Pr.CIT cannot revise orders under section 263 unless erroneous and prejudicial to revenue regarding LTCG section 54F deduction

ITAT Delhi ruled on revision u/s 263 concerning LTCG deduction u/s 54F. The court held that Pr.CIT cannot exercise revisional powers merely because another view is possible; the order must be both erroneous and prejudicial to revenue. Regarding property division, ITAT found that two agreements for the same property with common kitchen and electricity bill constitute one residential unit eligible for s.54F deduction. However, the court rejected the claim that Rs. 25 lakh kept in Capital Gain Account Scheme for improvement costs qualifies for s.54F deduction, ruling such costs are deductible only upon future sale. Appeal was partly allowed.

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Issues Involved:
1. Jurisdiction assumed by the Pr.CIT under Section 263 of the Income Tax Act.
2. Directions given in the revisional order regarding the deduction claimed under Section 54F of the Act.

Summary:

Jurisdiction Assumed by Pr.CIT under Section 263:
The assessee challenged the jurisdiction assumed by the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act. The Pr.CIT reviewed the assessment records and found that the claims made towards deduction under Section 54F were not in accordance with the law. The Pr.CIT issued a show cause notice indicating that the assessment order was erroneous and prejudicial to the interest of revenue due to the failure of the Assessing Officer (AO) to verify the facts regarding the deduction claimed.

Directions Given in the Revisional Order:
The Pr.CIT observed that the assessee had sold a property and claimed deductions under Section 54F for investments made in two adjoining properties, which was contrary to the provisions of the Act. Additionally, the Pr.CIT noted that the assessee had deposited Rs. 25 lakhs in the Capital Gain Account Scheme for the improvement of the newly purchased property, which was not allowable under Section 54F. The Pr.CIT set aside the assessment order and directed the AO to redo the assessment after thorough inquiries.

Tribunal's Findings:
The Tribunal considered the rival submissions and perused the revisional and assessment orders. It was noted that for the Pr.CIT to exercise revisional jurisdiction under Section 263, the order must be both erroneous and prejudicial to the interests of the Revenue. The Tribunal found merit in the assessee's plea regarding the eligibility of deduction for two units under two different agreements, as the property was essentially one residential unit. The Pr.CIT failed to make minimal inquiries to ascertain the veracity of the concern and shifted the burden onto the AO and the assessee.

However, the Tribunal did not find merit in the assessee's plea regarding the Rs. 25 lakhs set apart for the cost of improvement, as such cost can only be treated as deductible at the time of the property's sale. The Tribunal modified the revisional order accordingly.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal setting aside the directions of the Pr.CIT regarding the two residential units but upholding the disallowance of the Rs. 25 lakhs claimed for the cost of improvement.

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