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Facts
The assessee sold shares and claimed exemption under Section 54F for investing in a new immovable property. The Principal CIT initiated revision proceedings under Section 263, holding that the assessment order was erroneous and prejudicial to revenue, specifically regarding the eligibility for exemption and indexation of capital gains.
Held
The Tribunal held that the Assessing Officer had made a reasoned order after considering all relevant aspects and that the revisionary powers under Section 263 were not justified as the AO had adopted a plausible view. The issue of indexation was also covered by precedent.
Key Issues
Whether the reassessment order under Section 263 was justified when the Assessing Officer had passed a reasoned order, and whether the assessee was eligible for Section 54F exemption and indexation on gifted shares.
Sections Cited
263, 143(3), 144B, 54F, 2(47), 45
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
The instant appeal of the assessee was filed against the order of the Learned Principal Commissioner of Income-tax, Mumbai-8 [for brevity, ‘Ld.PCIT’] passed under section 263 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2020-21, date of order03.02.2025.The impugned order was emanated from the order of the Assessment Unit, Income-tax Department (in short, ‘the A.O.’) passed under section 143(3)read with section 144Bof the Act, date of order20/09/2022.
“1. The Learned Principal Commissioner of Income-tax has erred in law and on facts in not appreciating that where the A,0. after detailed verification of record and making enquires had framed the assessment, the revision powers conferred on the Principal CIT under section 263 of Act, cannot invoked only based on a change of opinion.
The Principal Commissioner of Income-tax has erred in passing Order u/s.263 of the Income-tax Act, 1961 dated 03.02.2025, without appreciating the fact that the order passed by the A.O. is neither erroneous nor prejudicial to the interest of revenue.
3. The Principal Commissioner of Income-tax has erred in passing Order u/s.263 of the Income-tax Act, 1961 dated 03.02.2025, and issuing directions that exemption u/s.54F was not admissible without considering that A.O. had in para 3.1. page 3 had considered the grounds, w.r.t. investment in duplex flats, and after application of mind held that the provisions of Section 54F was available to the Assessee and hence the directions of Principal Commissioner of Income-tax were on account of change of opinion. .
4. The Principal Commissioner of Income-tax has erred in passing Order u/s.263 of the Income-tax Act, 1961 dated 03.02.2025, and issuing directions that indexation benefit on shares received as gift by Assessee was not available in respect of the holding period of the previous owner even though the same is the various judicial pronouncements, including the decision of jurisdictional Hon'ble Bombay High Court in case of Manjula Shah 355 ITR 474 and hence the directions of Principal Commissioner of Income-tax were on account of change of opinion.
5. The Appellant prays that, the Order u/s.263 of the Income-tax Act dated 03.02.2025 passed by Principal Commissioner of Income-tax be annulled, squashed and set aside.
6. The aforesaid Grounds of Appeal are independent, alternative and without prejudice to one another.
7. The Appellant craves leave to add, and / or alter, and / or modify, and / or delete the aforesaid Grounds of Appeal before or at the time of hearing.”
Jasmine Bhaskar Shah 3. The brief facts of the case are that the assessment was completed under Section 143(3) read with Section 144B of the Act on 20/09/2022, without any outstanding demand. The Ld. AO considered the issue identified during the selection of the assessment, namely, "Large deduction/exemption under Section 54F amounting to Rs.8,57,46,911/-." The assessment was concluded through a reasoned order, duly addressing the issue raised at the initiation of the assessment proceedings. However, the Ld. PCIT found the impugned assessment order to be erroneous and prejudicial to the interests of the revenue. Consequently, the Ld. PCIT issued a show-cause notice to the assessee by invoking the provisions of Section 263 of the Act. The assessee duly responded to the said show-cause notice. However, the Ld. PCIT, after invoking the provisions of Section 263, set aside the assessment order on the grounds of the verification of the claim of indexation as per the provisions of Section 2(47) of the Act. Aggrieved by the revisional order passed by the Ld. PCIT, the assessee has filed the present appeal before us.
