AO's assessment invalid as assessee failed to hold purchased flats for mandatory 3-year period under section 54F deduction

ITAT Hyderabad upheld PCIT's revision order u/s 263, finding AO's assessment erroneous and prejudicial to revenue. Assessee claimed deduction u/s 54F but failed to hold purchased flats for mandatory 3-year period, having sold all flats prematurely. AO's order was cryptic and failed to address scrutiny reasons. ITAT confirmed section 54F conditions were not fulfilled, making the original assessment order invalid. Appeal dismissed against assessee.

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Issues Involved:
1. Whether the Assessing Officer's acceptance of the assessee's claim for deduction under Section 54F of the I.T. Act was erroneous and prejudicial to the interest of the Revenue.
2. Whether the Principal Commissioner of Income-Tax (PCIT) was justified in invoking Section 263 of the I.T. Act to set aside the Assessing Officer's order.

Summary:

Issue 1: Assessing Officer's Acceptance of Deduction under Section 54F
The assessee, deriving income from various sources including house property and capital gains, filed returns for A.Y. 2015-16. The Assessing Officer completed the assessment under Section 143(3) accepting the returned income. The PCIT noted that the assessee sold flats without holding them for the minimum period of three years, which should have resulted in short-term capital gains taxable at 30%. The PCIT issued a notice under Section 263, stating the order was erroneous and prejudicial to the Revenue's interest. The assessee argued that the claim under Section 54F was valid based on various high court decisions, but the PCIT was not satisfied, asserting non-compliance with Section 54F conditions.

Issue 2: Justification of PCIT in Invoking Section 263
The Tribunal upheld the PCIT's decision, stating that the Assessing Officer's order was indeed erroneous and prejudicial to the Revenue's interest. The Tribunal found that the assessee sold the flats within three years, disqualifying the claim under Section 54F. The Tribunal noted that the Assessing Officer's order lacked detailed examination and was cryptic, thus justifying the PCIT's invocation of Section 263 to set aside the order and direct a re-assessment.

Additional Appeals:
Similar issues were raised in appeals by other assessees (Shri Rajesh Kumar Jain, Shri Ratanlal Jain, and Smt. Chandra Devi Jain), where the PCIT had also invoked Section 263 for similar reasons. The Tribunal dismissed all these appeals, reiterating that the Assessing Officer's orders were erroneous and prejudicial to the Revenue's interest, and upheld the PCIT's directions for re-assessment.

Conclusion:
The Tribunal dismissed all four appeals, affirming the PCIT's orders to set aside the Assessing Officer's assessments and directing re-assessment after proper examination. The orders were pronounced in the Open Court on 11th October 2023.

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