specified for construction of a residential house - In the instant case, the flat in Mumbai has been transferred on 01/06/2015 and the new residential house in Ludhiana has been constructed during the financial year 2017-18, well within the period of three years as so specified and the condition so specified has been duly complied with. The fact that the old house has been purchased on 15.11.2011 well before the transfer of the original asset on 01/06/2015 will not act as a disabling factor for claim of deduction as the emphasis has been on completion of construction of new house within the stipulated time period and the time period of three years for completion of construction of new house has to be considered from the date of transfer of the original asset and which has been complied in the instant case. We therefore do not find any infirmity in the order so passed by the AO where he has examined and taken on record all the evidences and documentation and has allowed the claim of deduction u/s. 54 of the Act. Examination of cost of construction and related documentation - AO has raised queries from time to time to examine the same and the assessee has in turn responded to these queries and filed necessary information/documentation in support of nature and cost of construction and the mode of discharge of such cost by way of cheque and cash payment and on detailed examination and due application of mind, the AO has allowed the claim of deduction u/s. 54 though with a restricted amount of Rs. 2,00,53,041/- and disallowing a sum of Rs. 5,40,364/- as evident from the assessment order. Here, it is relevant to note that the assessee has not claimed cost of purchase of the old house of Rs. 50 lacs and cost relating to demolition of the old structure and has only claimed the cost towards construction of the new house for the purposes of claiming deduction under section 54 of the Act, a fact which is not disputed by the ld. PCIT. It is also not the case of the PCIT that these costs of construction of new house have not been met out of sale proceeds of the original asset. We therefore do not find any infirmity in the order so passed by the AO. We are of the considered view that the matter relating to claim of deduction u/s. 54 has been thoroughly examined by the AO during the course of assessment proceedings as evident from material available on record and the findings of the ld. PCIT that it is a case of lack of enquiry on part of the AO and the impugned order passed u/s. 263 is hereby set-aside and the order of the AO is sustained. Appeal of assessee allowed.
Issues Involved:
1. Initiation of proceedings under Section 263 of the Income Tax Act. 2. Jurisdiction and minimal enquiry by the Principal Commissioner of Income Tax (PCIT). 3. Direction for de novo assessment without pointing out specific errors. 4. Verification of supporting documents and aspects by the Assessing Officer (AO). 5. Exercise of jurisdiction under Section 263 by holding the assessment order prejudicial to the interest of the Revenue. 6. Compliance with the provisions of Section 54 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Initiation of proceedings under Section 263 of the Income Tax Act: The assessee contended that the Principal Commissioner of Income Tax (PCIT) erred in initiating proceedings under Section 263. The appeal argued that the PCIT did not conduct any minimal enquiry and assumed jurisdiction without proper basis. 2. Jurisdiction and minimal enquiry by the PCIT: The assessee argued that the PCIT assumed jurisdiction to pass the order under Section 263 without conducting any minimal enquiry, which is a requirement for a revisionary authority. The PCIT failed to verify the detailed submissions and documents provided by the assessee during the assessment proceedings. 3. Direction for de novo assessment without pointing out specific errors: The PCIT directed the AO to pass a de novo assessment without pointing out any specific error in the order under Section 143(3) or showing any prejudice to the Revenue. The assessee submitted that the AO had already conducted a detailed scrutiny and allowed the claim under Section 54 after necessary verification. 4. Verification of supporting documents and aspects by the AO: The assessee provided a comprehensive list of notices and responses, including detailed submissions and documentary evidence, to support the claim under Section 54. The AO scrutinized each item of expenditure and made disallowances where necessary, indicating that proper verification was undertaken. 5. Exercise of jurisdiction under Section 263 by holding the assessment order prejudicial to the interest of the Revenue: The PCIT held that the assessment order was prejudicial to the interest of the Revenue without appreciating the factual position. The assessee contended that the PCIT's findings were factually incorrect and that the AO had conducted a thorough examination of the claim under Section 54. 6. Compliance with the provisions of Section 54 of the Income Tax Act: The assessee sold a flat and claimed deduction under Section 54 for constructing a new residential house. The construction was completed within the stipulated three-year period, and the assessee deposited the sale consideration in the Capital Gain Account Scheme. The AO allowed the claim after verifying the documentation, except for a disallowance of Rs. 5,40,364/-. Judgment: The Tribunal found that the AO had conducted a thorough examination of the claim under Section 54 during the assessment proceedings. The PCIT's findings of lack of enquiry were not supported by the evidence on record. The Tribunal set aside the order passed by the PCIT under Section 263 and sustained the AO's assessment order, allowing the appeal of the assessee. Conclusion: The Tribunal concluded that the AO had properly verified the claim under Section 54, and the PCIT's direction for a de novo assessment was unwarranted. The appeal of the assessee was allowed, and the order of the AO was sustained.
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