Case Law Details
Deepak Kr. Singh Vs PCIT (ITAT Kolkata, Patna Bench)
Facts- The assessee is an individual deriving income from salary, dividend and other sources. The assessee filed e-return of income on 22.07.2016 for the AY 2016-17 declaring Income of Rs.1,04,94,280/-. The case selected for complete scrutiny under Computer Assisted Section of Cases for Scrutiny (in short ‘CASS’) to verify (a) whether the claim of exempt income is correct; (b) whether deduction from capital gain has been claimed correctly. Notices were duly served upon the assessee under section 143(2) and 142(1) of the Act and the replies were submitted by the assessee on various dates as appearing in the assessment order. Ld. Assessing Officer completed the assessment accepting the returned income. Subsequently ld. Principal CIT on examination of the assessment records noticed that the assessee claimed deduction under section 54F of the Act at Rs.15,72,23,601/- for the investment made in the residential houses. This deduction was claimed against the capital gain earned by the assessee from the sale of unquoted equity shares of Cachet Pharmaceuticals Pvt. Limited and Indchemie Health Specialities Pvt. Ltd. Ld. PCIT observed that the said deduction under section 54F of the Act has been claimed for purchase of four residential house properties. He was not convinced with the examination and investigation carried out by the ld. Assessing Officer and in order to carry out the proceedings under section 263 of the Act issued following show-cause notice dated 08.02.2019.
During the course of appellate proceedings under section 263 of the Act, the assessee vide reply dated 01.05.2019 stated that detailed enquiry was made by the ld. Assessing Officer and the assessment order cannot be termed as erroneous as well as prejudicial to the interest of the revenue on the ground that proper verification on the issues raised in the notice under reference was not made. Further referring to the various judicial decisions and judgments, it was stated by the assessee that it is settled principle that powers under section 263 of the Act cannot be exercised on the ground that the assessment order is cryptic and/or not a speaking order.
PCIT after considering the contentions of the assessee, various replies filed during the course of revisionary proceedings, came to a conclusion that out of the deduction u/s. 54F of the Act of Rs.15,72,23,601 the assessee is eligible for deduction for the two flats adjacent to each other in one floor for which the purchase consideration was paid at Rs.9,36,98,841/-. Ld. PCIT was also satisfied with the sale consideration from sale of unquoted equity shares. However, ld. PCIT was of the view that for the purchase of two flats in other tower, the AO erred in granting the deduction under section 54 of the Act. Accordingly the assessment order framed under section 143(3) dated13.12.2018 was set aside with a direction to the Assessing Officer to re-compute the deduction under section 54F of the Act. Aggrieved the assessee is now in appeal before this Tribunal.
Conclusion- We are of the view that since the issue raised in the show-cause notice has already been examined by the ld. Assessing Officer in detail by conducting adequate enquiry calling for material evidence and other documents supporting the claim of deduction under section 54F of the Act, proper application of mind and taken a plausible view in light of the settled judicial precedence as referred by the ld. counsel for the assessee, there remains no scope for the ld. PCIT to invoke the jurisdiction under section 263 of the Act. We, therefore, quash the impugned proceedings carried out under section 263 of the Act and hold that assessment order under section 143(3) of the Act dated 13.12.2018 is neither erroneous nor prejudicial to the revenue and thus deserves to be restored. Thus the grounds of appeal filed by the assessee are allowed.
FULL TEXT OF THE ORDER OF ITAT PATNA
This appeal filed by the assessee is directed against the order of ld. Principal Commissioner of Income Tax, Patna-1 dated 27.03.2021 for the assessment year 2016-17 passed under section 263 of the Income Tax Act, 1961.
2. The assessee has raised the following grounds of appeals:-
“(1) For that ld. Pr. CIT has erred in initiating the proceeding under section 263 of the Income Tax Act without existence of the condition precedent for such initiation.
(2) For that the Ld. Pr.CIT has traveled beyond the allegations contained in the notice under section 263 while passing the impugned order and thus has exceeded the jurisdiction by not limiting to the allegation in the show cause notice.
(3) For that the Ld. Pr. CIT has erred in holding that the AO has conducted partial enquiry despite the categorical finding that the AO has called for details in respect of all the four flats on which deduction u/s 54F was claimed.
(4) For that the Ld. Pr.CIT has erred in invoking powers under section 263 and held the assessment order to be erroneous in so far as prejudicial without pointing out which of the two phraseologies used in section 263 is applicable to the Appellant’s case.
(5) For that the Ld. Pr. CIT has erred in invoking jurisdiction u/s 263 of the Income Tax Act, 1961 in respect of deduction u/s 54F on two flats bearing nos. A-3301 and C-4404 even though the view taken by the Assessing Officer in allowing deduction u/s 54F is one of the possible views.
(6) For that the Ld. Pr.CIT has erred in holding that the order passed by the Assessing Officer u/s 143(3) dated 13.12.2018 is erroneous and prejudicial to the interest of revenue within the meaning of section 263 in so far as claim of deduction u/s 54F in respect of two flats bearing no.A-3301 and C-4404.
(7) For that the Ld. Pr.CIT has erred in holding that the assessee has failed to explain the claim of deduction u/s 54F in respect of two flats bearing No.A-3301 and C-4404.
(8) For that the Ld. Pr.CIT has erred in not considering the replies dated 01.05.2019, 07.01.2020, 13.01.2021, 24.01.2021& 25.03.2021 submitted in course of assessment proceeding under section 263 which clearly establishes that the A.O. has made necessary verification examination and on due application of mind has allowed deduction 54F on all the four flats.
(9) For that the Ld. Pr. CIT has erred in not following the judgment of jurisdictional High Court in the case of CIT Vs Mukul Kumar reported in 2009(4) P.L.J.R. 417 wherein it has been held that the Commissioner cannot invoke the jurisdiction under section 263 in cases where reasonable enquiry has been undertaken by the Assessing Officer by calling explanation from the assessee.
