TMI Blog2022 (5) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... oneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. We find that the Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar [ 2010 (2) TMI 75 - DELHI HIGH COURT] held that where it was discernible from record that the A.O has applied his mind to the issue in question, the ld. CIT cannot invoke section 263 of the Act merely because he has different opinion. On going through the show-cause notice, we find that the ld. PCIT has alleged that with regard to the claim of deduction under section 54F Assessing Officer failed to examine into the matter and passed the assessment order without proper verification of the facts. This observation that the Assessing Officer failed to examine the matter, in our view is devoid of any merit. Ld. PCIT should have appreciated that on multiple occasions, the Assessing Officer has issued notice to the assessee for furnishing the details and on each occasions replies have been filed by the assessee. Complete details of the documents of purchase of flats have been given. It is an undisputed fact that proper and detailed enquiry h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the AO has conducted partial enquiry despite the categorical finding that the AO has called for details in respect of all the four flats on which deduction u/s 54F was claimed. (4) For that the Ld. Pr.CIT has erred in invoking powers under section 263 and held the assessment order to be erroneous in so far as prejudicial without pointing out which of the two phraseologies used in section 263 is applicable to the Appellant s case. (5) For that the Ld. Pr. CIT has erred in invoking jurisdiction u/s 263 of the Income Tax Act, 1961 in respect of deduction u/s 54F on two flats bearing nos. A-3301 and C-4404 even though the view taken by the Assessing Officer in allowing deduction u/s 54F is one of the possible views. (6) For that the Ld. Pr.CIT has erred in holding that the order passed by the Assessing Officer u/s 143(3) dated 13.12.2018 is erroneous and prejudicial to the interest of revenue within the meaning of section 263 in so far as claim of deduction u/s 54F in respect of two flats bearing no.A-3301 and C-4404. (7) For that the Ld. Pr.CIT has erred in holding that the assessee has failed to explain the claim of deduction u/s 54F in respect of two flats be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d e- return of income on 22.07.2016 for the assessment year 2016-17 declaring Income of Rs.1,04,94,280/-. The case selected for complete scrutiny under Computer Assisted Section of Cases for Scrutiny (in short CASS ) to verify (a) whether the claim of exempt income is correct; (b) whether deduction from capital gain has been claimed correctly. Notices were duly served upon the assessee under section 143(2) and 142(1) of the Act and the replies were submitted by the assessee on various dates as appearing in the assessment order. Ld. Assessing Officer completed the assessment accepting the returned income. Subsequently ld. Principal CIT on examination of the assessment records noticed that the assessee claimed deduction under section 54F of the Act at Rs.15,72,23,601/- for the investment made in the residential houses. This deduction was claimed against the capital gain earned by the assessee from the sale of unquoted equity shares of Cachet Pharmaceuticals Pvt. Limited and Indchemie Health Specialities Pvt. Ltd. Ld. PCIT observed that the said deduction under section 54F of the Act has been claimed for purchase of four residential house properties. He was not convinced with the exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case records, it is also observed that in respect of long term capital gain of Rs. 15,72,23,601/- the A. O. has not done proper verification applicability of Rule 11UA of the I. T. Rule, 1962 and Section 56 of the I. T. Act, 1961. Thus, it is found that the A.O. failed to verify such issue while passing the assessment order u/s143(3) of the IT Act1961. (4) In view of the above discussion, the order under section 143(3) dated 13.12.2018 for A. Y. 2016-17 is considered to be erroneous in this respect and to that extent prejudicial to the interest of revenue. (5) In view of the above, an opportunity of being heard under section 263 of the Income Tax Act, 1961 is being provided to you to show cause as to why action under section 263 should not be taken in respect of order under section 143(3) of Income Tax Act, 1961 dated 13.12.2018 for A. Yr. 2016-17 by the ACIT, Circle-4, Patna. You or your Authorized Representative may attend my Office on 26.02.2019 at 3:30 P.M. with necessary records/evidences and make written submission, if any, in regard to issues discussed above. (Kaushal Kumar Srivastava ) 08/02/2019 Pr. Commissioner of Income-Tax-2, Patna. 4. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and his family and for no other purposes. 5. Ld. PCIT after considering the contentions of the assessee, various replies filed during the course of revisionary proceedings, came to a conclusion that out of the deduction under section 54F of the Act of Rs.15,72,23,601 the assessee is eligible for deduction for the two flats adjacent to each other in one floor for which the purchase consideration was paid at Rs.9,36,98,841/-. Ld. PCIT was also satisfied with the sale consideration from sale of unquoted equity shares. However, ld. PCIT was of the view that for the purchase of two flats in other tower, the Assessing Officer erred in granting the deduction under section 54 of the Act. Accordingly the assessment order framed under section 143(3) dated13.12.2018 was set aside with a direction to the Assessing Officer to re-compute the deduction under section 54F of the Act. The relevant portion of the observation and finding of the ld. PCIT are as below:- 5. The contention of the assessee has been examined with reference to the materials on record. From the perusal of record, it is observed that the case was selected for scrutiny for examination of following issues: (I) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee showing that both these flats as a single residential unit. With regard to the claim of exemption u/s.54F of the IT Act, 1961 allowed by the AO, on the flat A-3301 purchased on 11-04-2015 and C-4404 purchased on 06-04-2016, the assessee failed to explain. The assessee is eligible for deduction of Rs. 96467332/- only u/s.54F IT Act, 1961, instead of Rs. 157223601/- allowed by the AO. In view of the above fact, the order passed u/s 143(3) of the I.T. Act, 1961 dated 13.12.2018 for A.Y. 2016-17 is found to be erroneous in as much as prejudicial to the interest of revenue. 