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TMI Blog2024 (11) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... ction u/s 54F of the Act has been claimed. Once the ld. PCIT himself has noted that assessee has furnished the details of expenditure it cannot be said that there is no enquiry or inadequate enquiry on the issue of exemption u/s 54F of the Act. We note that notice u/s. 263 of the Act issued by the Pr. CIT is vague and only for making deeper enquiry and re-considering the evidences already on record duly considered during assessment proceedings based on purported proposal that fresh facts have been emerged subsequent to the order of assessment which is factually incorrect and untenable and the conditions or the factors enabling the Ld. Pr. CIT to invoke his jurisdiction u/s 263 have not been satisfied. Though Explanation provides for an extra discretionary power to the Commissioner in his revisionary powers under section 263 of the Act. This discretion cannot be assumed arbitrarily by the ld. PCIT. At least something he should bring on record to show the error and the prejudice to revenue caused by that error while assuming jurisdiction under section 263 of the Act. This can be done to the least by him by making independent inquiry/ investigation to conclusively bring on record such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue as per clause (a) of explanation 2 of section 263. 2.5 The learned Pr. CIT erred in concluding that the assessment order passed under section 143(3) was made without making proper inquiries or verification regarding the allowability of deduction claimed under section 54 of the Act. 2.6 The learned Pr. CIT erred in neither going through the details submitted by the assessee nor calling for specific details if so required. Consequently, erred in his finding in para 6 of the order. 2.7 The learned Pr. CIT failed to appreciate that : a) The issues proposed to be revised in the order passed under section 263 were verified by the learned AO during the assessment proceedings under section 143(3) of the Act. b) There was no inadequacy of enquiry by the learned AO during the assessment proceedings under section 143(3) of the Act; c) Revision under section 263 cannot be initiated where two views are possible and the AO has accepted one of the possible views while passing the assessment order. 2.8 Without prejudice, the Pr. CIT cannot resort to section 263 to supplant his own views regarding the enquiry conducted during the assessment proceedings. 2.9 The Learned Pr. CIT erred in not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income shown in the return. 2.1 The case was selected for complete scrutiny under CASS to verify various issues including the large deduction/exemption claimed u/s 54 etc. The assessee claimed to have sold 6 flats for a total consideration of Rs. 9,85,81,022/- on various dates during FY 2016-17 and computed the Long Term Capital Gains at Rs. 4,82,00,000/-The assessee claimed exemption u/s 54F amounting to Rs. 4,80,33,694/- in the return of income filed, in respect of purchase of a new asset having cost of Rs. 6,39,50,000/-, and the asset was stated to have been acquired/constructed on 31.3.2017. Further, vide letter dated 27.9.2019 the assessee has again submitted details of the 6 flats sold resulting in capital gains of Rs. 7,12,17,657/- on which deduction of Rs. 4,82,00,000/- had been claimed u/s 54F of the IT Act. The assessee has not made any submissions regarding the alternative claim made in place of the claim already made in the return, nor has he submitted the details of deduction claimed u/s 54F therefore, the claim of deduction u/s 54F is not justified. Subsequently, vide letter dated 14.11.2019, the assessee has furnished the details of investment in the house amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4F claimed by the assessee has not been properly examined by the AO during the course of assessment proceedings. The Assessing Officer has allowed the deduction claimed without conducting necessary inquiries and verification. 2.5 In view of these facts, the assessment order was considered to be erroneous and prejudicial to the interests of revenue in terms of Sec. 263. It was therefore, proposed to pass an order u/s. 263 in this case. A show cause notice was issued on 15.03.2022 giving the assessee an opportunity of filing his submissions. The notice was sent by e-mail on 15.03.2022. A copy of the notice was also sent to the assessee. In response, the assessee attended before ld. PCIT and filed submissions stating that the claim for deduction was justified. 