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Income Tax Appellate Tribunal, “RAIPUR” BENCH, RAIPUR
Before: SHRI PRADIP KUMAR KEDIA & SHRI N. K. CHOUDHRY
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the assessee against the order of the Principal Commissioner of Income Tax, Raipur (‘PCIT’ in short), dated 30.03.2021 passed under s.263 of the Income Tax Act, 1961 (the Act) whereby the assessment order passed by the Assessing Officer (AO) dated 04.09.2018 under s. 143(3) of the Act concerning AY 2016-17 was sought to be set aside for reframing assessment in terms of supervisory directions.
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As per the grounds of appeal, the assessee has sought to challenge the jurisdiction assumed by the PCIT under s.263 of the Act and as a corollary, sought to impugn the revisional order passed by the PCIT under s.263 of the Act.
The PCIT sought to revise the assessment order dated 04.09.2018 passed under s.143(3) of the Act by way of a show cause notice dated 22.02.2021 served upon the assessee, which is reproduced hereunder:
“Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961 – Assessment Year 2016-17. In this regard, a hearing in the matter is fixed on 01/03/2021 at 11:00 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in Please refer to the above. On examination of your Income Tax records for the above assessment year, I find that the order passed u/s 143(3) on04/09/2018of the Income tax Act, 1961 is erroneous in so far as it is prejudicial to the interest of revenue in the following manner: - The order in the aforesaid case is erroneous so far as prejudicial to the interest of revenue on the following grounds: In this case, the assessee had filed his return of income electronically on 28.07.2016 declaring total income of Rs. 89,40,440/-. During the year under consideration the assessee has derived income from interest income and income from capital gain. The case was selected for scrutiny through CASS for A.Y 2016-17 and order u/s 143(3) of the I.T Act, 1961 was passed by the AO on 04.09.2018 with the assessed income at Rs. 89,40,440/-. On perusal and verification of the case record, the following facts are enumerated as under:- 1. As per the information available on record, it is seen that the assessee had jointly sold an immovable property amounting to Rs. 11.90 Cr. during the F.Y 2015-16. From
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the above sale the assessee had received consideration of Rs. 2,43,18,856/- ( his share in the property) and claimed deduction u/s 54F at Rs. 1,04,31,764/- on account investment in house property and Capital Gain Account Scheme. Further, the assessee has made investment of Rs. 50,00,000/- u/s 54EC on specified bond (REC bond). Thus, after considering all the facts and relevant documents available on record the returned income at Rs. 89,40,440/- is accepted.
On perusal of the I&CI report of the DIT (I&CI), Bhopal received through your office, it is noticed that as per the verification done by the ADIT (I&CI), Raipur, it is found that the assessee has invested Rs. 10431764/- for purchase of flat bearing no. B-501 and B-502, 5th floor, Block no. B, Golden Glory, Shreeram Nagar, Shankar Nagar, Raipur. On perusal of the purchase deed dated 01.09.2015 of the above said flats, it is seen that the assessee had purchased two residential flats and claimed both u/s 54F. In order to verify the same and know the exact position inspector was deputed for inquiry and as per the report of inspector it is gather that both the flats are different one having different entrance with name plate as Shri Suresh Chand Surana though these are situated adjacent to each other. Since the assessee has claimed both the residential houses purchased u/s 54F, which as per section is not allowable. Thus the assessee has not complied the provision of section 54F i.e. Capital Gain on transfer of certain capital asset not to be charged in case of investment in Residential house. The same is reproduced as under.
Subject to the provision of Sub-section (4) where, in the case of assessee, being an Individual or Hindu Undivided Family, the Capital Gain arises from transfer of any Long Term Capital Asset, not being a Residential House, and the assessee has, within a period of one year before or (two Years) after the date on which the transfer took place purchased, or has within a period of three years after that date (constructed, one Residential House in India) (hereafter in this section referred to as the new asset), then Capital Gain should be dealt with in accordance with the following provisions of the section.