(10) For that the Ld. Pr.CIT has erred in ignoring the judgments relied upon by the appellant in its replies during proceedings u/s 263 justifying the claim of deduction u/s 54F on all four flats situated in the same location / address.
(11) For that the Ld. Pr.CIT has erred in setting aside the assessment order dated 13.12.2018 with a direction to the A.O. to re-compute deduction u/s 54F in respect of two flats bearing Nos.A-3301 and C-4404 without pointing out as to how the deduction u/s 54F allowed by the Assessing Officer on these two flats is erroneous and has prejudiced the interest of revenue.
(12) For that the setting aside of the order by the Ld. Pr. CIT on the ground that assessee has failed to explain the claim of deduction u/s 54F in respect of the two flats bearing nos.A-3301 and C-4404 is contrary to the materials/evidence already on assessment records as well as the records of proceeding u/s 263.
(13) For that the Ld. Pr.CIT through inadvertence has directed allowance of deduction u/s 54F in respect of the adjoining flats bearing nos.B-4305 & B-4306 at Rs.9,64,67,332/- as against the cost of acquisition of the two flats at Rs.9,76,14,133/- and hence a petition u/s 154 has been filed on 31.03.2021 for rectification of the mistake.
(14) For that whole order is bad in fact and the law of the case and is fit to be quashed.
(15) For that other grounds, if any, shall be urged at the time of hearing of the appeal.
3. Brief facts of the case are that the assessee is an individual deriving income from salary, dividend and other sources. The assessee filed e-return of income on 22.07.2016 for the assessment year 2016-17 declaring Income of Rs.1,04,94,280/-. The case selected for complete scrutiny under Computer Assisted Section of Cases for Scrutiny (in short ‘CASS’) to verify (a) whether the claim of exempt income is correct; (b) whether deduction from capital gain has been claimed correctly. Notices were duly served upon the assessee under section 143(2) and 142(1) of the Act and the replies were submitted by the assessee on various dates as appearing in the assessment order. Ld. Assessing Officer completed the assessment accepting the returned income. Subsequently ld. Principal CIT on examination of the assessment records noticed that the assessee claimed deduction under section 54F of the Act at Rs.15,72,23,601/- for the investment made in the residential houses. This deduction was claimed against the capital gain earned by the assessee from the sale of unquoted equity shares of Cachet Pharmaceuticals Pvt. Limited and Indchemie Health Specialities Pvt. Ltd. Ld. PCIT observed that the said deduction under section 54F of the Act has been claimed for purchase of four residential house properties. He was not convinced with the examination and investigation carried out by the ld. Assessing Officer and in order to carry out the proceedings under section 263 of the Act issued following show-cause notice dated 08.02.2019:-
“GOVERNMENT OF INDIA
OFFICE OF THE PR. COMMISSIONER OF INCOME-TAX- 2,
2ND FLOOR, CENTRAL REVENUE BUILDING, BIRCHAND PATEL MARG, PATNA.
F.No. Pr. ClT-2/Pat/Tech./’U/s 263/2018-19/6045
Dated, Patna the 08th February, 2019
To
Shri Deepak Kumar Singh,
SBI Building, Arya Kumar Road,
Near Dinkar Golamber,
Rajendra Nagar,
Patna- 800016
Sub: Notice u/s 263 of the Income Tax Act, 1961 in case of Shri Deepak Kumar Singh, SBI Building, Arya Kumar Road. Near Dinkar Golamber, Rajendra Nagar,Patna- 800016, PAN: AFYPS6223E for A. Y. 2016-17 – regarding.
Ref : Order u/s 143(3) of the Income Tax Act, 1961 passed by the ACIT, Circle-4, Patna on 13.12.2018.
Please refer to the above.
(1) The return of income for A. Y. 2016-17 was filed on 22.07.2016 declaring total income of Rs. 1,04,94,280/-. An order of assessment under section 143(3) of the Income Tax Act, 1961 was passed on 13.12.2018 on total income of Rs. 1,04,94,280/-. The case was selected for Complete Scrutiny through CASS on basis of (i) Whether the claim of exempt income is correct and (ii) Whether deduction from capital gain has beer, claimed correctly.
(2) From perusal of the case records, it is observed that you have claimed deduction of Rs. 15,72,23,601/- u/s 54F of the Income Tax Act. However, it has been found that 4 house properties amounting to Rs. 19,01,66,173/- has been purchased by you. The statement u/s 26QB available in the system also shows the assessee has purchased four residential properties.
Section 54F(1) of the Income Tax Act, 1961 clearly states that deduction is available on purchase of the 1(one) residential house in India. Proviso (a)(iii) to section 54F(1) clearly states that if the assessee had purchased more than one house property within a period of three years the benefit of deduction u/s 54 F would not be available. You have purchased four residential properties in three different towers [Tower-A, Tower-B, Tower-C], Therefore, you become ineligible for deduction u/s 54F. However, the A. O. failed to examine in to the matter and passed the assessment order without proper verification of the facts.
(3) From perusal of the case records, it is also observed that in respect of long term capital gain of Rs. 15,72,23,601/- the A. O. has not done proper verification applicability of Rule 11UA of the I. T. Rule, 1962 and Section 56 of the I. T. Act, 1961. Thus, it is found that the A.O. failed to verify such issue while passing the assessment order u/s143(3) of the IT Act1961.
(4) In view of the above discussion, the order under section 143(3) dated 13.12.2018 for A. Y. 2016-17 is considered to be erroneous in this respect and to that extent prejudicial to the interest of revenue.
(5) In view of the above, an opportunity of being heard under section 263 of the Income Tax Act, 1961 is being provided to you to show cause as to why action under section 263 should not be taken in respect of order under section 143(3) of Income Tax Act, 1961 dated 13.12.2018 for A. Yr. 2016-17 by the ACIT, Circle-4, Patna. You or your Authorized Representative may attend my Office on 26.02.2019 at 3:30 P.M. with necessary records/evidences and make written submission, if any, in regard to issues discussed above.
