Appeal allowed, PCIT's order quashed under Section 263. AO's decision upheld on deduction under Section 54. Tribunal finds AO's order correct, not prejudicial to Revenue. PCIT's revision attempt deemed unjustified.

The appeal was allowed, quashing the PCIT's order under Section 263. The AO's decision allowing the deduction under Section 54 was upheld. The Tribunal found the AO's order to be correct, stating it was not erroneous or prejudicial to Revenue. The PCIT's attempt to revise the order was deemed unjustified.

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Issues Involved:
1. Exercise of revisionary powers by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
2. Eligibility for deduction under Section 54 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Exercise of Revisionary Powers by PCIT under Section 263:

The assessee challenged the order of the PCIT, who exercised revisionary powers under Section 263, setting aside the assessment order passed under Section 143(3) dated 16.10.2017. The PCIT's action was deemed illegal, unjustified, arbitrary, and against the facts of the case by the assessee. The appeal was filed with a delay of 26 days, which was condoned after considering the affidavit filed by the assessee.

The assessee argued that the case was selected for limited scrutiny, focusing on the deduction claimed under "Capital Gains" and Tax Credit mismatch. The assessee had claimed deduction under Section 54 by selling a house property and investing in another house property, providing necessary documents like the Sale Deed, Purchase Deed, and Possession Letter.

The Assessing Officer (AO) applied his mind to the material placed before him and accepted the claim of deduction under Section 54 after being satisfied with the factual and legal assessment. The PCIT, however, held that the AO's order was erroneous, claiming that the AO failed to apply her mind and allowed the deduction without proper verification.

The assessee contended that the AO's application of mind is subjective and depends on the factual matrix of each case. The AO can examine a claim even without raising a written query if the issue is apparent or obvious. In this case, the AO conducted limited scrutiny, and all relevant facts were evident from the documents provided. The PCIT's conclusion that the AO did not apply her mind was deemed contrary to normal human conduct.

The assessee further argued that for exercising jurisdiction under Section 263, the order must be erroneous and prejudicial to the interest of Revenue. In this case, neither condition was satisfied. The AO adopted a plausible view, supported by legal precedents, and the PCIT's attempt to replace her view with the AO's view was illegal.

2. Eligibility for Deduction under Section 54:

The PCIT observed that the assessee was not eligible for deduction under Section 54 because payments totaling Rs. 36,70,320 were made prior to one year before the date of sale of the property. The PCIT held that the AO allowed the deduction without verifying the necessary details, rendering the assessment order erroneous and prejudicial to the Revenue.

The assessee argued that the deduction under Section 54 was claimed based on the purchase of a new flat, evidenced by the Purchase Deed dated 10.03.2014, which was within one year before the sale of the original property on 24.11.2014. The relevant date for claiming the deduction was the date of purchase, not the dates of installment payments.

The Tribunal referred to the provisions of Section 54, which allow deduction if the new residential house is purchased within one year before or two years after the date of transfer of the original asset. The Tribunal cited the decision of the Hon’ble Bombay High Court in Beena K Jain, which held that the relevant date is when the full consideration is paid, and possession is taken.

The Tribunal concluded that the AO rightly allowed the deduction under Section 54, as the purchase of the new flat was within the stipulated period. The AO's order was not erroneous or prejudicial to the interest of the Revenue. Therefore, the PCIT's order was set aside, and the AO's order was sustained.

Conclusion:

The appeal of the assessee was allowed, and the order of the PCIT under Section 263 was quashed. The AO's order allowing the deduction under Section 54 was upheld. The Tribunal emphasized that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue, and the PCIT's attempt to revise the order was unjustified.

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