2021 (10) TMI 747 - AT - Income Tax

Tribunal allows appeal on section 54F deduction criteria, emphasizes utilization over completion

Shri Rajesh Chand Surana Versus Assistant Commissioner of Income Tax-4 (1), Raipur.

The Tribunal allowed the appeal, holding that the Principal Commissioner of Income Tax's revisional order under section 263 was unsustainable. It found ... Revision u/s 263 by CIT - Case of assessee selected for limited scrutiny - Quantum of capital gain arising to assessee as well as towards eligibility of deduction under section 54F - PCIT has regarded the Assessment Order as erroneous mainly on the ground that construction work has been completed to the extent of 70% only as reported by the DIT (I&CI) - construction of the residential house must be completed within three years from the date of transfer of original asset to be eligible for deduction under section 54F - HELD THAT:- The judicial precedents have read down the conditions of the provisions of Section 54F of the Act to align it with its object and observed that the utilisation of the consideration in the construction of residential house is sufficient to be eligible for deduction notwithstanding the fact that the construction of residential house has not been fully completed within three years. The thrust is on utilisation rather than completion of construction of residential house. The view taken by the A.O. to allow deduction under section 54F based on parameters of utilisation made in construction is thus plausible view and cannot be faulted. This being so, the order of the A.O. cannot be held to be erroneous and prejudicial to the interest of the revenue. Consequently, the powers available under section 263 of the Act cannot be exercised in the facts of the case. Plea of the assessee that a fresh information coming to the knowledge of the PCIT after completion of the assessment cannot be relied upon adverse to the assessee without following the basic principles of natural justice - As can be seen from the assessment records, vide letter dated 09.03.2021, requested the Revisional Commissioner to provide a copy of verification report of Inspector of ADIT (I&CI). However, the PCIT did not choose to confront the assessee with said report. No reference to the contents of the report is mentioned in the Revisional Order either. Such casual approach of the PCIT while disturbing the completed assessment cannot be endorsed. It is trite that evidence not confronted to the assessee coming to the knowledge of the revenue cannot be relied upon. The so called report thus cannot be taken cognizance of in the absence of such report. When such report is ignored, there is no other material available before the PCIT to condemn the action of the A.O. Hence, looking from any angle, the Revisional Order of the PCIT is unsustainable in law. - Decided in favour of assessee. Issues:Challenge to revisional order under section 263 of the Income Tax Act, 1961 concerning Assessment Year 2016-17.Analysis:The appeal was filed against the revisional order of the Principal Commissioner of Income Tax (Central) under section 263 of the Act. The appellant challenged the assumption of jurisdiction by the PCIT, arguing that the Assessment Order under revision was not erroneous or prejudicial to the revenue's interest. The limited scrutiny of the return of income for A.Y. 2016-17 focused on verifying the correct computation of Capital Gains and deductions claimed. The assessment was initially framed under section 143(3) without adjustments to the declared income.The PCIT issued a show cause notice directing the A.O. to make further enquiries regarding the deduction claimed under section 54F of the Act. The PCIT set aside the assessment, alleging inadequate enquiry by the A.O. The appellant contended that the investment made for constructing a new residential property within three years complied with section 54F. The appellant argued that the PCIT's adverse conclusion was based on reports not provided to them, rendering them invalid. The appellant cited judicial precedents supporting their claim.The Tribunal found merit in the appellant's arguments. It noted that the utilisation of consideration for construction sufficed for the deduction under section 54F, aligning with judicial interpretations. The completion of construction within three years was not a strict condition. The Tribunal held that the A.O.'s decision to allow the deduction was reasonable and in line with the law. The PCIT's reliance on new information without providing it to the appellant violated principles of natural justice. The Tribunal concluded that the PCIT's revisional order was unsustainable in law, and the appeal was allowed.The judgment emphasized that utilisation, not completion, of construction was pivotal for claiming deductions under section 54F. It highlighted the importance of adherence to natural justice principles in considering new information post-assessment. The decision underscored the significance of relevant documents and judicial precedents in determining the validity of deductions under the Income Tax Act.