(Kaushal Kumar Srivastava ) 08/02/2019
Pr. Commissioner of Income-Tax-2, Patna.”
4. During the course of appellate proceedings under section 263 of the Act, the assessee vide reply dated 01.05.2019 stated that detailed enquiry was made by the ld. Assessing Officer and the assessment order cannot be termed as erroneous as well as prejudicial to the interest of the revenue on the ground that proper verification on the issues raised in the notice under reference was not made. Further referring to the various judicial decisions and judgments, it was stated by the assessee that it is settled principle that powers under section 263 of the Act cannot be exercised on the ground that the assessment order is cryptic and/or not a speaking order. Again on 07.01.2020, a reply was furnished by the assessee before the ld. PCIT stating that the fair market value of unquoted equity shares is duly supported by certificate from the Chartered Accountant ,who was certified the fair market value on the basis of discounted cash flow method, which is method recognized under Rule 11UA of the Income Tax Rules and it was also submitted that complete details were filed before the ld. Assessing Officer, who after being satisfied accepted the sale consideration received by the assessee. Further on 24.03.2021, submission was made by the assessee stating that the Assessing Officer has raised reasonable queries by calling for explanations with regard to the allowance of deduction under section 54F of the Act and after being satisfied with the explanation, the Assessing Officer allowed the deduction. It was also submitted by the assessee that ld. PCIT has no jurisdiction to invoke section 263 on the ground that AO has failed to examine the matter. Thus the whole foundation on the ground that Assessing Officer has failed to examine the matter, is contrary to the records and not sustainable in the eyes of law. Further during the course of proceedings under section 263, submission was made by the assessee on 25.03.2021 enclosing the Floor Plan of the flats bearing Identification Nos. B-4305 and B-4306. It was stated that the assessee wanted to purchase four flats adjacent to each other at one floor/ in one tower, but even after trying hard, the assessee was able to purchase two flats on the same floor and other two flats in two different towers but in the same campus of the housing project. It was also stated that all the flats are being used for residential purposes by the assessee and his family and for no other purposes.
5. Ld. PCIT after considering the contentions of the assessee, various replies filed during the course of revisionary proceedings, came to a conclusion that out of the deduction under section 54F of the Act of Rs.15,72,23,601 the assessee is eligible for deduction for the two flats adjacent to each other in one floor for which the purchase consideration was paid at Rs.9,36,98,841/-. Ld. PCIT was also satisfied with the sale consideration from sale of unquoted equity shares. However, ld. PCIT was of the view that for the purchase of two flats in other tower, the Assessing Officer erred in granting the deduction under section 54 of the Act. Accordingly the assessment order framed under section 143(3) dated13.12.2018 was set aside with a direction to the Assessing Officer to re-compute the deduction under section 54F of the Act. The relevant portion of the observation and finding of the ld. PCIT are as below:-
“5. The contention of the assessee has been examined with reference to the materials on record. From the perusal of record, it is observed that the case was selected for scrutiny for examination of following issues:
(I) Claim of large exempt income (Schedule El of ITR). Whether the claim of exempt income is correct.
(II) Large deduction claimed u/s 54B, 54C, 54D, 54G, 54GA (Schedule CG of ITR). Whether deduction from capital gains has been claimed correctly.
During the course of proceedings u/s. 263 of the IT Act, 1961, the assessee contended that the verification of applicability of Rule 11UA of the IT Rules, 1962 and Section 56 of the IT Act, 1961 was not the part of reason for selection of case under scrutiny. Therefore, the AO was not mandated for examining the applicability of Rule 11UA of the IT Rules, 1962. Regardless the above facts, the assessee contended that copy of valuation reports of Chartered Accountants justifying the valuation of shares by adopting of DCF method was furnished during the course of assessment proceedings which was examined by the Assessing Officer and no adverse inference was drawn by him. The contention of the assessee has been examined with reference to materials available on record. There found no reasons and materials to negate the submission of the assessee.
Regarding excess claim of deduction u/s 54F of the I.T. Act, 1961, it is observed that during the course of assessment proceeding the AO called for the details, documents etc. for the purchase of two adjoining flats purchased on 11-04- 2015, bearing number B4305 and B-4306 (Tower-B) at Oberoi Exquisite, Goregaon for an aggregate investment of Rs. 96467332/- for using the same as single residential house for assessee and considered the investment as eligible for claim of deduction u/s 54F of the I.T. Act, 1961. Further the AO has also called for details of two more flats No. 3301 (Tower A) and Flat No. 4404 (Tower C) both located differently at Oberoi Exquisite, Goregaon purchased on 08.01.2016 and 06.04.2016 for a consideration of Rs. 45109659/- and Rs. 48589182/- respectively. The aggregate investment of these flats come to Rs. 93698841/- which was also considered for deduction u/s 54F of the IT Act, 1961. In response to the show cause notices, assessee explained that flats purchased on 11-042015, bearing number B- 4305 and B-4306 (Tower-B) at Oberoi Exquisite, Goregaon were having common wall was converted into one single residential unit for use of assessee. In support of the same assessee filed copies of photos, AADFIAR CARD COPY, SBI Bank Account copies etc of assessee showing that both these flats as a single residential unit. With regard to the claim of exemption u/s.54F of the IT Act, 1961 allowed by the AO, on the flat A-3301 purchased on 11-04-2015 and C-4404 purchased on 06-04-2016, the assessee failed to explain. The assessee is eligible for deduction of Rs. 96467332/- only u/s.54F IT Act, 1961, instead of Rs. 157223601/- allowed by the AO. In view of the above fact, the order passed u/s 143(3) of the I.T. Act, 1961 dated 13.12.2018 for A.Y. 2016-17 is found to be erroneous in as much as prejudicial to the interest of revenue.