3. The ld. PCIT observed that the assessee has failed to substantiate his claim for deduction. The claim of deduction u/s 54F has incorrectly been allowed by the Assessing Officer. The view taken by the Assessing Officer is clearly untenable in law. When the case was selected for scrutiny for examining the deductions claimed, and other reasons, it was necessary for the Assessing Officer to examine the deductions claimed and carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively with the transfer of the asset with evidence. It is seen that you have claimed deduction of Rs. 4.80 crs in the new asset. Please furnish details of the same along with the deed entered into for purchase of the new asset. 4.2 To which the assessee has filed its response vide reply dt. 27.09.2019. Upon which further notice was issued u/s 142(1) dt. 20.12.2019 by the AO seeking details of flats sold, cost, brokerage, expenses incurred etc. The assessee furnished the details called for in the notice vide reply dt. 21.12.2019 (PB-1 page 13). The PCIT in its order u/s 263 dt. 27.03.2022 also has recorded the facts of the enquiry conducted by the AO. He reproduced the relevant portion hereunder: 2. The case was selected for complete scrutiny under CASS to verify various issues including the large deduction/exemption claimed u/s 54 etc. The assessee claimed to have sold 6 flats for a total consideration of Rs. 9,85,81,022/- on various dates during FY 2016-17 and computed the Long Term Capital Gains at Rs. 4,82,00,000/-The assessee claimed exemption u/s 54F amounting to Rs. 4,80,33,694/- in the return of income filed, in respect of purchase of a new asset having cost of Rs. 6,39,50,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaware Packing Products (1998) 1 SCC 598, dealt with the issue as to what would be the scope of the expression record found in Section 263 of the Act, i.e., whether it would include the material placed before the AO or the material that was filed before the authority exercising the revisionary power as well. The Commissioner in this case had exercised the revisionary power after taking into account the valuation report which, though ordered to be submitted by the AO, could not be placed before him due to paucity of time. The AO was constrained to pass the assessment order as the prescribed limitation period was ending. Since the valuation report was made available to the Commissioner, he took the same into account while exercising the revisionary power. In this context, the Court was called upon to rule whether the expression record would include the material not made available to the AO. The Supreme Court ruled that the valuation report placed before the Commissioner could be considered by him while exercising powers under Section 263 of the Act and thus rejected the narrow interpretation placed on the expression record on behalf of the assessee. Again, in our opinion, this case h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 6.1 The above Explanation 2 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry: 6.4 In order to invoke provisions of section 263 of the Act, the two conditions of the order being erroneous as well as prejudicial to the interest of the Revenue are to be satisfied simultaneously. There is no change as such in assumption of jurisdiction under section 263 of the Act. However in the absence of Explanation 2, it was being consistently held by various courts that an order can be said to be erroneous if the Assessing Officer has not made inquiry on a relevant issue. An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. 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 High Courts in this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of lack of inquiry , that such a course of action would be open. -------- - From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113) From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue . It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. If he does not conduct such basic exercise then the CIT is not justified in setting aside the order u/s. 263 of the IT Act. 6.13 Further, Hon'ble Delhi High Court in the case of ITO Vs. D.G. Housing Projects Ltd. (2012) 343 ITR 329 (Del), whereby the Hon'ble High Court held as under : 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as provided in the newly inserted Explanation means the verification/ enquiry which ought to have been done. Now, it is to be remembered that the Income Tax Act nowhere provides the exact modalities to be followed to verify a specific claim made by the assessee. It is the prerogative of the Assessing Officer to decide the extent of verification. Now the Act gives a specific power to the Commissioner to revise the orders made without the inquiry to the extent he thinks fit. One should not be oblivious of the fact that the fiscal statute are to be read literally and no equity or logic has to be found in these. Therefore, if the parliament in its wisdom has given power to the decide the extent of enquiry, let it be. One must appreciate the fact that, the view, what ought to have been done in a specific situation, will always differ from person to person. What the A.O. found sufficient; the Commissioner may not find. What one Commissioner finds adequate may not be adequate for any other officer sitting in his place. In this manner a discretion has been provided to the Commissioner in this context. 