On going through the details, we find that the deduction claimed u/s 54F was Rs.6,12,10,100/- whereas the deduction eligible was Rs.6,11,19,500/-. Thus, there is a computational difference of Rs.90,600/- in the claim of deduction u/s 54F which could have been rectified u/s. 154. The provisions of section 263 need not be invoked for computational error for which other provisions of the Act are fairly sufficient. The directions of the ld. PCIT which are beyond the selection criteria of scope of scrutiny for the instant year cannot be held to be legally valid.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal has been filed by the assessee against the order of the ld. PCIT-5 Delhi dated 23.03.2020.
2. Following grounds have been raised by the assessee:
“1. On the facts and circumstances of case and in law, the Ld. Principal Commissioner of Income Tax – 5, New Delhi (hereinafter referred to as the Ld. PCIT) erred in initiating proceedings under section 263 of come Tax Act, 1961 (Act) by wrongly assuming jurisdiction under section 263 of the Act and hence, the order passed by the PCIT under section 263 of Act is without jurisdiction, bad in law and void ab-initio.
2. On the facts and circumstances of case and in law, the Ld. PCIT erred in setting aside the assessment and has also erred in holding that the original assessment order passed by the Assessing Officer under section 143(3) of Act was erroneous and prejudicial to the interest of the revenue.
3. On the facts and circumstances of case and in law, the directions issued by the Ld. PCIT under section 263 of Act are erroneous, vague, ambiguous and untenable and, therefore the order u/s 263 of the Act passed by the Ld. PCIT is liable to be quashed.
4. On the facts and circumstances of case and in law, the order passed under section 263 of the Act by the Ld. PCIT is bad in law as the same has been passed without application of mind and deserves to be quashed.
5. On the facts and circumstances of case and in law, the Ld. PCIT erred in invoking the provisions of section 263 of the Act, and thereby directing the Assessing Officer to make the de-novo assessment.
6. On the facts and circumstances of case and in law, the order passed by Ld. PCIT in arbitrary and against the principle of natural justice.”
3. All the grounds of appeal, in substance, relate to the contention that the proceeding initiated and order passed u/s 263 by ld. PCIT is liable to be quashed as it is bad in law, without jurisdiction and against the principle of natural justice.
4. The facts of the case are that the return of income for the year consideration was filed on 27.09.2015 declaring income of (-Rs.3,30,61,960/-). The case of the appellant was selected for limited scrutiny. The issues of limited scrutiny were:-
I) Purchase of property
II) Deduction claimed under the head-capital gain
5. The ld. PCIT issued notice dated 16.03.2020 u/s 263 of the Act asking the assessee to furnish reply by 20.03.2020. The said notice is enclosed in the paper book at page no. 2 to 4. Para 2 to 6 of this notice is reproduced as under:
“2. Perusal of record revealed that The assessment of Mr. Manoj Singhal for the assessment year 2015- 16 was completed in November, 2017 at income of Rs. 3,30,61,960/- u/s 143(3) of the Income Tax Act. On perusal of the record, it is found that the assessee has claimed deduction of Rs. 6,12,10,100/- u/s 54F of the Act. However the assessee has sold equity shares of Rs. 9,74,40,000/- and has gained LTCG amounting Rs. 9,72,95,775/- after indexation. The assessee has invested Rs. 6,12,10,100/- (including incident expenses) into a new residential house and has claimed deduction u/s 54F of this whole amount. However, as per section 54F of the Income Tax Act, 1961 assessee is eligible for deduction to the extent of proportion to amount of Capital Gain invested in new residential house. The eligible deduction in the case of the assessee u/s 54F is calculated as under:
“Deduction u/s 54F
= Cost of the new house X Capital Gain Net Consideration = Rs. 6,12,10,100/- X Rs. 9,72,95,775/- Rs. 9,74,40,000/- = Rs. 6,11,19,500/- Thus the assessee is eligible for deduction of Rs. 6,11,19,500/- u/s 54F of the Income Tax Act, 1961 and not of Rs. 6,12,10,100/-. The AO overlooked this issue and this resulted in under assessment of Rs. 90,600/- (61210100- 6 1119500).
3. It is further observed from the computation of Income, that the assessee is receiving rental income from as many as seven properties. But the assessee has not mentioned the full address and description of these properties. Therefore, it cannot be ascertained from the assessment record, whether the assessee satisfies the conditions for claiming deduction u/s 54F of the Act, or not, particularly, when the receipts on account of sale proceeds of shares are shown from Kolkata based company M/s Shreyan Vya par Pvt. Ltd. for shares of M/s SMS IT Solutions Pvt. Ltd., again a Kolkata based company doing no business. Further, no evidence has been placed on record to substantiate the market value of the said investment. In view of these facts, the assessee is not entitled for deduction u/s 54F of the Act. The issue involves a huge amount of Capital Gain and the revenue loss may be Rs. 1,38,70,209/- or more. This issue has not been examined to determine correctness of the claim of the assessee regarding deduction u/s 54F of the Act and justification of investment in purchase of new specified asset.
4. In view of the above, and there is no plausible explanation by the assessee, and besides, proper inquiry has also not been done.
5. From analysis of the assessment records, it is obvious that the assessment order passed by the then assessing officer is erroneous and prejudicial to the interest of Revenue.”
6. Heard the arguments of both the parties.
7. The primary contention of the ld. AR is that the case of the assessee has been selected for limited scrutiny on two grounds viz. verification of Purchase of property and verification of deduction claimed under the head capital gain and expanding the scope of scrutiny by the way of order u/s 263 is legally not valid.
8. On the other hand, the ld. DR argued that the ld. PCIT has got wider powers to examine the entire case to plug the loopholes and leakage of revenue.
9. We have gone through the notice issued by the revenue dated 29.07.2016 wherein the AO mentioned that two issues have been identified for examination which are verification i.e. purchase of property and verification of deduction claimed under the head capital gain.
10. From the record, we find that the complete details pertaining to both the issues have been examined by the AO and the replies of the assessee dated 22.09.2017, 16.10.2017, 30.11.2017 along with the details of sale of shares, confirmation of the parties, bank statements, purchase of property, registration document and deduction u/s 54F claimed. The entire details of the said two transactions which are the subject matter of scrutiny have been duly provided and examined by the AO and duly accepted after examination and verification.
11. On going through the details, we find that the deduction claimed u/s 54F was Rs.6,12,10,100/- whereas the deduction eligible was Rs.6,11,19,500/-. Thus, there is a computational difference of Rs.90,600/- in the claim of deduction u/s 54F which could have been rectified u/s.154. The provisions of section 263 need not be invoked for computational error for which other provisions of the Act are fairly sufficient. The directions of the ld. PCIT which are beyond the selection criteria of scope of scrutiny for the instant year cannot be held to be legally valid.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 28/05/2021.