6. Considering the various decisions relied upon by the assessee, the facts on record, the partial enquiries made by the AO, the above referred reasons and the facts on record, I deem it fit to set-aside the assessment order u/s 143(3) of the IT Act, 1961 dated 13.12.2018 for A.Y. 2016-17 with a direction to the AO to recompute the deduction u/s 54F of the IT Act, 1961 on the basis of findings given above and finalize assessment in accordance with provision of law”.
6. Aggrieved the assessee is now in appeal before this Tribunal.
7. counsel for the assessee while referring to the written submission placed at pages 1 to 14 of the paper book, copies of decisions relied placed at pages 15 to 49 of the paper book dated 06.03.2022 and also paper book dated 05.04.2022 containing 14 pages which constitutes the various replies filed by the assessee to the queries raised and the notice issued under section 142(1) of the Act. Ld. counsel for the assessee further submitted that the Assessing Officer raised various queries relating to claim of deduction under section 54F of the Act and the assessee had filed complete details with documents evidencing the purchase of flats as the case was selected for scrutiny for one of the reasons about the correctness of deduction under section 54F of the Act. Ld. counsel for the assessee also submitted that even the ld. PCIT has himself referred in the impugned order that the Assessing Officer has conducted enquiry and examined the matter. It was stated that as the Assessing Officer has examined the matter and applied his mind, the ld. PCIT erred in initiating the proceedings under section 263 of the Act. For this proposition, reliance was placed on the following decisions:-
(1) 171 ITR 698 (All.) – Commissioner of Income-tax vs. Goyal Private Family Specific Trust (At page 701 & 702) -cryptic and non-speaking order cannot be branded as erroneous and prejudicial to the interest of revenue.
(2) 203 ITR 108 (Bom) – Commissioner of Income-tax vs. Gabriel India Limited (At page Ml) – AO made enquiries, assessee had given detailed explanation which are part of the record. Such decision cannot be held to be erroneous because he did not make an elaborate discussion in that regard.
(3) (2012) 341 ITR 537 (Delhi) CIT V. Vikash polymers – query raised and answered to the satisfaction of AO, no interference called for in proceedings u/s 263.
(4) (2013) 354 ITR 35 (AP) – Spectra Shares Scrips Pvt. Ltd. Vs Commissioner of Income-tax — The AO did not make an elaborate discussion – no revision permissible.
(5) (2015) 372 ITR 310(A11)- CIT V. Krishna Capbox (P) Ltd. – Enquiry made by AO but the Commissioner did not agree with the reply and accordingly observed that AO has accepted the version of the assessee without making any enquiry or verification.
(6) (2004) 270 ITR page 157 (MP) [at page 159] – CIT Vs Mehrotra Brothers – Revision on vague grounds that AO did not made proper enquiry is not valid.
(7) (2005) 276 ITR 13 (MP) [at page 18 & 19] – CIT Vs Mohd. Ishaq Mohd. Gulam – Roving enquiry cannot be permitted and there should be a finality of assessment in the interest of justice [(2001) 243 ITR 83 (SC) – Malabar judgment] – for further investigation and enquiry no assessment order becomes erroneous and prejudicial to the interest of revenue.
(8) (1983) 142 ITR 778 (Patna) – CIT Vs Shantilal Agarwalla – The Commissioner has to judge the circumstances in an objective manner and subjective satisfaction is not the requirement of Section 263.
(9) 2009(4) PLJR 417 – Commissioner of Income-tax Vs. Mukul Kumar – The AO has undertaken and held reasonable enquiry by calling from explanation from the assessee and in view of such findings the tribunal interfered with the order of Commissioner who had erroneously come to a finding that no enquiry was held by AO (copy enclosed at page \~S~-V7 of PB).
(10) 203 ITR 108 (Bom) – Commissioner of Income-tax vs. Gabriel India Limited (At page 114 & 115) – The order cannot be done to be erroneous simply because Commissioner does not being satisfied with the conclusion (copy enclosed at page of PB).
[page-6 to 13 of order of CIT]
(11). (2020) 181 ITD 238 (ITAT, Ahmedabad) – Mohammadanif Sullanali Pradhan Vs DCIT, Circle-6(1) – on 54F – It is not the case of revenue / Assessee that both the properties purchased by the assessee were located in different graphical area. In such a situation the law amended u/s 54F of the Act appears to be applicable where the assessee buys two properties in two different areas. Moreover, the principles laid down by the courts cannot be just brushed aside on the aspect of defining the one residential unit, (copy enclosed at page of PB)
[page-26 & 27 of order of CIT]
(12) (2009) 180 Taxmann 4 (Kar.) – CIT Vs Shri D. Ananda Basappa – on 54F – the phrase ‘a’ residential house would mean one residential house and it does not appear to be correct understanding. The expression ‘a’ residential house should be understood in a sense that building should be of residential in nature and ‘a’ should not be understood to indicate singular number, (copy enclosed at page 32-33 of PB)
[page-27 & 28 of order of CIT]
(13) (2017) 394 ITR 666 (Madras) – CIT Vs Gumanmala Jain – on 54F – the submission of revenue that 15 flats are located in different blocks and hence would disentitle the assessee benefit u/s 54F is untenable as all the flats are in the same location/address and all flats are by-products of one development agreement with the same builder (copy enclosed at page 34-44 of PB)
[PAGE 28 of order of CIT]
8. On merits of the case, for the correctness and genuineness of the fact, it was submitted that while passing the assessment order dated 13/12/2018, the Assessing Officer has considered the rationale behind insertion of Section 54F which admittedly is incentive for investment in residential house. It is already on record that the family of the appellant consists of himself, his wife, one son and one daughter. The Assessing Officer after considering the fact that the investment made in purchase of flats is for own residential requirement considering the size of the family and is not for the purposes of future investment has granted the deduction u/s 54F as he was satisfied that it is a case of purchase of one residential house as required u/s 54F(1) and the exemption so claimed is not hit by the proviso. Ld. Counsel for the assessee also stated that the ld. A.O. allowing the deduction has considered the settled proposition of law which stood explained in series of judgments while examining the eligibility of deduction u/s 54F of the Income Tax Act which uses the phraseology “a residential house” before amendment and thereafter “one residential house” after amendment by Finance (No.2) Act, 2014 w.e.f. 01/04/2015. The view taken by the A.O. is one of the possible view and has been endorsed by order of ITAT and Judgments of the Hon’ble Courts. In this regard, reliance is placed on the order of the Hon’ble Tribunal, Ahmedabad Bench in the case of Mohammadanif Sultanali Pradhan Vs DCIT, Circle 6(1) reported in (2020)181 ITD 238 (copy at page 25 to 31 of PB) wherein under similar circumstances claim of deduction u/s 54F, after the amendment by Finance (No.2) Act, 2014 w.e.f. 01/04/2015, has been allowed. The facts noticed by the Hon’ble Tribunal in the said case are:
“The assessment year involved in the aforesaid case is AY 2015-16. The assessee has purchased two bungalows adjacent to each other in the same Society and has treated both the bungalows as one unit for residential purposes and claimed deduction u/s 54F. The Assessing Officer and the Ld. CIT(A) after considering the amendment effective from A.Y. 2015-16, by which the expression previously used “a residential house” has been substituted with “one residential house” has disallowed the deduction so claimed. On further appeal the Hon’ble Tribunal (Ahmedabad Bench) has allowed deduction u/s 54F in respect of both the bungalow which are adjacent to each other and situated in the same society”.
