2025 (3) TMI 1166 - AT - Income Tax

ITAT sets aside revision order on section 54 deduction and section 50C application citing double taxation and jurisdictional issues

ITAT Delhi set aside PCIT's revision order u/s 263 regarding deduction u/s 54 and application of section 50C. The tribunal held that AO had already ... Revision u/s 263 by CIT - PCIT observed that the deduction claimed u/s 54 was allowed by AO as the assessee has sold the land and has not invested the entire amount of sale consideration in the acquisition of the house property, only proportionate deduction should be allowed - PCIT further observed that assessee has declared the sale consideration on the basis of the agreement of sale/registered sale deed whereas the sale price as per provisions of section 50C being higher. Thus, the provisions of section 50C are to be invoked. This fact has not been examined by the AO Allowability of deduction claimed u/s 54 or 54F and determination of amount of deduction - HELD THAT:- We find that the AO himself while passing the order in compliance to the directions given in the order u/s 263 has allowed the deduction u/s 54 of the Act at Rs. 5,00,00,000/- as claimed by the assessee, and, therefore, their remained no question to hold to assessment order as erroneous and prejudicial to the interest of Revenue on this point. It is also seen from the effect order dated 21.03.2024 that the deduction claimed/s 54 of the Act at Rs. 5,00,00,000/- was offered for the tax after expiry of three years in AY 2021-22 when the assessee has failed to make investment as per law, therefore, if any further addition/disallowance is made in the year under appeal it would be double taxation. Thus, this issue does not service for consideration at this stage. Application of section 50C and re-computation of sale consideration - CBDT has issued instruction No.20/2015 wherein it is clearly stated that it is not open for AO to travel beyond the reason of limited scrutiny except in the event where the AO during his examination found certain facts which requires further investigation. In that case, the AO should take necessary approval from the higher authorities to convert the assessment from limited scrutiny to complete scrutiny and then can examine such other issues. Since, in the instant case, no such procedure was followed nor such satisfaction was recorded, therefore, it is not a case where the AO could examine the application of provision of section 50C which otherwise is beyond his jurisdiction. This view is supported by the decision of P&H High Court in the case of PCIT vs. Rakesh Kumar AO has no jurisdiction to examine the issue which is beyond his jurisdiction, therefore, there is no error in the assessment order of the AO for which the same could be held as erroneous and prejudicial to the interest of Revenue. Thus, the order passed u/s 263 is set aside. Accordingly, all the grounds of appeal of the assesse are allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961, was erroneous and prejudicial to the interest of the Revenue, justifying the invocation of section 263 by the Principal Commissioner of Income Tax (PCIT).2. Whether the AO was required to apply the provisions of section 50C regarding the sale consideration of property during a limited scrutiny assessment.3. Whether the deduction claimed under section 54 of the Act was correctly allowed by the AO, and if the PCIT had the jurisdiction to question this deduction under a limited scrutiny assessment.ISSUE-WISE DETAILED ANALYSIS1. Error and Prejudice to Revenue under Section 263The relevant legal framework involves section 263 of the Income Tax Act, which empowers the PCIT to revise an assessment order if it is erroneous and prejudicial to the interest of the Revenue. The Tribunal examined whether the conditions for invoking section 263 were met.The Court's interpretation emphasized that for section 263 to apply, the order must be both erroneous and prejudicial to the Revenue. The Tribunal found that the AO's order was not erroneous as it was in compliance with the limited scope of scrutiny.The key evidence included the AO's adherence to the limited scrutiny guidelines and the absence of any procedural lapse in examining the issues within the scope.The Tribunal concluded that the PCIT's order under section 263 was not justified as the AO's order was neither erroneous nor prejudicial to the Revenue.2. Application of Section 50CThe legal framework under section 50C pertains to the consideration of the sale price for property transactions, which should not be less than the value assessed by the stamp valuation authority.The Tribunal reasoned that the AO, during a limited scrutiny, was not required to apply section 50C unless it was within the scope of the scrutiny. The AO had completed the assessment based on the issues selected for limited scrutiny, which did not include section 50C.The Tribunal noted that the CBDT instructions clearly restrict the AO from expanding the scope of limited scrutiny without proper approval.The Tribunal concluded that the AO was not in error for not applying section 50C, as it was beyond the scope of the limited scrutiny, and the PCIT's invocation of section 263 on this ground was unjustified.3. Deduction under Section 54Section 54 of the Act allows for deduction on capital gains if the sale proceeds are reinvested in purchasing a residential property. The PCIT challenged the deduction allowed by the AO.The Tribunal observed that the AO had allowed the deduction under section 54 in compliance with the limited scrutiny scope and later confirmed in the compliance order to section 263.The Tribunal found that the deduction was correctly allowed, and the PCIT's challenge was unfounded as the issue was settled and did not warrant a revision under section 263.SIGNIFICANT HOLDINGSThe Tribunal held that the AO's order was not erroneous or prejudicial to the interest of the Revenue, thus invalidating the PCIT's order under section 263. The Tribunal emphasized that:'It is not open for the learned Assessing Officer to travel beyond the reason for selection of the matter for limited scrutiny.'The core principles established include adherence to the scope of limited scrutiny and the requirement for proper jurisdictional authority before expanding the scope.The final determination was that the appeal of the assessee was allowed, and the order passed under section 263 was set aside.