6. Considering the various decisions relied upon by the assessee, the facts on record, the partial enquiries made by the AO, the above referred reasons and the facts on record, I deem it fit to set-aside the assessment order u/s 143(3) of the IT Act, 1961 dated 13.12.2018 for A.Y. 2016-17 with a direction to the AO to recompute the deduction u/s 54F of the IT Act, 1961 on the basis of findings given above and finalize assessment in accordance with provision of law . 6. Aggrieved the assessee is now in appeal before this Tribunal. 7. Ld. counsel for the assessee while referring to the written submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 ITR 13 (MP) [at page 18 19] - CIT Vs Mohd. Ishaq Mohd. Gulam - Roving enquiry cannot be permitted and there should be a finality of assessment in the interest of justice [(2001) 243 ITR 83 (SC) - Malabar judgment] - for further investigation and enquiry no assessment order becomes erroneous and prejudicial to the interest of revenue. (8) (1983) 142 ITR 778 (Patna) - CIT Vs Shantilal Agarwalla - The Commissioner has to judge the circumstances in an objective manner and subjective satisfaction is not the requirement of Section 263. (9) 2009(4) PLJR 417 - Commissioner of Income-tax Vs. Mukul Kumar - The AO has undertaken and held reasonable enquiry by calling from explanation from the assessee and in view of such findings the tribunal interfered with the order of Commissioner who had erroneously come to a finding that no enquiry was held by AO (copy enclosed at page \~S~-V7 of PB). (10) 203 ITR 108 (Bom) - Commissioner of Income-tax vs. Gabriel India Limited (At page 114 115) - The order cannot be done to be erroneous simply because Commissioner does not being satisfied with the conclusion (copy enclosed at page of PB). [page-6 to 13 of order of CIT] (11). (202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of judgments while examining the eligibility of deduction u/s 54F of the Income Tax Act which uses the phraseology a residential house before amendment and thereafter one residential house after amendment by Finance (No.2) Act, 2014 w.e.f. 01/04/2015. The view taken by the A.O. is one of the possible view and has been endorsed by order of ITAT and Judgments of the Hon ble Courts. In this regard, reliance is placed on the order of the Hon ble Tribunal, Ahmedabad Bench in the case of Mohammadanif Sultanali Pradhan Vs DCIT, Circle 6(1) reported in (2020)181 ITD 238 (copy at page 25 to 31 of PB) wherein under similar circumstances claim of deduction u/s 54F, after the amendment by Finance (No.2) Act, 2014 w.e.f. 01/04/2015, has been allowed. The facts noticed by the Hon ble Tribunal in the said case are: The assessment year involved in the aforesaid case is AY 2015-16. The assessee has purchased two bungalows adjacent to each other in the same Society and has treated both the bungalows as one unit for residential purposes and claimed deduction u/s 54F. The Assessing Officer and the Ld. CIT(A) after considering the amendment effective from A.Y. 2015-16, by which the expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been disputed in the impugned notice u/s 263 dated 08/02/2019 and/or in the impugned order dated 27/03/2021 and is beyond dispute as would be evident from the sale deeds already on assessment record and the record of CIT which clearly mentions the campus Oberoi Exquisite in respect of all the flats. Thus, the aforesaid settled proposition of law is applicable on the facts of the petitioner s case and there is no ambiguity in law in allowance of deduction u/s 54F by the Assessing Officer in the assessment order on the subject matter of interference by the CIT. 10. Ld. counsel for the assessee also heavily relied on the judgment of the Hon ble Jurisdictional High Court in the case of CIT vs.-Mukul Kumar (2009) 4PLJR 417. In support of the contention that where the material on record shows that enquiry was made by the Assessing Officer revisionary power cannot be exercised by the ld. PCIT/CIT on the finding that no enquiry was made by the Assessing Officer. Concluding the submission, it is stated that - In the circumstances, the reason assigned for initiation of proceeding in notice under Section 263 dated 08/02/2019 However, the AO failed to examine in to the matter and passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before formation of opinion as the assessment record clearly belies the findings in the impugned notice u/s 263 dated 08/02/2019, as to claim and allowance of deduction u/s 54F, which reads as under: However, the AO failed to examine in to the matter and passed the assessment order without proper verification of the facts 12. Further, after formation of opinion opportunity of hearing has to be provided to the assessee and thereafter the CIT has to conduct enquiry as he deem fit. In the present case, no enquiry seems to have been conducted vis-a-vis the material / evidences on assessment record which clearly indicates that the issue of claim of deduction u/s 54F was examined by the Assessing Officer in course of assessment proceedings by raising specific query and the claim was accepted on consideration of appellant s reply and on being satisfied that it is a case of