2016 (12) TMI 686 - AT - Income Tax

Tribunal quashes CIT order under Section 263, upholds AO's decision.

Smt. Geetaben Bharatkumar Shah C/o. Shah Harilal Bhikhabhai and Co. Versus ITO, Ward-4 (1), Ahmedabad

The Tribunal allowed the appeal of the assessee and quashed the order of the CIT passed under Section 263 of the Income Tax Act, 1961. The Tribunal ... Revision u/s 263 - computation of long term capital gain - Held that:- Commissioner did not appreciate the facts in right perspective. The first emphasis by the assessee was that she has not made claim under section 54F. It is an error committed by the AO. The ld.Commissioner ought to have examined this aspect on merit before setting aside the issue to the file of the AO. It is a just an apparent error which can be rectified even by the AO under section 154. It is not such an issue which has caused any prejudice to the Revenue. If under section 54 exemption was available to the assessee, then merely making a wrong mention of section 54F by the AO exemption would not be denied to the assessee. The ld.Commissioner did not analysis this aspect while observing that the AO has committed an error and his order is an erroneous one. In the present case, even if for the sake of arguments, it is assumed that there was an error in the order of Assessing Officer/ITO by making a mention of section 54F then also ultimately, there will be no capital gain tax upon the assessee, because, she has made investment in NHAI bond. She has made investment in the capital gain account with State Bank of India. Apart from this, she has acquired house and made investment of ₹ 1,27,50,000/-. This house has been acquired within the time limit available in section 54. Under both the circumstances, there will not be any long term capital gain tax upon the assessee, and thus, there will not be any prejudice to the Revenue. In such situation, the ld.Commissioner ought to have dropped the proceedings under section 263 of the Income Tax Act. We allow the appeal of the assessee and quash the order of the ld.Commissioner passed under section 263 of the Act. - Decided in favour of assessee Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act, 1961.2. Incorrect mention of Section 54F instead of Section 54.3. Validity of the exemption claims under Sections 54 and 54EC.4. Examination of the Assessing Officer's (AO) assessment process.5. Prejudice to the interest of Revenue.Detailed Analysis:1. Jurisdiction under Section 263 of the Income Tax Act, 1961:The sole grievance of the assessee is that the Commissioner of Income Tax (CIT) erred in invoking Section 263 of the Income Tax Act, 1961, thereby setting aside the well-reasoned order of the AO for passing a fresh assessment order concerning the computation of long-term capital gain. The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both conditions must be fulfilled.2. Incorrect mention of Section 54F instead of Section 54:The assessee contended that the mention of Section 54F in the assessment order was a mere inadvertent punching error, and the actual claim was made under Section 54. The CIT did not appreciate this aspect and set aside the issue to the file of the AO without proper examination. The Tribunal noted that this was an apparent error that could be rectified under Section 154 and did not cause any prejudice to the Revenue.3. Validity of the exemption claims under Sections 54 and 54EC:The assessee had shown a long-term capital gain (LTCG) of Rs. 60,62,502/- on the sale of a residential property. The exemption was claimed under Section 54 for Rs. 10,62,502/- and under Section 54EC for Rs. 50,00,000/-. The CIT observed discrepancies in the assessment order, such as the mention of investment in NABARD Bonds instead of National Highways Authority of India (NHAI) Bonds and the failure to specify the section under which the exemption for Rs. 25,00,000/- was claimed. Despite these observations, the Tribunal found that the assessee had made valid investments and the AO had scrutinized the details adequately.4. Examination of the Assessing Officer's (AO) assessment process:The Tribunal emphasized that if the AO examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case, and determines the income, the CIT is not permitted to substitute his estimate of income in place of the AO's estimate. The AO had scrutinized the computation of income and claims made under different heads minutely, and the Tribunal found no substantial error in the AO's assessment process.5. Prejudice to the interest of Revenue:The Tribunal noted that the assessee had made investments in a new residential house and NHAI Bonds, which were more than the capital gain accrued. Therefore, even if there was an error in the assessment order, it did not result in any prejudice to the Revenue. The Tribunal cited the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. D.G.Gopala Gowda, which held that for action under Section 263, the order must be both erroneous and prejudicial to the Revenue. In this case, the Tribunal found that the conditions for invoking Section 263 were not met.Conclusion:The Tribunal allowed the appeal of the assessee and quashed the order of the CIT passed under Section 263 of the Income Tax Act, 1961, concluding that the AO's order was not erroneous or prejudicial to the interest of the Revenue. The proceedings under Section 263 were deemed unwarranted.