By Sri v. Chandrashekar, Adv

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 1 DAY OF MARCH 270271 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE ASHOK S. KINAGL1LT.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. (BY SRI. ARAVIND K.V. ADV.,) .., APPELLANTS~ AND" SMT. HEMA KRISHNAMURTHY|19, ORCHARD VIEW APARTMENTSBELLARY MAIN ROAD|SADASHIVANAGAR|BANGALORE-560080 PAN: AFJPP 6990A. ~. RESPONDENT (BY SRI. V. CHANDRASHEKAR, ADV.,) THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 31.07.2015 PASSEDIN ITA NO.511/BANG/2013 FOR THE ASSESSMENT YEAR 2005-06,PRAYING TQ: | (1) 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 31.0/7.20L5 AND CONFIRM THE ORDER OF THE APPELLATECOMMISSIONER 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 TaxAct, 1961 (hereinafter referred to as the Act for short)nas been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 2005-06.The appeal was admitted by a bench of this Court videorder dated 25.10.2017 on the following substantial|questions of law:| “1. Whether on the facts and in thecircumstances of the case, the Tribunal Is correct in law in holding that assessee Is.eligible to make claim under section 54Fwhen the assessee owned more then two§residential nouses being Flat No.2034 at|Hign Palace Point and House No.8 in R.T. Nagar which prohibits assessee to make.claim under section 54F 2". "2. Whether on the facts and in thecircumstances of the case, the Tribunal Is correct in law in holding that the orderDaSSE€dUndersection763by theCommissioner of [ncome Tax wes not.erroneous and prejudicial to interest of.Revenue when the proceedings of theCommissioner under section 763 of the Act|was in accordance with parameters of said.section 2", 2D Facts leading to filing of this appeal brieflystated 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 othersources. The return was processed under Section 143(1).of the Act. Thereafter, annual information returninformation was received by the department that theassessee has sold immovable properties and the return of Income did not reflect the details of the same. The.Assessing Officer thereafter re opened the case byissuance of notice under Section 148 of the Act. The.assessee filed the reply requesting the Assessing Officerto treat the return of Income filed on 20.07.2005 as one.filed in response to the notice under Section 148 of theAct. TheASSeSSINGQOfficer.passedanorder|Of assessment dated 15.12.2010 under Section 143(3).read witn Section 14/ of tne Act and held tnat tneassessee is entitled to deduction under Section 54F of.the Act and did not have any income which escapedassessment. The return filed by the assessee wasaccepted. 3.0Tne Commissioner of Income Tax Invoked|powers under Section 263 of the Act and concluded theSame and passed an order on 21.02.2013 and set asidethe order passed by the Assessing Officer. A direction.was issued to tne Assessing Officer to re do the order ofassessment and pass a fresn order of assessment. Tne. assessee thereupon filed an appeal before the IncomeTax Appellate Tribunal (hereinafter referred to as thetribunal for short), which was allowed by the tribunal byan order dated 31.07.2015. In the aforesaid factual.background, the revenue has filed this appeal. 3.0Tne Commissioner of Income Tax Invoked|powers under Section 263 of the Act and concluded theSame and passed an order on 21.02.2013 and set asidethe order passed by the Assessing Officer. A direction.was issued to tne Assessing Officer to re do the order ofassessment and pass a fresn order of assessment. Tne. assessee thereupon filed an appeal before the IncomeTax Appellate Tribunal (hereinafter referred to as thetribunal for short), which was allowed by the tribunal byan order dated 31.07.2015. In the aforesaid factual.background, the revenue has filed this appeal. 4Learned counsel for the revenue submittedthat 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.nad rightly invoked the powers under Section 263 of theAct as the order of the Assessing Officer was erroneousand prejudicial to the interest of the revenue. Learnedcounsel 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 oflaw will satisfy the requirement of order beingerroneous. In support of aforesaid submissions, reliance has been placed on decision of the Supreme Court in'MAILABARINDUSTRIALCO.LTD,YS, COMMISSIONER OF INCOME TAX‘, (2000) 109TAXMAN 66 (SC)and a division bench decision of this|court In‘COMMISSIONEROF INCOME-TAX, CENTRALCIRCLE, BANGALORE VS. M.J. SIWANI', (2014) 46.TAXMANN.COM 170 (KARNATAKA). 