The Ld.AR argued and stated that the showcause notice was issued by the Ld.PCIT and the queries were as follows, the relevant paragraphs 2 to 3 are extracted below: -
“2 On perusal of the assessment records, it is observed that the assessee had sold shares of Ascent Health & Wellness Solution Pvt. Ltd. For sale consideration of Rs. 9,98,78,328/- and earned long term capital gain amounting to Rs. 8,57,46,911/- for which the assessee had claimed exemption u/s 54F of the I.T. Act, 1961 for Investment in new immovable property of Rs. 18,00,00,000/- and the same was allowed by the Assessing Officer vide order u/s 143(3) read with section 1448 of the Income-tax Act, 1961 dated 20.09.2022. As per the details, it is observed that the assessee was owner of more than one immovable property, out of which one Immovable property was gifted to daughter in law on 27.02.2020. At the time of Jasmine Bhaskar Shah investment, the assessee had owned more than one immovable property which is against the section 54F of the IT. Act, 1961 Hence, in view of the abovesaid conditions, exemption claimed u/s 54F of the IT. Act, 1961 of Rs.8,57,46,911/- ought to have been disallowed and added back to the total income. Thus, omission in this regard has resulted in incorrect allowance of exemption claimed u/s 54F of the IT. Act, 1961 of Rs 8,57,46,911/- and also resulted in underassessment of income to the same extent with consequential tax and interest under provisions of the IT. Act. 1961. 2.1 It is further observed from gift deed of Shri Bhaskar Prataprai Shah executed on 27.02.2020 that he gifted 511 shares to the assessee, however, the assessee had claimed indexation on such shares from 12.02.2016 considering the owner of said shares and worked out long term capital gain which is in contravention of section 2(47) of the I.T. Act, 1961.
Therefore, it appears that the assessment order passed under section 143(3) read with section 144B of the income-tax Act, 1901 on 20.09.2022, is erroneous in so far as it is prejudicial to the interest of revenue, within the meaning of Section 263 of the Income-tax Act In view of this you are required to show-cause as to why the above said assessment order should not be revised under section 263 of the Income-tax Act,1961.”
The Ld.AR in argument stated that the issue was duly considered by the Ld.AO during the assessment proceedings and the assessee had received gift from his father, Dr. Bhaskar Shah, vide gift deed dated 27/02/2020 and on 27/08/2020, the assessee purchased a duplex flat being Flat No.803,804 and 904 on 08th and 09th Floor of the Indraprastha Society at Ghatkopar East for total consideration of Rs.18 crores. The assessee claimed exemption under section 54F and the copy of the registered deed of this duplex flat was duly placed before the Ld.AO. The relevant paragraph of the assessment order is duly reproduced as below:-
In view of the above facts, assessee has furnished his reply on 20.11.2021, 17.02.2022 and 19.02.2022, it is observed that the assessee received the 515 Equity shares of Ascent Health & Wellness Solutions Pvt. Ltd. from her husband Dr. Bhaskar Shah vide Gift Deed dated 27.02.2020 and on 27.08.2020 assessee purchased a duplex fiat being Fiat No.803,804 and 904 on the 8th Jasmine Bhaskar Shah &9th Floor of Indraprastha Society at Ghatkopar (East), for a total consideration of Rs. 18,00,00,000/- This investment was claimed as exemption u/s 54F. Copies of Agreements for purchase of the duplex flat were also provided by the assessee. Vide show cause notice dated 16.02.2022, the assessee was asked to provide some following information: - 1. Copy of bank statement showing debit and credit entries of purchase and sale of new and old property 2. Copy of purchase deed of old property along with type/nature thereof, 3. Computation of Capital Gain; 4. Source of investment of Rs. 18,00,00,000/- (Eighteen Crore); 5. Note on justification of claim of deduction u/s 54F of the Act; 6. Proof of payment of Stamp duty In response the assessee vide letter dated 19.02.2022 provided the following information: - 1. Chart showing details of investment made in new flat alongwith source of Investment. Source of investment is amount received from sale of shares of Ascent Health & Wellness Solutions Pvt. Ltd. And loan taken from family members of the Assessee i.e. Mr. Sidhharth Shah(Son), Ms. Priyanka Shah(daughter) & Mr. Bhaskar Shah(Husband). Loan confirmations from the family members along with copy of ITR, and bank statement for the period under consideration were also provided, 2. Bank statement of the assessee for the period April 2019 to March 2020 duly marking payment made for investment in new flat alongwith source of investment were also provided. 3 Copies of receipt evidencing payment of Stamp Duty(dated 13.08.2020) and registration Charges (dated 27.08.2020) along with copies of Bank statement duly marking payment made for Stamp Duty and Registration Charges were also provided. Vide Show cause notice dated 09.03.2022, the assessee was asked to confirm with documentary evidences, whether she was holding 2(two) properties during the year or not. The assessee vide her reply dated 14.03.2022 submitted that the property at Vivek is a commercial property from where M/s Priyanka Medical Pvt. Ltd. (wherein the assessee is a Director) runs and operate a Nursing Home. The said address is used by the assessee in her ITR. Certificate regarding Jasmine Bhaskar Shah Registration as commercial property was also provided. Assessee has gifted the Flat at 701, Kailash Tower to her daughter in law Mrs. Arpi Siddharth Shah vide Gift Deed dated 27.02.2020(copy of Gift Deed enclosed), Flat at 702, Kailash Tower was owned by Bhaskar P Shah (HUF) and assessee in her individual capacity has no ownership thereof. Vide show cause notice dated 08.09.2022, the assessee was asked to provide the cash flow statement. The assessee vide her reply dated 13.09.2022 that this Information has already been provided. Keeping in view these facts, the submission furnished by the assessee seems to be in order. It is found that assessee is eligible for deduction u/s 54F of the Act. In view of the above submission the return filed by the assessee is accepted as such.