6.18 In our opinion, it is a trite law that exercise of discretion requires the exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, tenth edition, page 123, and Saurashtra Cement and Chemical Industries Ltd. v. CIT [1978] 115 ITR 27 (Guj). Every discretionary power vested, even in the executive, is to be exercised in a just, reasonable and fair manner. This is the essence, the rule of law, as was held in Aeltemesh Rein v. Union of India [1988] AIR 1988 SC 1768, 1771. Such discretion is to be exercised judiciously and not arbitrarily depending upon the facts and circumstances of each case (Jagdish Singh v. Lieutenant Governor, Delhi [1997] AIR 1997 SC 2239, 2243). The discretion is to be exercised with circumspection, consistent with justice, equity and good conscience, keeping always in view the given facts and circumstances of the case Hindalco Industries Ltd. v. Union of India (1994) 2 SCC 594, 599. When a statute confers a power, it pre-supposes that it was conferred to achieve some object. Such power, therefore, is to be exercised for achieving the object. Such authority while exercising such power is to be guided by a consideration as to whether such exercise would advance the object sought to be achieved by the enactment. As soon as such power is vested in an authority, it is implicit therein that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the Commissioner will be required to do the same exercise even the Explanation 2 be there in the statute. 6.24 In the present case, in assessment year 2017-18, the assessing officer issued notice u/s 142(1) of the Act on 6.10.2019 which reads as follows: 6.25 The assessee given the reply vide letter dated 27.9.2019 to the notice issued u/s 142(1) of the Act as follows: 6.26 Later, one more notice issued on section 142(1) on 20.12.2019 (11 12 pages) 6.27 Reply was given to the above notice issued u/s 142(1) of the Act on 21.12.2019 (page 13) 6.28 After this ld. AO framed assessment u/s 143(3) of the Act on 28.12.2019 and he has taken a conscious decision that the assessee entitled for deduction u/s 54F of the Act on going to the details of assets sold during the financial year 2016-017 relevant to assessment year 2017-18 and its cost of acquisition of said property. Further, the assessee has furnished details of investment in new residential property vide notice u/s 142(1) of the Act dated 24.12.2020 and 17.3.2021. The assessee has furnished the bills/vouchers vide response dated 20.2.2021 and 19.3.2021. The ld. AO/NFAC after examining all the relevant details concluded o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. 6.31 Further, in the case of M/s. Arun Kumar Garg HUF vs. PCIT, ITA No. 3391/Del/2018, dt. 08.01.2019 5.6 Although, there has been an amendment in the provisions of section 263 of the Act by which Explanation 2 has been inserted w.e.f. 1.6.2015 but the same does not give unfettered powers to the Commissioner to assume jurisdiction under section 263 to revise every order of the Assessing Officer to re-examine the issues already examined during the course of assessment proceedings. The Mumbai ITAT Bench has dealt with Explanation 2 as inserted by Finance Act, 2015 in the case of Narayan Tatu Rane vs. ITO reported in (2016) 70 taxman.com 227 to hold that the said Explanation cannot be said to have overridden the liability as interpreted by Hon ble Delhi High Court, according to which the Commissioner has to conduct the inquiry and verification to establish and show that the assessment order was unsustainable in law. The ITAT Mumbai Bench has further held that the intention of the legislature could not have been to enable the CIT to find fault ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the Ld Pr. CIT has drawn certain adverse inferences from the document, yet it can seen that they are debatable in nature. Further, as noticed earlier, the Ld Pr. CIT has not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, we are of the view that the Ld Pro CIT has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the AO. Hence we are of the view that the Ld Pr. CIT was not justified was not correct in law in holding that the impugned assessment orders were erroneous. 6.33 In the case of Sourabh Sharma Vs. PCIT 110 ITR (Trib.) 677 (JP), wherein held as under: Held, allowing the appeal, that it was clear that the assessee was confronted with all the facets of the claim and had furnished the requisite information based on which the Assessing Officer had completed the assessment. The assessee had clarified the confusion of the figures noted considering which the b Principal Commissioner did not establish the order to be prejudicial. The term records not only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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