2022 (7) TMI 1303 - AT - Income Tax

Revision u/s 263 by CIT - disallowance of deduction u/s 54F - CIT observed that the assessment order was passed without making inquiries or verification and without following the directions of the Pr.CIT in the order u/s 263 which should have been followed with regard to the issue of deduction u/s 54F for which the Pr.CIT had made a specific direction - HELD THAT - Admittedly CIT has passed an order u/s 263 dated 06.03.2018 with a direction to examine whether the assessee is entitled for claiming exemption u/s 54F since the assessee is having two residential properties and also offered rental income for the relevant assessment year. After issuance of notice and on physical verification of the residential properties the AO opined that the property is not residential house and it is a small portion of construction and the assessee has let out the same and offered the income. Accordingly the AO has completed the assessment dated 143(3) dated r.w.s. 263 - Therefore we are of the view that initiation of proceedings u/s 263 is incorrect and not permissible under law. Therefore we hold that the assessment order passed u/s 143(3) r.w.s. 263 dated 16.08.2018 holds good and thus quash the order passed u/s 263 dated 24.03.2021. Therefore the grounds raised by the assessee are allowed.

Summary

Issues:
1. Validity of the order passed by the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961.
2. Eligibility of the assessee for claiming exemption under Section 54F of the Act.
3. Compliance with the directions of the Principal Commissioner of Income Tax by the Assessing Officer.

Issue 1: Validity of the order under Section 263:
The appeals were filed against the orders of the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act for the Assessment Year 2013-14. The Pr.CIT set aside the assessment order dated 28.01.2016 and directed the Assessing Officer (AO) to redo the assessment in accordance with the law. The Pr.CIT observed that the AO had not followed the directions and initiated revisionary proceedings under Section 263. The assessee contended that the AO had examined and followed all directions, making the subsequent order by the Pr.CIT invalid. The Tribunal held that the initiation of proceedings under Section 263 was incorrect and quashed the order passed by the Pr.CIT on 24.03.2021.

Issue 2: Eligibility for exemption under Section 54F:
The Pr.CIT observed that the assessee had sold two properties and claimed exemption under Section 54F of the Act. However, the Pr.CIT found that the assessee owned two residential properties during the relevant year, making them ineligible for the exemption. The assessee argued that one property was not suitable for residential purposes, but the Pr.CIT deemed the assessment erroneous and prejudicial to revenue. The Tribunal, after examination, held that the assessee was entitled to claim the exemption under Section 54F, and the initial assessment order stood valid.

Issue 3: Compliance with Directions by the Assessing Officer:
The AO, after the Pr.CIT's directions, examined the properties and concluded that one property was not residential. The AO completed the assessment, but the Pr.CIT initiated further proceedings under Section 263, alleging non-compliance with directions. The Tribunal found that the AO had followed the directions, and the subsequent order by the Pr.CIT was deemed incorrect. Consequently, the Tribunal quashed the order passed by the Pr.CIT on 24.03.2021, upholding the validity of the assessment order dated 16.08.2018 under Section 143(3) r.w.s. 263.

In conclusion, the Tribunal allowed the appeals of the assessee, holding that the assessment order under Section 143(3) r.w.s. 263 dated 16.08.2018 was valid, and the order passed by the Pr.CIT on 24.03.2021 was quashed.