9. It was also submitted that the Judgments of Hon’ble High Court of Karnataka in the case of CIT Vs. Shri D. Ananda Basappa reported in 180 Taxman 4 wherein the Hon’ble Court has held that “a” used in 54F should not be understood to indicate a singular number and the Hon’ble Madras High Court in the case of CIT Vs Gunmala Jain reported in (2017) 394 ITR 666 has clearly stated that deduction u/s 54F cannot be denied on the ground that all the fifteen flats are not in the same block, particularly in the light of admitted factual position that all the fifteen flats are located at the same address. It has further been held that once the flats are in the same location / address, the question of whether it is in the same block or in different blocks does not arise for consideration. The relevant portion is reproduced hereunder:
“To our mind, as long as all the flats are in the same address/location even if they are located in separate blocks or towers it does not alter the position. In the instant case, after all, all the flats are a product of one development agreement of the same piece of land being said land. Therefore, we make it abundantly clear that even if flats/apartments are in different blocks and \ different towers as long as they are in same address/location it does not disentitle the assessee from getting the benefit of section 54F of the Income-tax Act.
(v) Therefore, the sole and sheet anchor submission of counsel for the Revenue that the 15 flats in the instant case are located in the different blocks does not impress us. We are unable to persuade ourselves that this will disentitle the assessee from getting the benefit of section 54F as all the flats are in the same location/address and all flats are by-products of one development agreement with the same builder”.
Ld. Counsel for the assessee submitted that if the facts of the petitioner’s case is tested on the anvil of the aforesaid order/ Judgments it is clear that all the flats purchased by the petitioner are situated in one and the same campus, a fact which has not been disputed in the impugned notice u/s 263 dated 08/02/2019 and/or in the impugned order dated 27/03/2021 and is beyond dispute as would be evident from the sale deeds already on assessment record and the record of CIT which clearly mentions the campus “Oberoi Exquisite” in respect of all the flats. Thus, the aforesaid settled proposition of law is applicable on the facts of the petitioner’s case and there is no ambiguity in law in allowance of deduction u/s 54F by the Assessing Officer in the assessment order on the subject matter of interference by the CIT.
10. Ld. counsel for the assessee also heavily relied on the judgment of the Hon’ble Jurisdictional High Court in the case of CIT –vs.-Mukul Kumar (2009) 4PLJR 417. In support of the contention that where the material on record shows that enquiry was made by the Assessing Officer revisionary power cannot be exercised by the ld. PCIT/CIT on the finding that no enquiry was made by the Assessing Officer. Concluding the submission, it is stated that – In the circumstances, the reason assigned for initiation of proceeding in notice under Section 263 dated 08/02/2019 “However, the AO failed to examine in to the matter and passed the assessment order without proper verification of facts” and onsequently the reason assigned for interference in the impugned order “With regard to the claim of exemption u/s 54F of the I.T Act, 1961 allowed by the A.O, on the flat A-3301 purchased on 11/04/2015 and C-4404 purchased on 06/04/2016, the assessee failed to explain ” is wholly erroneous and not sustainable in the eyes of law beside it being in teeth of the verdict of the Jurisdictional High Court (quoted above). Further, the bare perusal of Sub-section (1) of Section 263 reveals that power of revision granted by Section 263 to the Learned Commissioner has four limbs. In first place, the Commissioner can call for and examine the record of any proceeding under this Act and for calling for the record and its examination, the Commissioner is not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second limb would come on analysis of record or of the order passed by the Assessing Officer where he has to form an opinion that such order is erroneous in so far as it is prejudicial to the interests of revenue. At these two stages i.e. calling for and examining the record and formation of opinion, the Commissioner is not required to take assistance of the assessee. Thereafter, the third stage would come where the Commissioner would issue a show cause notice pointing out the reasons or formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee is to be given. In the last limb, the Commissioner has to conduct an enquiry as he may deem fit and after hearing the assessee he will pass an order enhancing the assessed income and/or modifying the order he may set aside the assessment order and direct the Assessing Officer to pass order afresh. [Order of ‘D’ Bench of Ahmedabad ITAT in the case of M/s ITT Corporation Pvt. Ltd. vs. PCIT-1, Vadodara dated 28/01/2021].
