2020 (10) TMI 712 - AT - Income Tax

Tribunal allows appeals, directs reassessment of Long Term Capital Gain & deductions under Sections 54 & 54F

Shri Lokesh M And Shri Lokesh M, LR of Smt. Malathi Lokesh Versus The Principal Commissioner of Income Tax-2, Bangalore.

The Tribunal condoned the delay in filing appeals and upheld the Principal Commissioner of Income Tax's invocation of Section 263 due to the Assessing ... Revision u/s 263 - CIT set aside the orders of AO allowing deduction to the assesses u/s. 54F of the Act and also on the issue of quantum of capital gain for de novo assessments by the AO - HELD THAT:- From a perusal of the orders of assessment in the case of both the Assessee’s, it appears to us that before concluding the assessment proceedings the AO did not make any enquiries with regard to the deduction u/s.54F. In the note attachment to the order of assessment, there is a reference to the claim of the Assessee having been examined u/s.54 and the factum of having verified all sale deeds and purchase deeds. Since the office note is not clear about what enquiries the AO made before concluding the assessment, we have to conclude that the findings of the Pr.CIT that the AO has not made adequate and proper enquiries before concluding the Assessment, is correct. Assessee could not substantiate before us as to how the AO made enquiries on this issue before concluding the assessment, except by pointing out that all facts were laid before the AO and it can be presumed that he had taken note of this aspect while concluding the assessment. AO himself initiated proceedings u/s.154 to rectify error apparent on record on the aspect of computation of LTCG goes to show that he had while completing the Assessment not made proper enquiries. The law is well settled that if there is a failure on the part of AO to make an enquiry on the issue which calls for an enquiry, that by itself will render the order of assessment erroneous and prejudicial to the interests of the revenue. Since there was a failure on the part of AO to make necessary enquiry, we are of the view that the Pr.CIT was justified in invoking jurisdiction u/s. 263 of the Act in the facts and circumstances of the present case. Claim of the Assessee for deduction while computing LTCG has to be examined de novo without being influenced by any of the discussion in the impugned order of the Pr. CIT as the jurisdiction u/s.263 of the Act has been exercised by the Pr.CIT on the ground of the failure on the part of the AO to make proper enquiries before completing the assessment. The Assessee should also be allowed to substantiate his claim for deduction u/s.54 of the Act, because the liability to tax depends on the provisions of law and facts of a case and not on the basis of any admission or incorrect claim made by an Assessee. We therefore modify the order of the Pr. CIT in the terms indicated above, i.e., the AO while completing the assessment pursuant to impugned orders should complete the assessment de novo and all issues referred to above, will be open for consideration before the AO. Appeals by the assesses are partly allowed. Issues Involved:1. Condonation of delay in filing appeals.2. Validity of the Principal Commissioner of Income Tax (Pr.CIT) invoking Section 263 of the Income-tax Act, 1961.3. Correctness of the computation of Long Term Capital Gain (LTCG).4. Eligibility for deduction under Section 54F of the Income-tax Act, 1961.5. Adequacy of the Assessing Officer's (AO) enquiries.Detailed Analysis:1. Condonation of Delay in Filing Appeals:The appeals were filed with delays of 266 and 295 days. The assessee explained the delay was due to incorrect advice from their earlier tax consultant, who suggested that issues could be agitated in the order to be passed afresh by the AO under Section 143(3) read with Section 263. The Tribunal accepted this explanation, referencing several judicial pronouncements advocating for a pragmatic and liberal approach in condonation of delay, and thus condoned the delay.2. Validity of the Pr.CIT Invoking Section 263:The Pr.CIT invoked Section 263, asserting that the AO's order was erroneous and prejudicial to the interest of the revenue. The Tribunal upheld this invocation, noting that the AO failed to make proper and adequate enquiries regarding the deduction under Section 54F. The Tribunal cited the legal principle that failure to make necessary enquiries renders an assessment order erroneous and prejudicial to the revenue.3. Correctness of the Computation of LTCG:The Pr.CIT found errors in the computation of LTCG, specifically regarding the inclusion of the watchman’s salary as a cost, which is not allowable under Section 48. The Tribunal agreed that this needed re-examination. The Pr.CIT also noted the need for proportionate deduction under Section 54F, as the investment in the new asset was less than the sale consideration.4. Eligibility for Deduction under Section 54F:The Pr.CIT found that the assessee owned more than one residential house on the date of transfer of the original asset, disqualifying them from claiming deduction under Section 54F. The Tribunal noted that the AO did not properly verify whether the conditions under Section 54F were met. The Tribunal directed the AO to re-examine the claim, including whether the asset sold was a residential house, which would qualify for deduction under Section 54 instead of Section 54F.5. Adequacy of the AO’s Enquiries:The Tribunal concluded that the AO did not make adequate and proper enquiries before concluding the assessment. The AO’s failure to investigate the claim for deduction under Section 54F and the computation of LTCG justified the Pr.CIT's invocation of Section 263. The Tribunal emphasized that the AO must ascertain the truth of the facts stated in the return when circumstances suggest further inquiry is prudent.Conclusion:The Tribunal condoned the delay in filing the appeals and upheld the Pr.CIT's invocation of Section 263 due to the AO's failure to make necessary enquiries. The Tribunal directed the AO to re-examine the computation of LTCG and the eligibility for deduction under Sections 54 and 54F, ensuring a de novo assessment without being influenced by the Pr.CIT’s observations. The appeals were partly allowed, and the AO was instructed to consider all issues afresh.Pronouncement:The judgment was pronounced in the open court on October 14, 2020.