Since, the undivided share of the land of each flat is 559.5 Sq. ft., for which the total cost of investment of Rs. 10431764/-, the assessee will be entitled for one flat, the value of which will be Rs. 5251882/- accordingly after reworking the capital gain comes to Rs. 1,37,08,337/-
The FINANCE (NO. 2) BILL, 2014 - Memorandum explaining the Provisions relating to direct taxes is reproduced below for sake of clarity:
The existing provisions contained in sub-section (1) of section 54, inter alia, provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant
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thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act.
The existing provisions contained in sub-section (1) of section 54F, inter alia, provide that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax.
The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India.
It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in oneresidentialhouse situated in India.
These amendments will take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years. In view of the above facts, it is abundantly clear that assessee is eligible for deduction u/s 54F in respect of only one residential unit. Further, A.O failed to initiate the penalty u/s 271(1)© of the I.T.Act, 1961. Thus, the assessment order passed in this case is erroneous in so far as it is prejudicial to the interest of revenue.
Since the issues discussed supra have not been properly verified by the AO while passing the assessment order by conducting proper enquiries and examination of accounts. Hence, there is a no application of mind on the part of the AO and therefore, the assessment order passed u/s 143(3) of the Act is erroneous in so far as it is prejudicial to the interest of revenue.
Hence, there is no application of mind on the part of the AO to correctly tax the income of the assessee in the return of income and therefore, the assessment order passed u/s 143 of the Act is erroneous in so far as it is prejudicial to the interest of revenue.
Therefore, in exercise of the powers conferred on me by section 263 of the I.T.Act, 1961, I propose to suitable revise the order u/s 263, which may include setting aside the order as such. Accordingly, an opportunity is being extended to explain your case along with details, documents and necessary evidences. An absence of any submission or reply shall lead to the conclusion that you have no objection for the proposed action and the proceedings shall be finalized accordingly.
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Your submission / reply may kindly be sent through the e-mail on or before 01/03/2021. If you wish to appear personally or through your authorized representative, personal hearing may kindly be availed on 01/03/2021 at 11:00 am in the office of PCIT-1, Central Revenue Building, Civil Lines, Raipur.” 4. As per the revisional order, the CIT(A) ultimately concluded that the assessee is eligible for deduction under s.54F of the Act in respect of only one residential unit and two adjoining flats cannot be regarded as one residential house. It was further alleged that AO has failed to initiate penalty under s.271(1)(c) of the Act. The AO was accordingly directed to give effect to the rivisional order.
Aggrieved by the aforesaid action of the PCIT, the assessee is in appeal before the Tribunal agitating the supervisory jurisdiction usurped by the PCIT under s.263 of the Act.
When the matter was called for hearing, the learned counsel for the assessee pointed out that the controversy raised by the PCIT under s.263 of the Act is towards eligibility of deduction under s.54F of the Act. It was submitted that the assessee had jointly sold an immovable property during F.Y. 2015-16. The sale proceeds were invested in two adjoining flats bearing no. B-501 & B-502, Golden Glory, Shriram Nagar, Raipur. The PCIT invoked provisions of Section 263 of the Act on the ground that deduction under s.54F of the Act ought to have been allowed only in respect of one residential unit/flat and thus, deduction under s.54F of the Act has been excess claimed by taking into account two units as a residential house, which is not permissible in law. Thus, the assessment order passed in this case was alleged to be erroneous in so far as it is prejudicial to the interest of the Revenue.
