THE PR. COMMISSIONER OF INCOME-TAX vs SMT HEMA KRISHNAMURTHY

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 1ST DAY OF MARCH 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE ASHOK S. KINAGI I.T.A. NO.25 OF 2016 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME-TAX

5TH FLOOR, BMTC BUILDING

80 FEET ROAD, KORMANGALA

BANGALORE-560095. 2. THE INCOME-TAX OFFICER

WARD-15(3), 2ND FLOOR

BMTC BUILDING, 80 FEET ROAD

KORMANGALA, BANGALORE-560095. ... APPELLANTS (BY SRI. ARAVIND K.V. ADV.,) AND: SMT. HEMA KRISHNAMURTHY 19, ORCHARD VIEW APARTMENTS BELLARY MAIN ROAD SADASHIVANAGAR BANGALORE-560080 PAN: AFJPP 6996A. ... RESPONDENT (BY SRI. V. CHANDRASHEKAR, ADV.,) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 31.07.2015 PASSED IN ITA NO.511/BANG/2013 FOR THE ASSESSMENT YEAR 2005-06, PRAYING TO:

2 (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BENGALURU IN ITA NO.511/BANG/2013 DATED 31.07.2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-15(3), BENGALURU AND ETC. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2005-06. The appeal was admitted by a bench of this Court vide order dated 25.10.2017 on the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that assessee is eligible to make claim under section 54F when the assessee owned more then two residential houses being Flat No.2034 at High Palace Point and House No.8 in R.T.

3 Nagar which prohibits assessee to make claim under section 54F?". "2. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the order passed under section 263 by the Commissioner of Income Tax was not erroneous and prejudicial to interest of Revenue when the proceedings of the Commissioner under section 263 of the Act was in accordance with parameters of said section?".

Facts leading to filing of this appeal briefly stated are that the assessee is an individual who filed income tax return for the Assessment Year 2005-06 on 20.07.2005 declaring an income of Rs.2,20,829/- under the head income from salary, house property and other sources. The return was processed under Section 143(1) of the Act. Thereafter, annual information return information was received by the department that the assessee has sold immovable properties and the return

4 of income did not reflect the details of the same. The Assessing Officer thereafter re opened the case by issuance of notice under Section 148 of the Act. The assessee filed the reply requesting the Assessing Officer to treat the return of income filed on 20.07.2005 as one filed in response to the notice under Section 148 of the Act. The Assessing Officer passed an order of assessment dated 15.12.2010 under Section 143(3) read with Section 147 of the Act and held that the assessee is entitled to deduction under Section 54F of the Act and did not have any income which escaped assessment. The return filed by the assessee was accepted.

The Commissioner of Income Tax invoked powers under Section 263 of the Act and concluded the same and passed an order on 21.02.2013 and set aside the order passed by the Assessing Officer. A direction was issued to the Assessing Officer to re do the order of assessment and pass a fresh order of assessment. The

5 assessee thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short), which was allowed by the tribunal by an order dated 31.07.2015. In the aforesaid factual background, the revenue has filed this appeal.

Learned counsel for the revenue submitted that assessee owned more than two residential houses viz., Flat No.2034 at High Palace Point and House No.8 in R.T.Nagar and therefore, the assessee was not entitled to claim the benefit of Section 54F of the Act. It is further submitted that Commissioner of Income Tax had rightly invoked the powers under Section 263 of the Act as the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue. Learned counsel for the revenue has invited our attention to Section 54F of the Act and has submitted that even an incorrect assumption of facts or incorrect application of law will satisfy the requirement of order being erroneous. In support of aforesaid submissions, reliance

6 has been placed on decision of the Supreme Court in 'MALABAR INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME TAX', (2000) 109 TAXMAN 66 (SC) and a division bench decision of this court in 'COMMISSIONEROF INCOME-TAX, CENTRAL CIRCLE, BANGALORE VS. M.J. SIWANI', (2014) 46 TAXMANN.COM 170 (KARNATAKA).

