2024 (6) TMI 1222 - AT - Income Tax

AO's proper enquiry validates Section 54 exemption claim against CIT's invalid revision under Section 263

ITAT Jaipur allowed the assessee's appeal against CIT's revision order u/s 263 regarding Long Term Capital Gain exemption u/s 54. The tribunal held that ... Revision u/s 263 - as per CIT AO did not make proper enquiries in respect of Long Term Capital Gain Exemptions u/s 54 - HELD THAT:- AO had not only examined the deduction u/s. 54 of the Act, but also blamed the assessee that the claim made by the assessee u/s. 54 of the Act amounted to wrongful and malafide claim. The blame so made was explained by the assessee, and consequently, the claim of the assessee was allowed by ld. AO. Thus, having raised the issue of deduction u/s. 54, collected the related information and after applying the mind on the information so collected, the claim was allowed. We also take note that the case of the assessee was re-opened for verification of source of investment in property for an amount. Said issue was examined and subsequently the ld. AO having noticed that the assessee had claimed deduction u/s. 54 of the Act, he called for information while exercising powers u/s. 133(6) of the Act. All the details related to claim were examined as is evident from the findings recorded in the body of the assessment order. We may note here that ld. CIT evidently did not place on record any apparent error on the part of the AO to substantiate that order passed by ld. AO is prejudicial to the interest of revenue. He only mentioned that a detailed investigation was required to be conducted in order to verify the claim of the assessee for which related details had already been called for and examined. CIT has not pinpointed as to on which aspect enquiry required to be made was not made by the ld. AO. He commented about the eligible amount of the claim which was allowed and considered, based on the information collected. Thus, no further defect was found from the record collected by the AO. Since, in this case, ld. AO has clearly incorporated the extract of enquiry conducted in the body of the assessment order and revenue did not pinpoint any error on the part of the Assessing Officer the order passed after due application of mind could not be subjected to proceeding u/s. 263 of the Act. In our considered view, A.O while framing the assessment had taken a possible view, and revenue did not demonstrate any error on the part of the AO. In fact, when the ld. AO had conducted the required enquiry and none of the conditions mentioned for revision of order as required by Explanation 2(a) of Section 263 of the Act has been fulfilled, the order passed by the AO could not be deemed to be erroneous so as to be prejudicial to the interests of the revenue - Appeal filed by the assessee is allowed. Issues Involved:1. Validity of the order under Section 263 of the Income Tax Act.2. Examination of Long Term Capital Gain (LTCG) exemption under Section 54.3. Proper inquiry and verification by the Assessing Officer (AO).4. Jurisdiction and scope of the Commissioner of Income Tax (CIT) under Section 263.Detailed Analysis:1. Validity of the Order under Section 263 of the Income Tax Act:The assessee challenged the order of the CIT (IT)-Delhi-1, arguing that the order under Section 263 was 'bad in law and on facts of the case' and should be quashed. The CIT invoked Section 263, claiming the AO did not make proper inquiries regarding the LTCG exemption under Section 54. The Tribunal noted that the CIT must demonstrate that the AO's order was both erroneous and prejudicial to the interests of the revenue. The Tribunal found that the AO had conducted sufficient inquiries and verifications, and the CIT's invocation of Section 263 was not justified merely because the CIT disagreed with the AO's conclusions.2. Examination of Long Term Capital Gain (LTCG) Exemption under Section 54:The AO examined the assessee's claim for LTCG exemption under Section 54, which was initially based on the purchase of a flat from M/s. Sana Land Developers Pvt. Ltd. The flat booking was later canceled, and the money was returned. The assessee then purchased another flat from M/s. Nyati Builders Pvt. Ltd. The CIT argued that the purchase did not meet the conditions of Section 54, as it was made after two years from the date of sale. However, the Tribunal found that the AO had considered the relevant facts and allowed the exemption based on the evidence provided by the assessee, including the reinvestment in another property.3. Proper Inquiry and Verification by the Assessing Officer (AO):The Tribunal emphasized that the AO had issued multiple notices and collected information under Section 133(6) to verify the assessee's claims. The AO had raised specific queries regarding the LTCG exemption and the source of investment. The assessee responded to these queries, and the AO accepted the explanations. The Tribunal concluded that the AO had conducted a thorough inquiry and verification, and the CIT's assertion of inadequate inquiry was unfounded.4. Jurisdiction and Scope of the Commissioner of Income Tax (CIT) under Section 263:The Tribunal noted that the CIT's jurisdiction under Section 263 is limited to cases where the AO's order is both erroneous and prejudicial to the interests of the revenue. The Tribunal found that the AO had adopted one of the possible views permissible under the law, and the CIT could not substitute his judgment for that of the AO. The Tribunal also highlighted that the CIT did not provide any objective material to demonstrate that the AO's order was erroneous or prejudicial to the revenue. Therefore, the CIT's order under Section 263 was quashed, and the AO's original assessment order was restored.Conclusion:The Tribunal allowed the appeal filed by the assessee, setting aside the CIT's order under Section 263 and restoring the AO's assessment order. The Tribunal held that the AO had conducted a proper inquiry, and the CIT's invocation of Section 263 was not justified. The decision underscores the importance of demonstrating both error and prejudice to the revenue when invoking Section 263 and affirms the AO's discretion in making assessments based on available evidence and permissible views under the law.