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5.1 In this backdrop, the learned counsel pointed out that the action of the PCIT is wholly wrong and does not meet requirements of Section 263 of the Act. The learned counsel submitted that the issue was specifically enquired by the AO by issuing notice under s.142(1) of the Act dated 19.06.2018 and secondly, in the light of long line of judicial precedents, two or more residential units can constitute one residential house property in appropriate circumstances. In the instant case, the flats purchased by the assessee are adjoining and have been combined and used together as a single unit with common kitchen. It was further pointed out that the purchased deed of residential unit nos. B-501 & B-502 is a single registry. He further referred to copy of letter to the builder for alteration in residential property and copy of alteration is placed with photographs. In these circumstances, it was contended that no embargo has been laid down in Section 54F of the Act to artificially restrict the deduction only with reference to one unit as held in ITO vs. Sushila M. Jhaveri (2007) 107 ITD 321 (Mum) (SB) and followed thereafter in Kamal Murlidhar Mokashi vs 1TO (2019) 179 ITD 265 (Pune), Dinanath Badrinath Chhabra vs ITO in ITA no. 7111/Mum/2012, ITO (Intl. Tax) vs Kavita Gupta (2018) 52 CCH 308 (Mum. Trib.) & ACIT vs Sanjay B. Pahadia (2017) 49 CCI1 7 (Mum. Trib.).
5.2 It was further pointed out that issue, in any case, is debatable and the AO has taken a view plausible in law and therefore, the jurisdiction under s.263 of the Act does not lie. It was also contended that where there is no scope for any further enquiry in the matter, the PCIT could not have set aside the assessment order so framed without pointing out the exact nature of enquiry remained to be carried out after some minimal enquiry on his part. Once, an examination of the issue was carried out by the PCIT, he could not differ from the judicial view taken by the AO. The learned counsel
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thus urged that the assumption of jurisdiction under s.263 of the Act is patently wrong and opposed to the judicial understanding available on the subject. He accordingly urged that such unsuitable revisional order requires to be quashed.
The learned CITDR for the Revenue, on the other hand, relied upon the revisional order and submitted that Section 54 & 54F of the Act has been amended by the Finance (No.2) Act, 2014 w.e.f. A.Y. 2015-16 whereby the benefit of exemption available in respect of purchase/construction is restricted only with respect to one residential house and that should be located in India. It was contended that the benefit made available to the assessee in respect of two flats, therefore, is in contravention of amended Section 54/54F of the Act and consequently, the assessment order passed by the AO was erroneous in so far as prejudicial to the interest of the Revenue.
We have carefully considered the rival submissions. The jurisdiction assumed by the PCIT under s.263 of the Act is under challenge having regard to the facts as noted above. It is the case of the assessee that while two adjoining flats can be regarded as two residential units constructed by the developer, but in effect, constitutes only one residential ‘house’ of the assessee. The view has been consistently taken in large number of judicial precedents and hence, the action of the AO is consistent with the plausible view as held by the Courts and Tribunals.
We straightway find merit in the plea of the assessee. It is trite that where the AO has taken a view which is possible and plausible, the action of the AO cannot be regarded as erroneous per se. Consequently, the twin conditions of order being (i) erroneous as well as (ii) prejudicial to the interest of the Revenue, does not
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co-exist. Hence, the jurisdiction usurped by the PCIT is not sustainable in law. The reliance placed on the amendment carried out by Finance (No.2) Act, 2014 is grossly misplaced. The interpretation rendered by the co-ordinate benches and the Hon’ble High Courts is on the point as to what constitutes a residential house. A residential house may comprise of several residential units if used and consummated collectively as residential house. The decisions quoted on behalf of the assessee squarely apply to the fact situation. The amendment in Section 54F of the Act has merely curtailed the holding of residential house at the sale of original asset. The interpretation of what constitutes ‘residential house’ has not been displaced by the amendment per se. We thus see no error in the action of the AO. The supervisory jurisdiction exercised under s.263 of the Act is thus not sustainable in law. Consequently, the revisional order is cancelled.
In the result, appeal of the assessee is allowed.
This Order pronounced in Open Court on 06/09/2021
Sd/- Sd/- (N. K. CHOUDHRY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Raipur: Dated 06/09/2021 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर / DR, ITAT, RAIPUR 6. गाड� फाइल / Guard file. By order, Sr. Private Secretary ITAT, Raipur (on Tour)