11. Counsel for the assessee also submitted that if the facts of the appellant’s case is tested on the anvil of the above said order of ITAT, Ahmedabad Bench, it is clear that the Commissioner has not exercised its power as required under the Act in so much so he has not called for the assessment record and/or if the assessment record has been requisitioned, the same has not been examined before formation of opinion as the assessment record clearly belies the findings in the impugned notice u/s 263 dated 08/02/2019, as to claim and allowance of deduction u/s 54F, which reads as under:
“However, the AO failed to examine in to the matter and passed the assessment order without proper verification of the facts
12. Further, after formation of opinion opportunity of hearing has to be provided to the assessee and thereafter the CIT has to conduct enquiry as he deem fit. In the present case, no enquiry seems to have been conducted vis-a-vis the material / evidences on assessment record which clearly indicates that the issue of claim of deduction u/s 54F was examined by the Assessing Officer in course of assessment proceedings by raising specific query and the claim was accepted on consideration of appellant’s reply and on being satisfied that it is a case of purchase of ‘one residential house’ and thus the reason assigned for interference in the impugned order viz. “with regard to the claim of exemption u/s 54F of the I.T. Act, 1961 allowed by the A.O., on the flat A- 3301 purchased on 11-04-2015 and C-4404 purchased on 06-04-2016, the assessee has failed to explain ” are (i) contrary to the ground on which proceedings u/s 263 was initiated; and (ii) contrary to the materials already available on assessment record clearly indicating due application of mind by the A.O. in allowance of deduction u/s 54F. It is trite law that all statutory actions must be performed only in the manner prescribed by law, and failure in that regards is fatal to the validity of those actions. Authority if any be required, may be had of the decision reported in (1999) 3 SCC 422 (SC) Babu Verghese & Others, Appellants Vs Bar Council of Kerala & Others, Respondents, in the following terms
“Para-31 – It is the basic principle of law long settled that if the manner of doing a particular act is prescribed under any statute, the act must be done in that manner or not at all. The origin of this rule is traceable to the decision in Taylor v. Taylor ((1875) 1 Ch D 426 : 45 LJ Ch 373) which was followed by Lord Roche in Nazir Ahmad V. King Emperor 2 who stated as under:
Where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all. ”
Para-32. This rule has since been approved by this Court in Rao Shiv Bahadur Singh V. State of V. P. (AIR 1954 SC 322 “ 1954 SCR 1098) and again in Deep Chand V. State of Rajasthan (AIR 1961 SC 1527 : (1962) 1 SCR 662). These cases were considered by a three Judge Bench of this Court in State of U.P. V. Singhara Singh (AIR 1964 SC 358 : (1964) 1 SCWR57) and the rule laid down in Nazir Ahmad case ((1936) 63 IA 372 : 1936 PC 253) was again upheld. This rule has since been applied to the exercise of jurisdiction by Courts and has also been recognized by a salutary principle of administrative law. ” I
13. Per contra, ld. D.R. vehemently supporting the detailed finding of the ld. PCIT again asserted that the ld. PCIT has already accepted part of the claim made by the assessee under section 54F of the Act and the assessee being not eligible for deduction for investment in purchase of residential flats located in other tower, the Assessing Officer erred in accepting the same and thus the order of the Assessing Officer has been rightly held as erroneous and prejudicial to the interest of the revenue by the ld. PCIT.
14. We have heard the rival submissions and perused the relevant material available on record. The assessee has challenged the action of the ld. PCIT invoking the power under section 263 of the Act and has also challenged the finding of the ld. PCIT setting aside the assessment order by giving the direction to allow the deduction under section 54F of the Act to the extent observed in the impugned order. We notice that during the relevant assessment year 2016-17, the assessee earned capital gain from sale of unquoted equity shares. The assessee claimed deduction under section 54F of the Act for investment in purchase of residential flats. The assessee purchased four residential flats in a residential building campus for his family consisting of self, wife, son and daughter.
As stated by the ld. counsel for the assessee that the assessee intended to buy four residential flats adjacent to each other, but even after trying hard he was able to locate two flats adjacent to each other and other two flats in another tower of the same residential building complex. The assessee made the investment for purchase of the four flats and claimed deduction under section 54F of the Act. The assessee’s case was selected for scrutiny and one of the reasons for selection was to examine the correctness of capital gain income offered in the income tax return. Details were called for and the same were supplied by the assessee from time to time through its authorized representative and the Assessing Officer accepted the claim after carrying out necessary verification. We further notice that the ld. PCIT on examination of the assessment records issued a show-cause notice under section 263 of the Act and called for various details during the revisionary proceedings and was finally satisfied with the correctness of the sale consideration of unquoted equity shares and claim of deduction under section 54F of the Act for the two flats adjacent to each other but was not satisfied with the claim of deduction for the remaining two flats and came to a conclusion that the Assessing Officer erred in allowing the deduction under section 54F of the Act at Rs.6,35,24,760/-.
15. Now the first issue which needs to be examined is that whether the Assessing Officer has conducted sufficient enquiry to examine the correctness of claim of deduction under section 54F of the Act. With the assistance of ld. representative, we have gone through the record. Section 263 has a direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:-
“263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
16. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263.
17. Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) has laid down following ratio with regard to provisions of section 263 of the Act:
“There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue – Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)”.[Emphasis Supplied]
18. Hon’ble Apex Court in the case of CIT vs. Max India Limited as reported in 295 ITR 0282 has held that:
“2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase “prejudicial to the interest of the Revenue” under s. 263 has to be read in conjunction with the expression “erroneous” order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law.”
