2025 (4) TMI 906 - AT - Income Tax

Revision u/s 263 - AO while framing the reassessment had failed to properly verify the assessee s claim for exemption u/s 54F - HELD THAT - Admittedly it is a matter of fact that the AO while framing the reassessment had failed to verify the assessee s claim of exemption u/s 54F of the Act by making enquiries or verifications which should have been made. We say so for the reason that as observed by Pr. CIT that though it was the claim of the assessee that he had purchased Villa No.48 vide an agreement to purchase dated 18-04-2016 but thereafter he had in the course of the revisional proceedings come up with a new claim i.e due to certain internal problems he was allotted Villa No.4. Also it transpires that Villa No.4 that was allotted to the assessee and claimed to be in his possession was not backed by any registered deed/agreement. Although it was inter alia the assessee s claim that as pursuant to the agreement to purchase dated 18-04-2016 he was put into possession of the subject property i.e Villa No. 4 therefore the said purchase transaction would fall within the meaning of transfer as contemplated u/s 2(47) of the Act but we concur with the Pr. CIT that the same is not supported by the mandate of law. Although Section 2(47)(v) of the Act contemplates that any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act 1882 (Act No. IV OF 1882) will fall within the meaning of transfer but the same we are afraid does not come to the rescue of the assessee before us. We say so for the reason that as per the post-amended Section 17(1-A) of the Registration Act 1908 any document containing contracts to transfer for consideration any immovable property for the purpose of Section 53A of the Transfer of Property Act 1882 shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act 2001 and if such documents are not registered on or after such commencement they shall have no effect for the purpose of Section 53A of the Act. As the agreement to purchase dated 18-04-2016 is an unregistered document therefore as observed by the Pr. CIT and rightly so the assessee cannot claim to have purchased the subject property i.e Villa No. 4 as required per the mandate of law. AO had failed to carry out necessary verifications which he was required to make while framing the reassessment vide his order passed under Section 147 r.w.s. 144B of the Act dated 22-03-2022 therefore we are of a firm conviction that no infirmity emerges from the order of Pr. CIT who in exercise of his revisionary jurisdiction under Section 263 of the Act had rightly held the order so passed by the AO as erroneous in so far it is prejudicial to the interest of the revenue, . Accordingly finding no reason to dislodge the well-reasoned order passed by the Pr. CIT u/s 263 we herein approve the same. Decided against assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the Principal Commissioner of Income Tax (Pr. CIT) was justified in revising the reassessment order under Section 263 of the Income-tax Act, 1961, which was initially passed by the Assessing Officer (AO) under Section 147 read with Section 144B for the assessment year 2016-17.

2. Whether the reassessment order was erroneous and prejudicial to the interests of the revenue due to the AO's failure to verify the assessee's claim for exemption under Section 54F of the Act.

3. Whether the delay of 54 days in filing the appeal by the assessee should be condoned.

ISSUE-WISE DETAILED ANALYSIS

1. Justification for Revision under Section 263

Relevant legal framework and precedents: Section 263 of the Income-tax Act allows the Pr. CIT to revise an order passed by the AO if it is deemed erroneous and prejudicial to the interests of the revenue. Explanation 2(a) to Section 263 states that an order is erroneous if it is passed without making necessary inquiries or verifications.

Court's interpretation and reasoning: The Tribunal noted that the AO failed to verify the assessee's claim for exemption under Section 54F during the reassessment proceedings. The Pr. CIT observed discrepancies in the assessee's claims regarding the purchase of a residential property, which were not adequately examined by the AO.

Key evidence and findings: The Pr. CIT identified that the assessee's claim of exemption under Section 54F was based on an unregistered "agreement to purchase" a villa, which was not sufficient to establish ownership as per legal requirements.

Application of law to facts: The Tribunal applied the provisions of Section 263, noting that the AO's failure to conduct necessary inquiries rendered the reassessment order erroneous and prejudicial to the revenue.

Treatment of competing arguments: The assessee argued that the revision was a mere change of opinion and that the transaction fell within the meaning of "transfer" under Section 2(47) of the Act. However, the Tribunal agreed with the Pr. CIT that the lack of a registered deed invalidated the claim.

Conclusions: The Tribunal upheld the Pr. CIT's decision to revise the reassessment order, finding no infirmity in the exercise of revisionary jurisdiction under Section 263.

2. Condonation of Delay

Relevant legal framework and precedents: The Tribunal referred to a recent judgment by the Supreme Court, emphasizing a liberal approach towards condonation of delay when justified reasons are presented.

Court's interpretation and reasoning: The Tribunal accepted the assessee's explanation for the delay, which was attributed to ill-health, supported by medical certificates.

Key evidence and findings: The affidavit and medical documents submitted by the assessee were deemed sufficient to justify the delay.

Application of law to facts: The Tribunal condoned the delay, aligning with the justice-oriented approach advocated by the Supreme Court.

Conclusions: The Tribunal allowed the condonation of the 54-day delay in filing the appeal.

SIGNIFICANT HOLDINGS

The Tribunal held that the reassessment order was erroneous and prejudicial to the interests of the revenue due to the AO's failure to verify the claim for exemption under Section 54F. The Pr. CIT's revision under Section 263 was justified.

Preserve verbatim quotes of crucial legal reasoning: "As per the 'Explanation 2(a)' of Section 263 of the Act, in a case where the order is passed by the AO without making inquiries or verification which should have been made, then the same...would render the order so passed as deemed to be erroneous insofar as it is prejudicial to the interest of the revenue under Section 263 of the Act."

Core principles established: The necessity for AOs to conduct thorough inquiries and verifications during assessments to avoid orders being deemed erroneous under Section 263. The importance of registered agreements in establishing claims for exemptions under tax laws.

Final determinations on each issue: The Tribunal dismissed the appeal, upholding the Pr. CIT's order to revise the reassessment. The delay in filing the appeal was condoned, but the substantive appeal was dismissed on merits.