Smt. Lata Phulwani Vs PCIT (ITAT Jaipur)
The Jaipur bench of the Income Tax Appellate Tribunal (ITAT) has set aside an order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, in the case of Smt. Lata Phulwani. The ITAT held that the PCIT’s action of revising the assessment order was unsustainable as the Assessing Officer (AO) had conducted due inquiry on the issues under limited scrutiny and had adopted a permissible view regarding the deduction claimed under Section 54F.
The case originated from a limited scrutiny initiated for Assessment Year 2015-16, focusing on the purchase of property and the capital gains deduction claimed by Smt. Lata Phulwani. The deduction under Section 54F was claimed in relation to the purchase of agricultural land and the subsequent construction of a residential house on it. The AO, after receiving necessary details and documents from the assessee and conducting inquiries, accepted the returned income.
Subsequently, the PCIT issued a show cause notice under Section 263, questioning the allowability of the Section 54F deduction concerning the investment in agricultural land used for constructing the house. The PCIT’s primary contention was that the deduction was not admissible for investment in agricultural land. However, the ITAT noted that the limited scrutiny itself covered the investment in property and the capital gains deduction, which were interconnected as the Section 54F claim pertained to the purchased land and construction. The AO had issued a notice under Section 142(1) along with a questionnaire, and the assessee had duly responded, providing necessary evidence, including purchase documents for the land and a valuation report for the construction cost.
The ITAT observed that there was no allegation of a lack of inquiry by the AO in the show cause notice issued by the PCIT. The PCIT’s initiation of proceedings under Section 263 stemmed from a differing view on the legal interpretation of Section 54F regarding investment in agricultural land for residential construction. The Tribunal emphasized that when the AO has conducted an inquiry, even if not elaborately documented in the assessment order, and has taken a possible view, the PCIT cannot invoke Section 263 merely due to a disagreement with that view, unless the AO’s view is unsustainable in law.
The ITAT further pointed out that the PCIT, in the revision order, did not provide a conclusive finding that the AO’s order was erroneous. Instead, the PCIT remitted the matter back to the AO for a fresh assessment after considering all necessary facts related to the Section 54F claim and the indexed cost of construction/improvements. Citing the judgment of the Rajasthan High Court in CIT vs. Ganpat Ram Vishnoi (296 ITR 292), the ITAT reiterated that when an inquiry has been conducted and the AO has reached a conclusion, the PCIT’s jurisdiction under Section 263 is unsustainable if there is no basis to suggest the inquiry was not in accordance with the law.
The Tribunal also referred to the Delhi High Court’s decision in ITO vs. D.G. Housing Projects Ltd. (343 ITR 329), which highlighted that for an order to be considered erroneous and prejudicial to the revenue, the AO’s view must be unsustainable in law. A mere difference of opinion or the possibility of another view does not warrant the invocation of Section 263. The Supreme Court’s ruling in Malabar Industrial Co. Ltd. vs. CIT (243 ITR 83) was also cited, reinforcing that if the AO adopts one of the permissible courses of action, leading to a loss of revenue, or takes one of the possible views, it cannot be deemed an erroneous order prejudicial to revenue unless the view is legally unsustainable.
The ITAT also took cognizance of a recent decision by its Coordinate Bench in Shri Rajendra Kumar Sharma vs. JCIT (ITA No. 358/JP/2015), which held that the benefit of Section 54F cannot be denied solely on the ground that the land on which construction was done was agricultural in nature. This decision relied on various judicial precedents and a CBDT circular clarifying that the cost of the plot along with the cost of the building should be considered the cost of the new asset for exemption under Sections 54 and 54F, provided the acquisition and construction are completed within the specified period.
Based on the facts, the absence of any allegation of lack of inquiry in the show cause notice, the AO’s conduct of inquiry within the limited scrutiny parameters, and the debatable nature of the allowability of Section 54F deduction on agricultural land used for residential construction (with a possible view taken by the AO), the ITAT concluded that the PCIT’s order under Section 263 was not sustainable. The Tribunal allowed the assessee’s appeal, setting aside the PCIT’s order.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