purchase of one residential house and thus the reason assigned for interference in the impugned order viz. with regard to the claim of exemption u/s 54F of the I.T. Act, 1961 allowed by the A.O., on the flat A- 3301 purchased on 11-04-2015 and C-4404 purchased on 06-04-2016, the assessee has failed to expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PCIT invoking the power under section 263 of the Act and has also challenged the finding of the ld. PCIT setting aside the assessment order by giving the direction to allow the deduction under section 54F of the Act to the extent observed in the impugned order. We notice that during the relevant assessment year 2016-17, the assessee earned capital gain from sale of unquoted equity shares. The assessee claimed deduction under section 54F of the Act for investment in purchase of residential flats. The assessee purchased four residential flats in a residential building campus for his family consisting of self, wife, son and daughter. As stated by the ld. counsel for the assessee that the assessee intended to buy four residential flats adjacent to each other, but even after trying hard he was able to locate two flats adjacent to each other and other two flats in another tower of the same residential building complex. The assessee made the investment for purchase of the four flats and claimed deduction under section 54F of the Act. The assessee s case was selected for scrutiny and one of the reasons for selection was to examine the correctness of capital gain income offered in the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 of the Act: There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese two basic ingredients have to be satisfied as sine qua non for exercise of such power. On a perusal of the material brought on record and the order passed by the CIT it is perceptible that the said authority has not kept in view the requirement of s. 263 of the Act inasmuch as the order does not reflect any kind of satisfaction. As is manifest the said authority has been governed by a singular factor that the order of the AO is wrong. That may be so but that is not enough. What was the sequitur or consequence of such order qua prejudicial to the interest of the Revenue should have been focused upon. That having not been done, in our considered opinion, exercise of jurisdiction under s. 263 of the Act is totally erroneous and cannot withstand scrutiny. Hence, the Tribunal has correctly unsettled and dislodged the order of the CIT. [Emphasis supplied] 20. In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and also prejudicial to the interest of the Revenue. By 'erroneous' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in his and if he exercises such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not. 25. In the light of the above settled judicial precedence, first we need to examine that whether the Assessing Officer conducted enquiry and made application of mind. We find that the notice dated 31.08.2018 was issued under section 142(1) of the Act to furnish the details of the acquisition of the new assets with supporting documents in order to examine the correctness of deduction under section 54F of the Act for investment of Rs.15,72,23,601/- made for purchase of residential house/flats. To this notice, the assessee filed reply on 15.09.2018 stating that the entire amount of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, the Assessing Officer has issued notice to the assessee for furnishing the details and on each occasions replies have been filed by the assessee. Complete details of the documents of purchase of flats have been given. It is an undisputed fact that proper and detailed enquiry has been conducted by the Assessing Officer and when a reasonable enquiry has been conducted by the Assessing Officer (which even ld. PCIT has observed in the impugned order) and a permissible view has been taken by the ld. Assessing Officer, then there remains no scope for the ld. PCIT to invoke the jurisdiction under section 263 of the Act. It is also well settled that a permissible view taken by the ld. Assessing Officer may not be beneficial to revenue. 28. Similar issue came up before the Hon ble Jurisdictional High Court in the case of CIT vs.- Mukul Kumar (supra), wherein the following question of law was before the Hon ble PATNA HIGH COURT ORDER:- whether on the facts and in the circumstances, of the case, the Income-tax Appellate Tribunal was justified in quashing the order of the Commissioner under Section 263 specially when the assessee has not maintained any account and there is no mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e royalty income was allowed as expenses after assessee had met the queries of the Assessing Officer and furnished the letter of the publisher, M/s Bharti Bhawan to show that the revision of book etc was responsibility of the person who had the original copyright. (6) It appears that after considering the cause shown by the assessee the CIT did not give any finding that the royalty amount was in itself a gift and hence, no expenditure could have been allowed in respect of the royalty income. However, the CIT came to a finding that there was no enquiry by the Assessing Officer before allowing 50% of the royalty amount as expenditure and hence, he passed the order for making a reassessment after proper enquiry. (7) The assessee preferred an appeal against the order of CIT before the Tribunal which has , been allowed by order dated 17.3.1987 out of which the reference and Tax case has arisen. (8) The Tribunal on consideration of materials and letters considered by the Assessing Officer has came to the opinion that an enquiry had been held in respect of claim of the assessee and on facts the Tribunal was satisfied that there was no irregularity or illegality in the order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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