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2024 (6) TMI 865 - ITAT SURATRevision u/s 263 - main allegation of PCIT was that assessee has himself not shown in his return of income, the agricultural income earned by him, therefore, assessee is not entitled to claim deduction / exemption u/s 54B - HELD THAT - The order of the AO can be held to be erroneous order, that is (i) if the AO s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the AO can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon ble Supreme Court in the case of Malabar Industries 2000 (2) TMI 10 - SUPREME COURT held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld.PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law . Taking into account, the assessee s facts, as narrated above, order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue. We note that the AO has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT s finding fault, with the order of the AO is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. AO made thorough enquiry by issuing various notices u/s 142(1) of the Act and assessee submitted detailed reply before the Assessing Officer. Besides, order passed by the Assessing Officer is sustainable in law. The judgments/case law relied on by ld CIT-DR for the Revenue are not applicable to the assessee s facts. Therefore, based on these facts and circumstances, we quash the order dated 25.03.2023 passed by the ld PCIT u/s 263 of the Act. Assessee appeal allowed. Issues Involved:
1. Initiation of proceedings u/s 263 of the Income Tax Act, 1961. 2. Assumption of jurisdiction u/s 263. 3. Violation of principles of natural justice. 4. Allegation of 'change in opinion'. 5. Verification of deduction claim u/s 54B. 6. Validity of assessment proceedings. 7. Setting aside of the assessment order without pointing out errors. 8. Request for revocation of proceedings. Summary: 1. Initiation of proceedings u/s 263 of the Act: The assessee challenged the initiation of proceedings u/s 263 by the Learned Principal Commissioner of Income Tax-1, Surat (ld. PCIT), arguing that the initiation was erroneous and uncalled for. 2. Assumption of jurisdiction u/s 263: The assessee contended that the ld. PCIT erred in assuming jurisdiction u/s 263, as the necessary conditions for such assumption were not satisfied. 3. Violation of principles of natural justice: The assessee claimed that the principles of natural justice were violated as the grounds for initiating action u/s 263 were not mentioned in the show cause notice, rendering the order void ab-initio. 4. Allegation of 'change in opinion': The assessee argued that the order u/s 263 was merely a 'change in opinion' since the original assessment order u/s 143(3) r.w.s. 143(3A) and 143(3B) was not erroneous. 5. Verification of deduction claim u/s 54B: The ld. PCIT noted that the assessee's claim for deduction u/s 54B was erroneously allowed without proper inquiry. The assessee failed to provide evidence that the land was used for agricultural purposes for the required period. The ld. PCIT directed the Assessing Officer to re-compute the capital gains. 6. Validity of assessment proceedings: The assessee argued that the assessment order u/s 143(3) r.w.s. 143(3A) and 143(3B) was valid as due inquiry was made, and the entire proceedings were thus invalid. 7. Setting aside of the assessment order: The ld. PCIT set aside the assessment order without pointing out how it was erroneous and prejudicial to the interest of revenue. The assessee contended that the Assessing Officer had conducted sufficient inquiry and had taken a plausible view. 8. Request for revocation of proceedings: The assessee prayed for the revocation of the proceedings initiated by the ld. PCIT. Judgment: The Tribunal observed that the Assessing Officer had made sufficient inquiries and had considered the evidence provided by the assessee. The Tribunal noted that the main requirement for claiming deduction u/s 54B is that the land should be used for agricultural purposes, which was fulfilled by the assessee. The Tribunal held that the order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of revenue. Consequently, the order passed by the ld. PCIT u/s 263 was quashed, and the appeal of the assessee was allowed.
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