The Ld.DR vehemently argued ad relied on the order of the Ld.PCIT.
We have heard the rival submissions and examined the documents available on record. The Show Cause Notice (SCN) was issued by the Ld. PCIT on the ground that the assessee had made an incorrect claim under Section 54F of the Act, amounting to Rs.8,57,46,911/-, in respect of the purchase of a property at Indraprastha Society, Ghatkopar East, for Rs.18 crore.A plain reading of Section 54F is as follows:
54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long- term capital asset, not being a residential house (hereafter in this section referred to as the original asset), 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), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same Jasmine Bhaskar Shah proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: [Provided that nothing contained in this sub-section shall apply where— (a) the assessee,— (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) 37constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head Income from house property":]" The primary issue under consideration is whether the assessee was eligible for the exemption under Section 54F, given that she owned more than one residential house, other than the new asset, on the date of transfer of the original asset. Chronological Events Related to the Sale of Shares of "Ascent Health & Wellness Solution Pvt. Ltd." (AHWSPL) and the claim of Exemption under Section 54F: a. The assessee’s husband acquired shares of AHWSPL on 12/02/2016. b. These shares were gifted to the assessee by her husband on 27/02/2020. c. The assessee owned a residential property, which was gifted to her daughter- in-law on 27/02/2020. d. The assessee sold the gifted shares on 13/03/2020 and claimed indexation from 12/02/2016.
The Ld. PCIT invoked the provisions of Section 54F(1)(b)(a)(i) of the Act on the ground that on the date of transfer of the original asset, i.e., 13/03/2020, the assessee did not own any residential property, as the earlier residential unit had been gifted to her daughter-in-law on 27/02/2020.
Additionally, the assessee claimed indexation from 12/06/2016, i.e., the date of acquisition by the original owner. This issue is squarely covered by the judgment of the Hon'ble Bombay High Court in Commissioner of Income Tax-12 v. Manjula J. Shah [(2011) 16 taxmann.com 42 (Bom)], where it was held that:
"While computing capital gains arising from the transfer of a capital asset acquired by the assessee under a gift or will, the indexed cost of acquisition must be computed with reference to the year in which the previous owner first held the asset, and not the year in which the assessee became the owner." Furthermore, the entire matter was duly examined by the Ld. AO in a speaking order, and every aspect was thoroughly scrutinized during the assessment proceedings. The decision in PCIT vs. Cartier Leaflin (P.) Ltd. [(2023) 146 taxmann.com 281 (SC)] is also relevant, wherein the Hon’ble Supreme Court held that if the Assessing Officer has adopted a plausible view, there is no justification for invoking Section 263 to revise the assessment order. This ruling applies even if it is alleged that the AO did not examine certain aspects, such as the books of accounts or the share trading transactions conducted by the assessee through demat accounts, during the assessment proceedings.
Jasmine Bhaskar Shah Given these facts, it is evident that the order passed by the Ld. AO is neither erroneous nor prejudicial to the interests of the revenue. Since one of the two mandatory conditions for invoking Section 263 is not satisfied, the revisionary jurisdiction under Section 263 cannot be exercised.
Accordingly, the assessee’s grounds of appeal succeed.