Prateek Madhan Vs PCIT (ITAT Delhi)
Delhi ITAT: PCIT Cannot Invoke Section 263 Merely Because He Prefers a Different View; ₹5.66 Crore Section 54 Claim & Cost of Removing Property Encumbrances Upheld
The Delhi ITAT quashed the PCIT’s revisionary order under section 263, holding that the assessment could not be branded erroneous for lack of enquiry when the AO had raised specific queries, obtained detailed replies and documentary evidence, and thereafter accepted the assessee’s position.
The assessee, a real-estate consultant, had sold a house for ₹14 crore. During reassessment, the AO specifically examined the cost of improvement and the assessee’s section 54 deduction of ₹5,66,40,885 and, after considering the documents furnished, accepted the returned income. The PCIT nevertheless invoked section 263 alleging inadequate enquiry on these issues.
Cost of removing encumbrances: The assessee had incurred expenditure towards getting the property vacated, settling disputes/damages and paying L&DO charges. The ITAT held that incidental expenditure incurred to make a property transferable with clean title, remove encumbrances and thereby enhance its market value can constitute cost of improvement. It relied, inter alia, on CIT v. Piroja C. Patel, CIT v. Abrar Alvi and CIT v. Bradford Trading Co. (P) Ltd. The AO’s acceptance was therefore a possible view which could not be disturbed u/s 263 merely on the allegation of inadequate enquiry.
Section 54 claim: The PCIT treated the new property as merely agricultural land. However, the agreement showed that the property comprised 12 bighas of land together with a tube well, electricity connection and approximately 28,000 sq. ft. of superstructure/constructed area. The Tribunal observed that the PCIT had overlooked this crucial fact.
The ITAT further held that for section 54, purchase/acquisition of the property is material; it is not necessary that the assessee should have become its registered owner. Relying on Delhi HC decisions in Balraj v. CIT and CIT v. R.L. Sood, it reiterated that acquiring substantial domain over the new residential property is sufficient compliance.
Importantly, the Tribunal held that where the PCIT alleges inadequate or lack of enquiry, he cannot simply remit the matter to the AO for a fresh investigation. He must himself undertake at least a minimal enquiry and establish how the assessment order is erroneous.
Since the AO had made relevant enquiries, considered substantive evidence and adopted a legally permissible view, a possibly different view of the PCIT could not justify revision under section 263. The assessee’s appeal was accordingly allowed and the section 263 order quashed.
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