19. Hon’ble Madhya Pradesh High court in the case of CIT vs. Associated Food Products (P) Ltd as reported in 280 ITR 0377 has held that:
10. In view of the aforesaid pronouncement of law and taking into consideration the language employed under s. 263 of the Act, it is clear as crystal that before exercise of powers two requisites are imperative to be present. In the absence of such foundation exercise of a suomoto power is impermissible. It should not be presumed that initiation of power under suomoto revision is merely an administrative act. It is an act of a quasi-judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the AO is erroneous as well as prejudicial to the interests of the Revenue. The concept of “prejudicial to the interests of the Revenue” has to be correctly and soundly understood. It precisely means an order which has not been passed in consonance with the principles of law which has in ultimate eventuate affected realization of lawful revenue either by the State has not been realized or it has gone beyond realization. These two basic ingredients have to be satisfied as sine qua non for exercise of such power. On a perusal of the material brought on record and the order passed by the CIT it is perceptible that the said authority has not kept in view the requirement of s. 263 of the Act inasmuch as the order does not reflect any kind of satisfaction. As is manifest the said authority has been governed by a singular factor that the order of the AO is wrong. That may be so but that is not enough. What was the sequitur or consequence of such order qua prejudicial to the interest of the Revenue should have been focused upon. That having not been done, in our considered opinion, exercise of jurisdiction under s. 263 of the Act is totally erroneous and cannot withstand scrutiny. Hence, the Tribunal has correctly unsettled and dislodged the order of the CIT. [Emphasis supplied]
20. In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and also prejudicial to the interest of the Revenue. By ‘erroneous’ is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the judgment of Hon’ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 taxmann.com 272 (Bombay).
21. This view is further supported by the decision of the Hon’ble Gujarat High Court in the case of Shri Prakash Bhagchand Khatri in Tax Appeal No. 177 with Tax Appeal No.178 of 2016, wherein the Hon’ble Gujarat High Court was seized with the following substantial question of law:-
“Whether the Tribunal is right in law and on facts in upholding the order passed by the CIT under section 263 of the Act on merits and still storing the issue of allowability of deduction under section 54 of the Act to the file of Assessing Officer even though the working of allowability of deduction under section 54F is available in the order under section 263 which is not disputed by the assessee before ITAT.”
22. We find that the Hon’ble Delhi High Court in the case of CIT vs. Anil Kumar reported in 335 ITR 83 has held that where it was discernible from record that the A.O has applied his mind to the issue in question, the ld. CIT cannot invoke section 263 of the Act merely because he has different opinion. Relevant observation of the High Court reads as under:
“63. We find the Hon’ble Delhi High Court in the case of Vikas Polymer reported in 341 ITR 537 has held as under:
“We are thus of the opinion that the provisions of s. 263 of the Act, when read as a composite whole make it incumbent upon the CIT before exercising revisional powers to: (i) call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause to be made such enquiry as he deems necessary. It is only on fulfillment of these twin conditions that the CIT may pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the CIT that the AO had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners who were I.T. assessees and the unsecured loan taken from M/s Stutee Chit & Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee.”
64. Since in the instant case the A.O. after considering the various submissions made by the assessee from time to time and has taken a possible view, therefore, merely because the DIT does not agree with the opinion of the A.O., he cannot invoke the provisions of section 263 to substitute his own opinion. It has further been held in several decisions that when the A.O. has made enquiry to his satisfaction and it is not a case of no enquiry and the DIT/CIT wants that the case could have been investigated/ probed in a particular manner, he cannot assume jurisdiction u/s 263 of the Act. In view of the above discussion, we hold that the assumption of jurisdiction by the DIT u/s 263 of the Act is not in accordance with law. We, therefore, quash the same and grounds raised by the assessee are allowed.”
23. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263:
“(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.”
24. Apart from above stated broader principles, one more principle needs to be added in view of the judgment of Hon’ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) that the ld. CIT has to examine and verify the issue himself and give a finding on merits and form an opinion on merits that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue. Relevant extract is reproduced below:
“In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that “order passed by the Assessing Officer may be erroneous”. The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent’s computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is “erroneous”. The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.”
25. In the light of the above settled judicial precedence, first we need to examine that whether the Assessing Officer conducted enquiry and made application of mind. We find that the notice dated 31.08.2018 was issued under section 142(1) of the Act to furnish the details of the acquisition of the new assets with supporting documents in order to examine the correctness of deduction under section 54F of the Act for investment of Rs.15,72,23,601/- made for purchase of residential house/flats. To this notice, the assessee filed reply on 15.09.2018 stating that the entire amount of capital gain from sale of unquoted equity shares has been invested for purchase of residential flats.
26. The Assessing Officer further issued a notice dated 01.11.2018 asking the assessee to furnish the deed of residential property purchased and reply was submitted on 10.03.2018. The assessing Officer further issued notice dated 16.11.2018 asking the assessee to submit documentary evidence in support of the claim of deduction under section 54F of Rs.15,72,23,601/-. It was also stated in the note that in absence of submission of any evidence on your part, it would be presumed that you have no explanation to offer and the matter will be decided ex-parte. Reply by the assessee filed on 19.11.2018 furnishing bank statement for the financial year 2015-16, details of shares sold, copy of purchase deed for the flats purchased during the year. Since the replies were filed online, it was stated by the assessee of facing technical difficulty to upload the complete purchase deeds on the ‘e-Portal’ being voluminous in nature. The assessee filed the cover page of each of the flat purchased bearing no. D-4305/4306 of Western Express Highway, Opposite Oberoy Woods, Goregaon East Mumbai-400063 and Flat No. 3301 in Tower A and Flat No. C-4404 in Tower C of the same residential building campus i.e. Oberoi Exquisite. On perusal of these details, Assessing Officer on being satisfied with the said investment in residential flat being eligible for deduction under section 54F of the Act and in light of the judicial precedence accepted the same and completed the assessment.
