2018 (12) TMI 452 - AT - Income Tax

Tribunal corrects Assessing Officer's error in deduction denial under Income-tax Act

The Tribunal held that the Assessing Officer's denial of deduction under section 54F of the Income-tax Act was erroneous. The Tribunal directed the ... Assessment u/s 153A - claim of deduction under section 54F denied - Reopening of assessment - proceedings earlier under section 143(3) r.w.s. 147 and 148 in favour of the assessee and were on the same issue proceedings under section 263 of the Act was initiated and dropped Held that:- AO in the case of the assessee ought not to have revisited and readjudicated the issue with respect to deduction under section 54F of the Act against which proceedings under section 263 of the Act was initiated especially when the learned Assessing Officer on the earlier occasion has already adjudicated the issue in the scrutiny assessment proceedings under section 143(3) read with sections 147 and 148 of the Act. Therefore we are of the considered view that the order of AO dated March 31, 2016 regarding adjudicating the issue of deduction under section 54F of the Act is erroneous. Hence we hereby direct the learned Assessing Officer to delete the addition made by disallowing the deduction under section 54F of the Act. Since we have adjudicated hereinabove the legal issue with respect to revisiting an issue in the subsequent proceedings under section 153A read with section 143(3) of the Act which was already adjudicated in the scrutiny assessment proceedings earlier under section 143(3) read with sections 147 and 148 of the Act in favour of the assessee and were on the same issue proceedings under section 263 of the Act was initiated and dropped, we restrain ourselves from adjudicating the issue with respect to deduction under section 54F of the Act on the merits - Decided in favour of assessee. Issues Involved:1. Denial of deduction under section 54F of the Income-tax Act.2. Jurisdiction of the Assessing Officer under section 153A read with section 143(3) of the Income-tax Act.3. Validity of revisiting an issue previously adjudicated under sections 143(3) and 147 of the Income-tax Act.4. Impact of pending proceedings under section 263 of the Income-tax Act on section 153A proceedings.Detailed Analysis:1. Denial of Deduction under Section 54F:The core issue raised by the assessee was the denial of deduction under section 54F of the Income-tax Act. The assessee had sold shares and invested the proceeds in residential property, claiming a deduction under section 54F. The Assessing Officer disallowed the deduction, arguing that the residential building was constructed only on a minute portion of land. The Commissioner of Income-tax (Appeals) confirmed this disallowance, relying on various judicial precedents which emphasized strict interpretation of fiscal laws.2. Jurisdiction of the Assessing Officer under Section 153A:The assessee contended that the Assessing Officer lacked jurisdiction to adjudicate the issue of deduction under section 54F in the proceedings under section 153A since there was no incriminating material found during the search. The Tribunal found merit in this argument, noting that the assessment under section 143(3) read with sections 147 and 148 had already considered and allowed the deduction. The Tribunal cited the decision in Jai Steels (India) Jodhpur Ltd. v. Joint CIT, which held that revisiting an issue in section 153A proceedings without incriminating material is not permissible.3. Validity of Revisiting an Issue Previously Adjudicated:The Tribunal emphasized that revisiting an issue already adjudicated in a scrutiny assessment amounts to a change of opinion, which is not permissible. The Tribunal referenced the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which held that an issue once settled in an assessment cannot be revisited unless new incriminating material is found. The Tribunal also cited the decisions in Asst. CIT v. Kores (India) Ltd. and Asst. CIT v. Mrs. Uttara S. Shorewala, reinforcing that only pending assessments abate on initiation of search, not concluded assessments.4. Impact of Pending Proceedings under Section 263:The Tribunal noted that proceedings under section 263 of the Act were initiated and later dropped as infructuous due to the initiation of section 153A proceedings. The Tribunal referred to the Central Board of Direct Taxes (CBDT) Circular No. 7 of 2003, which clarifies that revision or rectification proceedings pending on the date of search do not abate. Therefore, the Tribunal held that the Commissioner of Income-tax should have completed the proceedings under section 263, and the issues raised therein should not have been revisited in section 153A proceedings.Conclusion:The Tribunal concluded that the Assessing Officer's order disallowing the deduction under section 54F was erroneous. The Tribunal directed the deletion of the addition made by the Assessing Officer. The Tribunal refrained from adjudicating the merits of the deduction under section 54F, deeming it infructuous given their findings on the legal issues. The appeal of the assessee was allowed.Order Pronounced:The order was pronounced on October 16, 2018, at Chennai.