2022 (8) TMI 510 - AT - Income Tax

Tribunal quashes Section 263 proceedings, ruling original assessment not erroneous. Assessee appeal allowed.

Ashok Kumar Mohapatra Versus Pr. CIT, Bhubaneswar

Ashok Kumar Mohapatra Versus Pr. CIT, Bhubaneswar - TMI Issues Involved:1. Validity of the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.2. Whether the original assessment order was erroneous and prejudicial to the interest of revenue.3. Compliance with provisions of Sections 54 and 54EC of the Income Tax Act by the assessee.4. Adequacy of inquiry conducted by the Assessing Officer (AO) during the original assessment.Detailed Analysis:1. Validity of the Order Passed by PCIT Under Section 263:The assessee challenged the order passed by the PCIT under Section 263 of the Income Tax Act, claiming it was excessive, arbitrary, and bad in law. The Tribunal noted that for invoking Section 263, the order must be both erroneous and prejudicial to the interest of revenue. The Tribunal referred to the Supreme Court's decision in Malabar Industrial Company Limited vs. CIT (243 ITR 83), which clarified that an incorrect assumption of facts or an incorrect application of law would render an order erroneous.2. Whether the Original Assessment Order Was Erroneous and Prejudicial to the Interest of Revenue:The PCIT found the original assessment order erroneous and prejudicial to the interest of revenue because the AO did not adequately verify the compliance with Sections 54 and 54EC. The Tribunal, however, observed that the AO had conducted a limited scrutiny and had made inquiries regarding the exemption claims under Sections 54 and 54EC. The Tribunal emphasized that the AO had examined the documents and was satisfied with the responses provided by the assessee.3. Compliance with Provisions of Sections 54 and 54EC:The PCIT argued that the AO should have verified whether the construction of the new property was completed within three years, as required by Section 54. The Tribunal noted that the assessee had made the investment in the new residential property within the stipulated time and had also invested in capital bonds under Section 54EC. The Tribunal referenced various judicial precedents, including the Delhi High Court's decision in CIT vs. Kapil Nagpal, which held that for the purpose of Section 54, it is not necessary for the assessee to become the owner of the property; the investment itself is sufficient.4. Adequacy of Inquiry Conducted by the AO:The Tribunal examined whether the AO had conducted a sufficient inquiry during the original assessment. It was noted that the AO had issued a query letter and received responses from the assessee, which were examined and placed on record. The Tribunal referred to the Delhi High Court's decision in Director of Income Tax vs. Jyoti Foundation, which held that if the AO conducted an inquiry and was satisfied, the order could not be deemed erroneous simply because the PCIT felt a deeper inquiry was warranted. The Tribunal concluded that the AO had made reasonable inquiries and the PCIT should have conducted further inquiries himself if he was not satisfied.Conclusion:The Tribunal quashed the proceedings initiated under Section 263 by the PCIT, holding that the original assessment order was neither erroneous nor prejudicial to the interest of revenue. The appeal of the assessee was allowed, and the order pronounced in the open court on 06/07/2022.