27. On perusal of the above and the details called for by the Assessing Officer and replies filed by the assessee, there remains no doubt that the ld. Assessing Officer has conducted detailed enquiry on the issue of deduction under section 54F of the Act and after applying his mind on the facts of the case and also settled judicial precedence accepted the claim. On going through the show-cause notice, we find that the ld. PCIT has alleged that with regard to the claim of deduction under section 54F of the Act, the ld. Assessing Officer failed to examine into the matter and passed the assessment order without proper verification of the facts. This observation that the Assessing Officer failed to examine the matter, in our view is devoid of any merit. Ld. PCIT should have appreciated that on multiple occasions, the Assessing Officer has issued notice to the assessee for furnishing the details and on each occasions replies have been filed by the assessee. Complete details of the documents of purchase of flats have been given. It is an undisputed fact that proper and detailed enquiry has been conducted by the Assessing Officer and when a reasonable enquiry has been conducted by the Assessing Officer (which even ld. PCIT has observed in the impugned order) and a permissible view has been taken by the ld. Assessing Officer, then there remains no scope for the ld. PCIT to invoke the jurisdiction under section 263 of the Act. It is also well settled that a permissible view taken by the ld. Assessing Officer may not be beneficial to revenue.
28. Similar issue came up before the Hon’ble Jurisdictional High Court in the case of CIT –vs.- Mukul Kumar (supra), wherein the following question of law was before the Hon’ble PATNA HIGH COURT ORDER:-
“whether on the facts and in the circumstances, of the case, the Income-tax Appellate Tribunal was justified in quashing the order of the Commissioner under Section 263 specially when the assessee has not maintained any account and there is no material on record to show that enquiry was made regarding the genuineness of expenditure incurred?
29. Hon’ble Court after examining the facts of the case confirmed the view taken by the Tribunal quashing the revisionary order under section 263 of the Act since the Assessing Officer undertook and carried out reasonable enquiry by calling for explanation from the assessee. Relevant extract of the judgment of the Hon’ble Jurisdictional High Court in the case of Mukul Kumar (supra) is reproduced below:-
“(3) The assessments in question are of the assessment years 1990-1991 of the assessee, Shri Mukul Kinar. On account of copyright of a grammar book gifted by the father of assessee in the year 1984 the assessee received a royalty income of Rs. 1,34,143/- and claimed expenses of Rs. 1,05,717/-. The assessing officer allowed the expenses to the extent of 50% of the royalty income and completed the assessment Under Section 143(3) of the Act.
(4) The Commissioner Income Tax (CIT), Patna in course of examination of assessments in the light of provisions of Section 263 of the Act noticed that royalty amount in the hands of the assessee was on account of gift of copyright of a book by the father of the assessee and hence, he came to a tentative conclusion that it was gift income and there could not be any question of claiming any deduction for expenditure in respect of gift income. Hence, show cause notice Under Section 263(1) of the Act was given to the assessee indicating that the CIT was of the view that royalty was a gift from the father of the assessee and not his income and hence, there was no question of allowance of any expenditure from receipt of a gift. The notice further mentioned that the assessment of gift after treating the same as income and allowance of expenditure by the Assessing officer at the rate of 50% of the gifted royalty amount had led to erroneous assessment which was prejudicial to the interest of revenue.
(5) On behalf of the assessee cause was shown and it was pointed out that gift by the father of the assessee was not of a particular royalty amount but was of the copyright of the book. It was ” further shown that in order to earn royalty income from such copyright, certain acts like revising the book, taking care of its popularity and marketing are required and hence in absence of books of account and vouchers only 50% of the royalty income was allowed as expenses after assessee had met the queries of the Assessing Officer and furnished the letter of the publisher, M/s Bharti Bhawan to show that the revision of book etc was responsibility of the person who had the original copyright.
(6) It appears that after considering the cause shown by the assessee the CIT did not give any finding that the royalty amount was in itself a gift and hence, no expenditure could have been allowed in respect of the royalty income. However, the CIT came to a finding that there was no enquiry by the Assessing Officer before allowing 50% of the royalty amount as expenditure and hence, he passed the order for making a reassessment after proper enquiry.
(7) The assessee preferred an appeal against the order of CIT before the Tribunal which has , been allowed by order dated 17.3.1987 out of which the reference and Tax case has arisen.
(8) The Tribunal on consideration of materials and letters considered by the Assessing Officer has came to the opinion that an enquiry had been held in respect of claim of the assessee and on facts the Tribunal was satisfied that there was no irregularity or illegality in the order of Assessing Officer on the ground made by the CIT that there was no enquiry before allowing the 50% of the income as expenditure.
(9) In the aforesaid facts and circumstances, this Court is required to answer the reference which is on the question of law already noticed above.
(10) On going through the statement of the case and other relevant materials this Court finds that the Income Tax Appellate Tribunal set aside the order of the Commissioner under section 263 of the Act on appreciation of a pure question of fact that the Assessing Officer had undertaken and held reasonable enquiry by calling for explanations from the assessee and in view of such finding it interfered with the order of Commissioner who had erroneously come to a finding that no enquiry was held by the Assessing officer. Thus, there being materials on record to show that enquiry was made regarding the expenditure claimed, this Court is of the view that the Income Tax Appellate Tribunal was justified in quashing the order of the Commissioner. The reference is answered accordingly”.
30. Respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court, other settled judicial precedence as referred above and under the given facts and circumstances of the case, we are of the view that since the issue raised in the show-cause notice has already been examined by the ld. Assessing Officer in detail by conducting adequate enquiry calling for material evidence and other documents supporting the claim of deduction under section 54F of the Act, proper application of mind and taken a plausible view in light of the settled judicial precedence as referred by the ld. counsel for the assessee, there remains no scope for the ld. PCIT to invoke the jurisdiction under section 263 of the Act. We, therefore, quash the impugned proceedings carried out under section 263 of the Act and hold that assessment order under section 143(3) of the Act dated 13.12.2018 is neither erroneous nor prejudicial to the revenue and thus deserves to be restored. Thus the grounds of appeal filed by the assessee are allowed.
31. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on May 17th, 2022.
Author Bio
