2021 (10) TMI 1146 - AT - Income Tax

Tribunal quashes PCIT's order under IT Act due to procedural irregularities, grants relief to assessee

The Tribunal quashed the revisional order passed under Section 263 of the Income Tax Act, 1961, finding procedural irregularities and lack of opportunity ... Revision u/ 263 by CIT - revisional order passed ex-parte has observed that deduction claimed by the assessee on sale of agricultural land u/s 54B of the Act has been wrongly allowed without adequate enquiry and the order of the AO passed u/s 143(3) of the Act is vitiated by non-application of mind - principal allegation of the PCIT is that the land sold and then purchased by the assessee is not an agricultural land - HELD THAT:- We find the observations of the PCIT neither here nor there. It is manifest that the PCIT has proceeded on a total misconception of law in the given set of facts. Where the agricultural sold land situated is outside the municipal limits, it will not be deemed as capital asset under Section 2(14)(iii) of the Act at the first place and consequently there would be no liability of capital gain on the assessee at the threshold. Hence, we do not understand the need for certificate of land record authorities in this regard. The assessee has not claimed at all that the agricultural land is situated outside the specified distance of municipality. The assessee has, in fact, calculated the LTCG and claimed deduction thereon on the ground that the capital gain accrued on sale of land has been towards purchase of other land parcels which is also used for agricultural purposes. The PCIT has made out a totally different case which has no relation with application of Section 54-B of the Act. The use of agricultural land, after its transfer to a builder, is of no consequence for the purposes of Section 54-B of the Act. The PCIT himself has admitted that the land in sale to be agricultural land and also not disputed the purchase of agricultural land by utilization of capital gain for agricultural purposes. The PCIT has proceeded to disturb the assessment on totally irrelevant consideration and without showing any error in the claim. On appreciation of facts available before us showing the use of land for agricultural purposes having regard to the agreement with farmers and other supporting papers, we are unable to discern even any remote error in the action of the AO in admitting the claim of deduction under Section 54-B of the Act. On the other hand, we find that the action of the PCIT suffers from vice of arbitrariness and total lack of application of mind. The palpably wrong revisional order is accordingly set aside and quashed. Non-issuance of notice and on total lack of opportunity while concluding the proceedings under Section 263 - whether a failure to give a reasonable opportunity to the assessee of being heard was only a procedural irregularity ? - The finality of the assessment cannot be disturbed for the failure of the PCIT to obdurately adhere to the explicitly prescribed requirement of opportunity to assessee. Hence, in the absence of any opportunity to the assessee for which the fault is attributable squarely to the PCIT, is fatal and such defect being incurable, the revisionary order passed under Section 263 of the Act is also required to be quashed independently on this ground also. - Decided in favour of assessee. Issues Involved:1. Assumption of jurisdiction by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.2. Validity of the show-cause notice issued under Section 263.3. Merits of the deduction claimed under Section 54B of the Income Tax Act, 1961.4. Procedural irregularities and lack of opportunity for the assessee to be heard.Detailed Analysis:1. Assumption of Jurisdiction by the PCIT under Section 263 of the Income Tax Act, 1961:The assessee challenged the revisional action of the PCIT, arguing that the assessment order under revision was neither erroneous nor prejudicial to the interest of the revenue. The PCIT had called for the assessment records and opined that the assessment order was erroneous and prejudicial to the interest of the revenue. The PCIT issued a show-cause notice to the assessee, alleging that deductions claimed under Section 54B were wrongly allowed by the AO without application of mind, and thus, the assessment order was set aside for fresh adjudication.2. Validity of the Show-Cause Notice Issued Under Section 263:The assessee contended that the show-cause notice was not received, and no opportunity was provided to appear before the PCIT. The notice dated 10.03.2021 called for a hearing on 15.03.2021 at 11:00 AM, but the notice itself was signed on 15.03.2021 at 1.49 PM. The notice was purportedly sent to an email ID that was not received. The assessee argued that the burden of proving service of notice lies with the Department, citing the case of Venkat Naicken Trust Vs. ITO. The Tribunal found that the notice was issued after the time fixed for the hearing, and no other notice or intimation of the revisional proceedings was given to the assessee. The revisional order was passed based on this solitary, unserved show-cause notice, rendering the revisional order null and void ab initio.3. Merits of the Deduction Claimed Under Section 54B of the Income Tax Act, 1961:The PCIT alleged that the deductions claimed under Section 54B were wrongly allowed without adequate enquiry. The assessee argued that the land in question was agricultural land, and all conditions under Section 54B were satisfied. The land was used for agricultural purposes in the two years prior to sale, and the new land purchased was also agricultural land. The Tribunal found that the PCIT had misconstrued the facts and misapplied the law. The PCIT's observations were based on irrelevant considerations, and the deduction under Section 54B was rightly allowed by the AO. The Tribunal concluded that the PCIT's action was arbitrary and lacked application of mind, thus quashing the revisional order.4. Procedural Irregularities and Lack of Opportunity for the Assessee to Be Heard:The Tribunal noted that the only show-cause notice issued to the assessee was for attendance on 15.03.2021 at 11:00 AM, whereas the notice itself was issued at 1.49 PM on the same date. This indicated a total lack of opportunity for the assessee to defend its case. The Tribunal referred to the case of Tata Chemicals Limited vs. DCIT and other judgments, concluding that an order passed in violation of the audi alteram partem rule is null and void. The failure to provide a reasonable opportunity to the assessee was not a mere procedural irregularity but rendered the revisional order ab initio void and non est in law. Therefore, the revisional order was quashed on this ground as well.Conclusion:The Tribunal set aside and quashed the revisional order passed under Section 263 of the Income Tax Act, 1961. The appeal of the assessee was allowed. The judgment was pronounced on 21.10.2021 as per Rule 34(4) of the Income Tax Appellate Tribunal Rules, 1963.