Facts of the Case
A search and seizure operation u/s 132 of the I.T. Act 1961 was carried out During the course of search, certain documents were found and seized relating to the assessee. Accordingly notice u/s 153C was issued. Assessee executed the development agreement for developing a piece of land for which there was no endorsement of registration authorities on the reverse of the Development Agreement cum GPA which indicate that the agreement was not registered in the absence of which the compliance of section 50C of IT Act is not verifiable. The same was transferred in the year 2005-06 and the same was taxable in the same year. The assessee was allowed exemption u/s 54F for an amount of Rs. 13,91,000/- in respect of Flat No. 205 in the FY 2004-05. This Flat No. 205 was subsequently gifted by the assessee to his wife on 20-02-2007 which indicate that the assessee did not hold the property for the period prescribed u/s 54F. Consequently, the amount of Rs. 13,91,000/- claimed needed to be disallowed. This fact has not been verified during the assessment proceedings. Since the above mentioned were being done without any analysis, the SCN was issued by the revenue for revising the A.Y. u/s 263.
Question of Law
Whether the ld. CIT(A) was justified in passing the order u/s 263?
Contentions of the Assessee:
The assessee submitted that the endorsement was there which was noticed by the AO. After construction the land is only an undivided portion and the sale is always made not on what land comes as undivided share. Hence, just for giving the break-up as requested by the department; the cost of building was taken on the basis of Construction cost. No one would sell a building at cost of construction. Under section 54F transfer to wife is not sale of Capital Asset Hence/ the flat being gifted to assessee’s wife is not “transfer” and the exemption claimed for the same holds good. This was only a family arrangement and does not constitute sale of capital asset.
Contentions of the Revenue
The ld. CIT(A) in his order held that it was held in number of cases that it is well established that where the Assessing Officer fails to make the necessary enquiries which he is legally required to make and decide the issues without making such enquiries then the order of the Assessing Officer would be erroneous in Law. It is incumbent on the A.O. to investigate the facts stated in the return when circumstances would make such an enquiry prudent. The word erroneous in sec.263 of Income-tax Act, 1961 includes cases where there has been failure to make necessary enquiries.
Held by the Tribunal
Hon’ble Tribunal relied on the Judgment of the co-ordinate bench where it was held that the impugned order has been passed by the Ld. CIT under section 263 without considering the explanation offered by the assessee and without applying his mind. The failure of the Ld. CIT, however, does not constitute any legal infirmity to make the order passed by him under section 263 invalid or void abinitio as sought to be made out by the assessee in the ground raised in these appeals. It would be just and proper in the facts and circumstances of the case, to set aside the impugned order of the Ld. CIT passed under section 263 and remit the matter back to him with a direction to pass fresh order under section 263 after duly taking into consideration the explanation offered by the assessee and after applying his mind. Relying on this Judgment Hon’ble Tribunal held that the matter should be remitted to the CIT(A) and directed him to pass fresh orders u/s 263.
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