KAMLESH JAIN & SONS HUF,RAIPUR vs. INCOME TAX OFFICER-3(2), RAIPUR

As per its grounds of appeal, the assessee has challenged the assumption of jurisdiction by the PCIT under section 263 of the Act on the ground that the assessment order under revision is neither erroneous nor prejudicial to the interest of the revenue. As a corollary, the assessee has sought to impugn consequent revisional order passed by PCIT under section 263 of the Act.

Briefly stated, the assessee filed its return of income for the A.Y. 2016-17 in question inter alia claiming deduction under section 54F of the Act. The return of income filed by the assessee was selected under scrutiny and specific queries towards claim of deduction were raised by the A.O. vide notice dated 11.10.2018 and

Thereafter the PCIT in exercise of its revisionary powers issued show cause notice dated 10.03.2021 under section 263 of the Act requiring the assessee to show cause as to why the impugned assessment so framed under section 143(3) of the Act should not be modified/set aside on the ground that such order is erroneous in so far as prejudicial to the interest of the revenue. It was essentially alleged that the assessee is not eligible for deduction under section 54F of the Act where the construction of the residential house had already commenced prior to the sale of the original asset (four land parcel) and the conditions of section 54F does not stand satisfied.

None attended for the assessee in response to the show cause notice but the PCIT proceeded with the revisional proceedings and alleged that the A.O. has not conducted proper enquiry with reference to the deduction claimed under section 54F of the Act. The original assessment was set aside on the above point and the A.O. was directed to pass a fresh assessment in terms of directions in the revisional order.

Aggrieved by the aforesaid action of the PCIT, the assessee is in appeal before the Tribunal agitating supervisory jurisdiction usurped by the PCIT under section 263 of the Act.

When the matter was called for hearing before the Tribunal, the learned Counsel for the assessee raised several points to assail the action of the PCIT. To begin with, it was alleged that no notice under section 263 of the Act was received by the assessee. As regards show cause notice dated 10.03.2021, the notice has been

To expound the factual position, it was also pointed out that notice dated 10.03.2021 calling for hearing on 15.03.2021 was eventually signed by the PCIT on 15.03.2021 i.e. on the date of hearing fixed in this regard. Interestingly, notice was signed at 1.49 P.M. whereas the hearing was fixed on the same date at earlier point of time i.e. 11.15 A.M and hence even if notice could be served, still such notice would have served no purpose at all and would amount to no opportunity. No further notice was issued thereafter. It was contended that the opportunity granted cannot be illusionary but has to be real and effective to enable the assessee to defend its cause. The PCIT has neither assured service of notice nor has provided any opportunity as narrated supra.

It was thus strongly urged that in the absence of opportunity of hearing, the revisional order is required to be quashed at the threshold on this ground itself.

Adverting to the merits of the issue raised in the show cause notice, the Counsel for the assessee pointed out that certain land parcels were sold by the assessee and capital gain arising thereon was subjected to deduction under section 54F of the Act by utilisation of the sale consideration in residential house property under construction. It was submitted that while the assessee has already started the construction of the property in earlier years but, however, the construction was

The learned CIT D.R. for the revenue, on the other hand, placed reliance upon the revisional order and submitted in furtherance that in the absence of proper enquiry on the relevant facet of section 54F, action of the A.O. was both erroneous as well as prejudicial to the interest of the revenue.

On appraisal of the facts and circumstances of the case, as well as case laws referred on behalf of the assessee as well as revenue, we firstly observe that the A.O. has carried out the specific enquiry with regard to eligibility of deduction claimed under section 54F of the Act. On a corollary, it can be argued that he was satisfied on the propriety of the claim in question. Secondly, the claim of the assessee under section 54F towards residential house property already under construction at the time of transfer of original asset but the construction completed after the transfer is found to be eligible in law by several judicial precedence quoted in the preceding paragraphs. Thus, where the case of the assessee is vindicated by judicial endorsement, one would at least say that the issue raised by the PCIT is not free of any debate. It is trite that where the issue is debatable, and the A.O. has taken a view which is plausible in law, such view cannot be substituted by the view of the superior authority and the order passed cannot be branded as erroneous per se. Therefore, in the absence of any ‘error’ in the assessment having regard to the allowability of section 54F, the enquiry directed by the PCIT are superfluous and without authority of law. Such action of the PCIT cannot be said to be within the realm of revisional jurisdiction under section 263 of the Act. We thus find that the action of the PCIT is without authority of law both at the time of assumption of jurisdiction as well as at the time of passing revisional order. Revisional order is thus liable to be quashed on this score.

We now also advert to the vehement opposition on behalf of the assessee on the ground of non-issuance of notice and on total lack of opportunity while concluding the proceedings under section 263 of the Act. It has been demonstrated on facts that only show cause notice issued to the assessee was for attendance on 15.03.2021 calling the assessee at earlier point of time i.e. 11.15 A.M on the same date, whereas the notice itself was issued at 1.49 PM. We are constraint to observe that such casual approach of a very senior functionary of the Department does not augur well in the eyes of the public. As stated in the bar, no such notice was served at all on the email id. as claimed. No other notice was served. Palpably, it is a case of total lack of opportunity to the assessee to defend its case. A question would arise as to whether a failure to give a reasonable opportunity to the assessee of being heard was only a procedural irregularity in such gross circumstances and thus curable and did not render the order passed by the PCIT ab initio void and nonest in law per se ?

Hence, looking from any angle, the impugned revisional order passed under section 263 of the Act is set aside and quashed.

In the result, appeal of the assessee is allowed. PRONOUNCED ON 29.09.2021 as per Rule 34(5) of the Income Tax Appellate Tribunal Rules,1963.