2022 (9) TMI 454 - AT - Income Tax

Tribunal overturns PCIT's decision, ruling AO's assessment compliant with tax laws

The Tribunal held that the Principal Commissioner of Income Tax (PCIT) exceeded jurisdiction under Section 263 as the Assessing Officer (AO) had conducted ... Revision u/s 263 by CIT - deduction u/s. 54 and 54F - status of the property - whether on facts, the AO can be said to have passed the order after making due enquiries wherein deductions claimed u/s. 54, 54F and 54EC have been allowed on facts or should the order passed by the AO on facts be set aside upholding the impugned order? - HELD THAT:- We find that the decision in the case of Sanjeev Lal [2014 (7) TMI 99 - SUPREME COURT] more latest in point of time is in the context of the relevant provisions of the Income Tax Act. The said decision has been rendered on 01.07.2014 and is in the context of Section 54 r.w.s. 2(47) - On a reading of the impugned order, it is further seen that all these decisions have been cited by the assessee before the CIT(A) and no attempt has been made by the PCIT nor by the ld. CIT-DR to distinguish the applicability of the said decision from the facts of the present case. Roping in the allegation of colorable device by citing the decision of the Apex Court in the case of McDowell & Company [1985 (4) TMI 64 - SUPREME COURT] on facts is completely unwarranted and misplaced. We find on going through the impugned order that except for suspicions no valid violation of any law u/s. 54, 54F and 54EC has been referred to. We have taken into consideration the decisions of the various Courts including the Apex Court in the case of Sanjeev Lal [2014 (7) TMI 99 - SUPREME COURT] another decision of the Apex Court in the case of T.R. Arvinda Reddy [1979 (10) TMI 1 - SUPREME COURT] and the Hon'ble Delhi High Court in the case of Balraj Vs. CIT [2001 (12) TMI 51 - DELHI HIGH COURT] and the decision of the ITAT in the case of Shri Bassheer Noorullah Khan [2019 (8) TMI 180 - ITAT BANGALORE] have all been taken into consideration. Accordingly, we find that the impugned order cannot be sustained. We find that when read along with the reply on behalf of the assessee before the ld. PCIT, we find that the appeal of the assessee has to be allowed. Revisionary Powers cannot be exercised arbitrarily. The twin conditions necessary for exercising the powers in the facts of the present case are found to be missing. Coming to the issues on which no Show Cause Notice was issued to the assessee, we find that legally such an action is not permissible and even otherwise, on merits we find that six month period, as considered by the AO has judicial recognition. We find that the Co-ordinate Benches have held that the term 'month' has not been defined in the Income Tax Act and hence resorting to the term as defined in the General Clauses Act, 1897 it has been held that 'a month' shall mean as reckoned according to the British Calendar. Accordingly, we find that the view taken by the AO is very much within the four parameters of law. Merely because there is no discussion or elaborate discussion in the assessment order to the extent considered necessary by the ld. PCIT, we find that the assessee cannot be held liable as the remedy lies within. It is for the Tax Authorities to ensure that the Assessing Officers are well instructed to write the order elaborating the issues enquired into; the evidences considered to allow the claim and also discussions on how the claim is rejected. The assessee has no role to play as how the assessment orders are written. The said issue has many times been addressed by various Courts. Reference may be made to the decision of the jurisdictional High Court in the case of Hari Iron Trading Co. [2003 (5) TMI 48 - PUNJAB AND HARYANA HIGH COURT] where the Court considering the non-discussion on the issues in the assessment order observed 'The assessee had no control over the way the assessment order was drafted. Appeal of the assessee is allowed. Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act.2. Consideration of replies and submissions by the Principal Commissioner of Income Tax (PCIT).3. Application of mind by the Assessing Officer (AO) during the assessment.4. Enquiry by the PCIT during revisionary proceedings.5. Scrutiny of investment in house property under Sections 54F and 54EC.6. Validity and sustainability of the PCIT's order.Issue-Wise Detailed Analysis:1. Jurisdiction under Section 263 of the Income Tax Act:The assessee challenged the jurisdiction of the Ld. PCIT under Section 263, arguing that the order dated 19.05.2017 by the AO was neither erroneous nor prejudicial to the interest of Revenue. The Tribunal found that the AO had made all necessary enquiries and scrutinized the relevant provisions before passing the order. The AO had examined the sale proceeds, bifurcated them correctly, and considered the deductions under Sections 54, 54F, and 54EC, which were cross-checked and verified. The Tribunal held that the PCIT's assumption of jurisdiction was beyond competence as the AO had taken a possible view supported by judicial precedents.2. Consideration of Replies and Submissions by the PCIT:The assessee contended that the PCIT failed to consider the various replies and submissions placed on record correctly. The Tribunal noted that the AO had considered the assessee's submissions, including the bifurcation of sale proceeds and the deductions claimed. The PCIT's order was found to be arbitrary and unjustified as it did not point out any specific error in the AO's order but was based on suspicions.3. Application of Mind by the AO during the Assessment:The assessee argued that the AO had passed the assessment order after due application of mind, considering the replies, material on record, and books of account. The Tribunal agreed, noting that the AO had made necessary enquiries, scrutinized the relevant provisions, and verified the calculations before making the addition. The Tribunal emphasized that the AO had taken a possible view supported by judicial precedents, and the PCIT's revisionary powers were exercised arbitrarily.4. Enquiry by the PCIT during Revisionary Proceedings:The assessee claimed that the PCIT failed to carry out any enquiry during the revisionary proceedings, which was mandatory. The Tribunal found that the PCIT did not issue a Show Cause Notice on certain issues, denying the assessee an opportunity to make a representation. The Tribunal held that such an act was contrary to the settled legal position and arbitrary.5. Scrutiny of Investment in House Property under Sections 54F and 54EC:The assessee argued that the AO had scrutinized the investment in house property in depth, and revising the order was arbitrary and unjustified. The Tribunal found that the AO had considered the bifurcation of sale proceeds, scrutinized the relevant provisions, and verified the deductions claimed. The Tribunal noted that the AO had taken a possible view supported by judicial precedents, and the PCIT's objections on merits had no legal foothold.6. Validity and Sustainability of the PCIT's Order:The Tribunal found that the PCIT's order was erroneous, arbitrary, and unsustainable in law. The Tribunal noted that the AO had made all necessary enquiries and passed the order after due application of mind. The Tribunal emphasized that the PCIT's revisionary powers were exercised arbitrarily, and the twin conditions necessary for invoking the revisionary powers were missing. The Tribunal set aside the PCIT's order and allowed the assessee's appeal.Conclusion:The Tribunal concluded that the AO had made all necessary enquiries and passed the order after due application of mind. The PCIT's revisionary powers were exercised arbitrarily, and the twin conditions necessary for invoking the revisionary powers were missing. The Tribunal set aside the PCIT's order and allowed the assessee's appeal.