On the other hand, learned counsel for the assessee submitted that the usage of property has to be considered in determining whether property is a residential property or a commercial property. It is further submitted that the Assessing Officer was aware that out of two residential properties, one was let out for commercial purposes for office space and therefore, the assessee could be deemed to be the owner of only one residential house property at the time of transfer of the properties giving rise to capital gains and claimed exemption under Section 54F of the Act. It is further submitted that rental income derived from commercial

7 use of the property was considered as income from house property by virtue of Section 22 of the Act and the same was shown in the return. The tribunal has rightly held that the Commissioner of Income Tax could not have invoked the powers under Section 263 of the Act in the fact situation of the case. It is also pointed out that the appeal of the revenue is not maintainable as the tax effect is lower than the monetary limit prescribed in the Circular dated 08.08.2019 which is binding on the revenue. It is further pointed out that the tax effect in the instant case is only Rs.11,53,409/- which is below the specified monetary limit. In support of aforesaid submissions, reliance has been placed on decision of this court in judgment dated 18.06.2020 passed in I.T.A.no.320/2011 (SHRI.NAVEEN JOLLY VS. INCOME TAX OFFICER) and decision of Punjab and Haryana High Court in COMMISSIONER OF INCOME TAX VS. SOHANA WOOLLEN MILLS, 296 ITR 238

We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of the relevant extract of Section 263 of the Act, which reads as under: 263. Revision of orders prejudicial to revenue

(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 7. Thus, from close scrutiny of Section 263 it is evident that twin conditions are required to be satisfied

9 for exercise of revisional jurisdiction under Section 263 of the Act firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment. 8. The aforesaid provision was considered by the Supreme Court in MALABAR INDUSTRIAL CO. LTD.I supra and it was held that the phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue. It was further held that where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, the order passed by the Assessing Officer cannot be treated as erroneous order prejudicial to the interest of the revenue. The principles laid down in the aforesaid decision were

10 reiterated by the Supreme Court in ‘CIT VS. MAX INDIA LTD.,’ 295 ITR 282 (SC) and recently in ‘ULTRATECH CEMENT LTD. AND ORS. VS. STATE OF RAJASTHAN AND ORS.’, CIVIL APPEAL NO.2773/2020 DECIDED ON 17.07.2020. 9. In the instant case, the assessee sold two vacant residential sites in the Assessment Year 2005-06. The site situate at HSR Layout was sold on 01.07.2004 for a consideration of RS.33,50,000/- and site at Vijaya Bank Employees Housing Society Layout was sold on 08.09.2004 for a consideration of Rs.32,31,500/-. The assessee invested the entire sale consideration in construction of new residential Property at J.P.Nagar, Bangalore. The assessee at the time of the sale of aforesaid two sites had a residential property at Sulthanpalya which was occupied by the assessee for the purposes of residence and another point at High Point which was let out as office space. All the aforesaid facts were noticed by the Assessing Officer during the

11 course of assessment proceedings. Thus, at the time of sale of property, the assessee owned only one residential property as the usage of the property has to be considered whether the property is a residential property or a commercial property. The Assessing Officer therefore, held that the assessee has fulfilled the conditions laid down in section 54F of the Act and is eligible for deduction. The tribunal in its order dated 31.07.2015 has held that the Assessing Officer had all the information and had made enquiries with regard to claim of exemption under Section 54F of the Act. It was further held that the Assessing Officer was of the view that one of the properties was let out for commercial purposes. Therefore, the assessee was eligible for deduction under Section 54F of the Act was one of the possible views which cannot be termed as unlawful or illegal. The aforesaid finding in our view does not suffer from any infirmity warranting interference of this court in exercise of powers under Section 263 of the Act.

12 In view of preceding analysis, the substantial question of law framed by a bench of this court is answered in against the revenue and in favour of the assessee. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss

THE PR. COMMISSIONER OF INCOME-TAX vs. SMT HEMA KRISHNAMURTHY