2023 (4) TMI 130 - AT - Income Tax

Tribunal overturns assessment order, allows exemption under section 54

Dineshbhai Jivanbhai Sanspara Versus. The Principal Commissioner of Income Tax-1, Surat

The Tribunal quashed the order under section 263, holding that the assessment order was neither erroneous nor prejudicial to the interest of Revenue. The ... Revision u/s 263 - Exemption u/s 54 - As discussed assessee has neither purchased nor constructed any residential unit during the allowable period of one year before or two/three years after the sale of the original asset - HELD THAT:- The Hon’ble Supreme Court in the case of Malabar Industries [2000 (2) TMI 10 - SUPREME COURT] held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the AO. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. When the AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”. We note that a mere observation that no proper details have been obtained, cannot be sufficient to come to a conclusion that the AO did not make proper and adequate inquiries which he ought to have made in the given facts and circumstances of this case. We are of the view that none of the reasons set out by the CIT for invoking the jurisdiction u/s 263 of the Act are sustainable. The impugned order of the CIT has to be quashed for the reason that order of the AO sought to be revised in the impugned order was neither erroneous nor prejudicial to the interest of the revenue for the reason of any lack of inquiry that the AO ought to have made in the given facts and circumstances of the case. We accordingly quash the order u/s 263 of the Act and allow the appeal of the assessee, only for the exemption/deduction of Rs.54,35,981/-. Appeal of the assessee is partly allowed. Issues Involved:1. Validity of the order passed under section 263 considering the assessment order under section 143(3) as erroneous and prejudicial to the interest of Revenue.2. Opportunity of hearing provided by the Ld PCIT.3. Disallowance of deduction under section 54 of the Income Tax Act, 1961.Detailed Analysis:1. Validity of the Order Under Section 263:The assessee challenged the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, which considered the assessment order under section 143(3) as erroneous and prejudicial to the interest of Revenue. The PCIT observed that the conditions for allowance of deduction under section 54 were not satisfied, and various expenses claimed by the assessee were not necessary for earning interest income. The PCIT issued a show cause letter and, after considering the assessee's response, rejected the contention and held that the assessment order was erroneous and prejudicial to the interest of Revenue.2. Opportunity of Hearing:The assessee contended that the PCIT did not allow an effective opportunity of hearing. However, the judgment does not provide a detailed analysis of this issue, suggesting that it was not a major point of contention in the final decision.3. Disallowance of Deduction Under Section 54:The primary issue was the disallowance of deduction under section 54. The assessee had sold residential flats and claimed deduction under section 54 for the investment in a new residential property. The PCIT noted that the investment in the new asset (land and construction) was made before the prescribed period, and the expenses claimed were not substantiated with evidentiary material. The PCIT held that the conditions for deduction under section 54 were not met, as the investment was not made within the allowable period, and the expenses were unsubstantiated.The assessee argued that the deduction was claimed only for construction expenses incurred within one year prior to the sale of the asset, and not for the cost of land. The assessee provided detailed submissions and documents during the assessment stage, which were considered by the Assessing Officer. The Tribunal noted that the Assessing Officer had examined all aspects and allowed the deduction, and therefore, the order was neither erroneous nor prejudicial to the interest of Revenue.Conclusion:The Tribunal quashed the order under section 263, holding that the assessment order was neither erroneous nor prejudicial to the interest of Revenue. The Tribunal emphasized that the Assessing Officer had made adequate inquiries and considered all relevant details. The appeal of the assessee was partly allowed, specifically for the exemption/deduction of Rs.54,35,981/- under section 54.Result:The appeal of the assessee is partly allowed. The order of the PCIT under section 263 is quashed, and the deduction under section 54 is upheld.