THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. MINAL NAYAN SHAH

ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1 This Tax Appeal under Section 260A of the Income Tax Act, 1961 [for short, 'the Act, 1961'] is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, 'C' Bench, Ahmedabad dated 15th October 2019 in the ITA No.643/Ahd/2019 for the assessment year 2014-15. 2 The Revenue has proposed the following question of law for the consideration of this Court: “Whether Appellate Tribunal was correct in law and on facts in quashing the revision order passed under Section 263 of the Act without appreciating the fact that the Assessing Officer has categorically failed to verify the deduction under Section 54F of the Act resulting the order of the Assessing Officer being erroneous and prejudicial to the interest of revenue?” 3

We have heard Mr. Manish Bhatt, the learned senior counsel appearing for the appellant.

It appears from the materials on record that the case on hand is one of scrutiny assessment under Section 143(3) of the Act, which came to be completed on 27th December 2016 accepting the return of income at Rs.1,26,94,100/-. Later, the Principal Commissioner of Income Tax – 3, Ahmedabad took up the order of assessment passed by the Assessing Officer in revision in exercise of his power under Section 263 of the Act, 1961. The Principal Commissioner passed an order dated 25th March 2019 directing the Assessing Officer to pass a fresh assessment order in respect of claim of the assessee under Section 54F of the Act on the sale of land. 5 It appears that the assessee with the co-owner of the land in question entered into the development agreement with M/s. Synthesis Engineers, for which the assessee received consideration of Rs.4,79,68,453/- with respect to the said land. The assessee showed the LTCG of Rs.1,21,50,267/- after claiming exemption under Section 54F for the act of purchasing the property at Rs.2,51,35,374/- and Rs.1,00,00,000/- under Section 54EC of the Act, 1961. 6 It is the case of the department that upon due verification of the transaction, it was found that the property purchased for claiming various exemption under Section 54F was available only for only one property. In the course of the proceedings under Section 263 of the Act before the Principal Commissioner, it was noticed that the assessee had purchased the entire block 'E' of the residential project Altius with the co-owner with equal share for total consideration of Rs.4,71,23,702/- from M/s. Synthesis Engineers. The block 'E' of superstructure had three independent units with a separate kitchen, separate entrance and located on different floors. It is the case of the department that such units could not be said to be contiguous units to be called one single residential house against which the exemption under Section 54F could be claimed by the assessee. 7 Thus, according to the department, the assessee by purchasing three independent houses vide a single deed could be said to have erroneously claimed the exemption under Section 54F of the Act and was not eligible to claim exemption for purchase / construction of only one residential house. 8 In such circumstances referred to above, the Principal Commissioner, vide his order dated 25th March 2019 passed under Section 263 of the Act, set aside the assessment order under Section 143(3) of the Act as he was of the view that the assessment order was prejudicial to the interest of the Revenue. 9 The assessee, being dissatisfied with the order passed under Section 263 of the Act, preferred an appeal before the appellate authority. The Appellate Tribunal allowed the appeal of the assessee holding as under:

“9. We have carefully considered the rival submissions. Section 263 of the Act confers power upon the Pr.CIT/CIT to call for and examine the records of a proceeding under the Act and revise any order if he considers the same to be erroneous and prejudicial to the interests of the Revenue. The Pr.CIT can take recourse to revision under Section 263 of the Act where the assessment order is erroneous as well as prejudicial to the interest of Revenue. The twin conditions are required to be satisfied simultaneously. The Pr.ClT in the present case has purported to act in exercise of power under s.263 of the Act and thereby has sought to cancel the assessment order of the AO passed under s. 143(3) of the Act. The Pr.ClT essentially observed that the AO has wrongly allowed deduction under s.54F of the Act in contravention of the provision of the Act. The ground for impugned action under 8.263 of the Act is that the AO has failed to make requisite inquiry into the claim of deduction of the assessee under s.54F of the Act and in the absence of proper inquiry on the eligibility of deduction involved, the order of the AO is erroneous in so far as prejudicial to the interest of the Revenue.

246 (SC), CIT vs. Syed Ali Adil (2013) 352 ITR 418 (AP) and CIT vs. Smt. V. R. Karpagam (2015) 373 ITR 127 (Madras) for the construction of expression 'a residential house' in the context of Section 54 & 54F of the Act. Different Courts noted above have echoed that expression “a residential house’ would encompass different residential units located on the different floors of the same building. On facts, we note that all the three units are located on the different floors of the same structure and purchased by the assessee by a common deed of conveyance. In the facts and circumstances, plurality of opinion about the allowability of deduction surely exists even if it is presumed for a moment that view adopted by the AO in favour of the assessee is not singular or absolute. In the circumstances, where the language couched in Section 54F of the Act has been interpreted in a manner favourable to assessee and multiple residential units were included within the sphere of Section 54F of the Act, we see no wrong in the action of the AO in seeing the issue in a wider spectrum. Thus, when the issue of eligibility of deduction under s.54F of the Act is tested on the touchstone of prevailing judicial dícta, the action of the AO cannot be discredited as incorrect application of law or wrong assumption of facts. As noted earlier, the relevant facts concerning the purchase of super structure comprising of three different units were duly placed and available on record. The AO was not found to be totally oblivious of the relevant facts. Thus, there is an apparent plausibility about the assent of mind of AO on admissibility of claim having regard to the law existing at the relevant time. In these circumstances, the AO can be safely presumed to have adopted a view which was plausible though not necessarily agreeable to the Revisional Commissioner.

It is also an essential condition for the exercise of power under Section 263 of the Act that the Commissioner of Income Tax must find an error which is found in the assessment order of the Income Tax Officer prejudicial to the interest of the Revenue and conclusion of the Commissioner that the order is erroneous and prejudicial to the Revenue must be based on materials and contentions raised by the assessee on opportunity of hearing being afforded to him. 15 The findings of facts recorded by the Appellate Tribunal is that one of the requisite conditions for the exercise of power under Section 263 of the Act that the Commissioner should consider the assessment order to be erroneous and prejudicial to the interest of the Revenue is not satisfied in the present case. In arriving at such conclusion, the appellate Tribunal has assigned cogent reasons. 16 In the overall view of the matter, we have reached to the conclusion that we should not disturb the order passed by the appellate Tribunal as the proposed question, in our opinion, cannot be termed as a substantial question of law. 17 In the result, this appeal fails and is hereby dismissed. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) Vahid / CHANDRESH