2023 (2) TMI 1009 - AT - Income Tax

Tribunal overturns PCIT's revision of assessment order, emphasizes AO's discretion

Shri Sunny Chandrakant Fudhnawala Versus Deputy Commissioner of Income Tax, Circle-3 (3), Surat

The Tribunal held that the Principal Commissioner of Income Tax erred in passing an order under Section 263, revising the assessment order. It was ... Revision u/s 263 - exemption u/s 54F - As per CIT assessee was having more than two residential properties during the year and hence exemption u/s 54 was required to be disallowed - HELD THAT:- It was wholly erroneous on the part of the ld PCIT to exercise the jurisdiction u/s 263 of the Act despite of the fact that assessing officer has examined the issue raised by ld PCIT during the assessment stage. As pointed out that AO has raised the relevant question and assessee has replied during the assessment stage vide letter dated 19.12.2016. The show cause notice issued by the AO during the assessment proceedings wherein the AO has raised the query in respect of deduction u/s 54F and in response to said show cause notice the assessee submitted his reply in respect of exemption u/s 54F. The assessee has demonstrated that asset is part of investment activities. The stock-in-trade shown in the Balance-Sheet are getting reflected on page 49 of the paper book on which assessee has not claimed deduction under section 54F of the Act. It is pertinent to mention here that there was as such no allegation of ‘no enquiry’ or ‘lack of enquiry’ or verification, because the Ld. Pr. C.I.T. himself found all the details/evidences in the assessment record, i.e. well within the A.O.’s possession and what he alleged was about the plausible view taken by the A.O. as against his perception and understanding on the same set of facts and documents. It is the domain of the assessing officer to decide, whether further inquiry is needed or not in a particular case. After getting the documents and information from the assessee, during the assessment proceedings, the assessing officer has examined the documents and evidences and applied his mind. We note that the Ld. Pr. C.I.T. by invoking his jurisdiction u/s 263 of the Act is giving another opportunity to the Assessing Officer to re-examine and to verify again the same documents and evidences, which is not permissible. Hon’ble Bombay High Court in the case of Ranka Jewellers vs. Addl. CIT [2010 (3) TMI 544 - BOMBAY HIGH COURT] relying on the decisions of Hon’ble Supreme Court in the cases of Malabar Industrial Co. Ltd. [2000 (2) TMI 10 - SUPREME COURT] and CIT vs. Max India Ltd. [2007 (11) TMI 12 - SUPREME COURT] has held that once the issue was considered by the A.O., the remedy of the revenue could not lie in invoking of the jurisdiction u/s. 263 of the Act. Therefore, the order of the Ld PCIT was definitely outside the purview of section 263 of the Act. As noted above, the exercise aimed at ascertaining the correct income of the assessee has been fulfilled by the Ld. A.O. by exercising his quasi-judicial functions, hence order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue, therefore, we quash the order under section 263 passed by ld PCIT. Appeal of the assessee is allowed. Issues Involved:1. Whether the Principal Commissioner of Income Tax (PCIT) erred in passing an order under Section 263 of the Income Tax Act, 1961, revising the assessment order passed under Section 143(3).2. Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue.3. Whether the assessee was entitled to claim exemption under Section 54F of the Income Tax Act, 1961.Detailed Analysis:1. Error in Passing Order under Section 263:The assessee challenged the correctness of the order passed by the PCIT under Section 263, revising the assessment order passed under Section 143(3) after detailed scrutiny. The PCIT exercised jurisdictional power under Section 263, noting that the AO failed to verify whether the property in question was a capital asset or stock-in-trade and whether the sale consideration was a business receipt. The PCIT argued that the AO did not properly verify the facts, rendering the assessment order erroneous and prejudicial to the interest of the revenue.2. Erroneous and Prejudicial Assessment Order:The PCIT observed that the AO allowed the assessee's claim for exemption under Section 54F without proper verification. The PCIT noted that the property sold was part of the assessee's business activity and should have been taxed as business income. Furthermore, the PCIT pointed out that the AO did not verify whether the property was a capital asset or stock-in-trade and whether the house was constructed within the prescribed time limit to qualify for the exemption under Section 54F.3. Entitlement to Exemption under Section 54F:The assessee argued that the property sold was inherited and treated as a capital asset, not stock-in-trade. The assessee maintained two portfolios: investment and business, and the property in question was part of the investment portfolio. The assessee provided evidence that the AO had raised relevant questions during the assessment proceedings and that the assessee had replied, demonstrating that the asset was part of investment activities. The assessee also pointed out that the co-owner of the property had claimed and was allowed exemption under Section 54F, and thus, the assessee should not be treated differently.Conclusion:The Tribunal held that the PCIT erroneously exercised jurisdiction under Section 263, as the AO had examined the issue during the assessment stage and applied his mind. The Tribunal noted that the AO had conducted a proper inquiry, and the details were within the AO's possession. The Tribunal emphasized that it is the domain of the AO to decide the need for further inquiry. The Tribunal quashed the PCIT's order under Section 263, stating that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The appeal of the assessee was allowed.