5On the other hand, learned counsel for theassessee submitted that the usage of property has to be|considered in determining whether property is aresidential property or a commercial property. It isfurtner submitted that the Assessing Officer was awaretnat out of two residential properties, one was let out forcommercial purposes for office space and therefore, theassessee could be deemed to be the owner of only one.residential house property at the time of transfer of theproperties giving rise to capital gains and claimedexemption under Section 54F of the Act. It is furtherSuDmitted that rental income derived from commercial. use of the property was considered as income from.house property by virtue of Section 22 of the Act andthe same was shown in the return. The tribunal has.rightly held that the Commissioner of Income Tax couldnot have invoked the powers under Section 263 of theAct in the fact situation of the case. It is also pointed outthat the appeal of the revenue is not maintainable asthe tax effect is lower than the monetary limitprescribed in the Circular dated 08.08.2019 wnhicn isbinding 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 Supportof aforesaid submissions, reliance has been placed ondecision of this court in judgment dated 18.06.2020passed in I.7T.A.no.320/2011 SHRI,.NAVEEN JOLLYVS, INCOME TAX OFFICER) and decision of Punjab|and Haryana High Court in|COMMISSIONER OF.INCOME TAX VS. SOHANA WOOLLEN MILLS, 296ITR 238 6.|We have considered the submissions madeby learned counsel for the parties and have perused therecord. Before proceeding further, it is apposite to takenote of the relevant extract of Section 263 of the Act,which reads as under: 263. Revision of orders prejudicial torevenue | (1) The Commissioner may cali for andexamine 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 givingthe assessee an opportunity of being heardand after making or causing to be made sucninguiry as ne aqeems necessary, pass sucnorder thereon as the circumstances of thecase justify, including an order enhancing or modifying the assessment, or cancelling the|assessme/lnanddirecting afresh|assessment. 263. Revision of orders prejudicial torevenue | (1) The Commissioner may cali for andexamine 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 givingthe assessee an opportunity of being heardand after making or causing to be made sucninguiry as ne aqeems necessary, pass sucnorder thereon as the circumstances of thecase justify, including an order enhancing or modifying the assessment, or cancelling the|assessme/lnanddirecting afresh|assessment. 7Thus, from close scrutiny of Section 263 it isevident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263|of the Act firstly, the order of the Assessing Officer iserroneous 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 supraand it was held that the phrase|‘prejudicialto the jInterests of the revenue’has to be read iniconjunction with an erroneous order passed by the)Assessing Officer and every loss of revenue as aconsequence of the order of the Assessing Officer cannotpe treated as prejudicial to the interest of revenue. Itwas further neid that wnere two views are possibie andthe 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 erroneousOrder prejudicial to tne interest of the revenue. Tneprinciples laid down in the aforesaid decision were 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 OFRAJASTHANANDORS. “,CIVILAPPEALNO.2773/2020 DECIDED ON 17.07.2020. oiIn the instant case, the assessee sold twovacant residential sites in the Assessment Year 7005-06. 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 Inconstruction of new residential Property at J.P.Nagar,.Bangalore. The assessee at the time of the sale ofaforesaid two sites had ae residential property atSulthanpalya which was occupied by the assessee forthe purposes of residence and another point at HighPoint whicn was let out as office space. All the aforesaidfacts were noticed by the Assessing Officer during the course of assessment proceedings. Thus, at the time ofsale of property, the assessee owned only oneresidential property as the usage of the property has to.be considered whether the property is a residentialproperty or a commercial property. The AssessingOfficer therefore, held that the assessee has fulfilled theconditions laid down in section 54F of the Act and ieligible for deduction. The tribunal in its order dated31.07.2015 has held tnat tne Assessing Officer nad allthe information and had made enquiries with regard to)claim of exemption under Section 54F of the Act. It wasfurther held that the Assessing Officer was of the view|that one of the properties was let out for commercialpurposes. Thnerefore, the assessee was eligidie fordeduction under Section 5S4F of tne Act was one of tnepossible views which cannot be termed as unlawful or.illegal. The aforesaid finding in our view does not sufferfrom any infirmity warranting interference of this courtin exercise of powers under Section 263 of the Act. In view of preceding analysis, the substantialquestion of law framed by a bencn of this court isanswered in against the revenue and in favour of the|assessee. In the result, we do not find any merit in thisappeal, the same fails and is hereby dismissed. Sd/-JUDGE. SS| Sd/-JUDGE.