The Principal Commissioner Of Income Tax-3 v. Minal Nayan Shah

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 141 of 2020 ==========================================================THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 VersusMINAL NAYAN SHAH ========================================================== Appearance:MR MANISH BHATT SENIOR COUNSEL WITH MRS MAUNA MBHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATHandHONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 01/09/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1This Tax Appeal under Section 260A of the Income Tax Act,1961 [for short, 'the Act, 1961'] is at the instance of the Revenueand is directed against the order passed by the Income TaxAppellate Tribunal, 'C' Bench, Ahmedabad dated 15[th] October2019 in the ITA No.643/Ahd/2019 for the assessment year2014-15. 2The Revenue has proposed the following question of law forthe consideration of this Court: “Whether Appellate Tribunal was correct in law and on facts inquashing the revision order passed under Section 263 of the Actwithout appreciating the fact that the Assessing Officer hascategorically failed to verify the deduction under Section 54F ofthe Act resulting the order of the Assessing Officer beingerroneous and prejudicial to the interest of revenue?” counsel appearing for the appellant. 4It appears from the materials on record that the case onhand is one of scrutiny assessment under Section 143(3) of theAct, which came to be completed on 27[th] December 2016accepting the return of income at Rs.1,26,94,100/-. Later, thePrincipal Commissioner of Income Tax – 3, Ahmedabad took upthe order of assessment passed by the Assessing Officer inrevision in exercise of his power under Section 263 of the Act,1961. The Principal Commissioner passed an order dated 25[th]March 2019 directing the Assessing Officer to pass a freshassessment order in respect of claim of the assessee underSection 54F of the Act on the sale of land. 5It appears that the assessee with the co-owner of the landin question entered into the development agreement with M/s.Synthesis Engineers, for which the assessee receivedconsideration of Rs.4,79,68,453/- with respect to the said land.The assessee showed the LTCG of Rs.1,21,50,267/- afterclaiming exemption under Section 54F for the act of purchasingthe property at Rs.2,51,35,374/- and Rs.1,00,00,000/- underSection 54EC of the Act, 1961. 6It is the case of the department that upon due verificationof the transaction, it was found that the property purchased forclaiming various exemption under Section 54F was availableonly for only one property. In the course of the proceedingsunder 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 equalshare for total consideration of Rs.4,71,23,702/- from M/s. Synthesis Engineers. The block 'E' of superstructure had threeindependent units with a separate kitchen, separate entranceand located on different floors. It is the case of the departmentthat such units could not be said to be contiguous units to becalled one single residential house against which the exemptionunder Section 54F could be claimed by the assessee. 7Thus, according to the department, the assessee bypurchasing three independent houses vide a single deed could besaid to have erroneously claimed the exemption under Section54F of the Act and was not eligible to claim exemption forpurchase / construction of only one residential house. Synthesis Engineers. The block 'E' of superstructure had threeindependent units with a separate kitchen, separate entranceand located on different floors. It is the case of the departmentthat such units could not be said to be contiguous units to becalled one single residential house against which the exemptionunder Section 54F could be claimed by the assessee. 7Thus, according to the department, the assessee bypurchasing three independent houses vide a single deed could besaid to have erroneously claimed the exemption under Section54F of the Act and was not eligible to claim exemption forpurchase / construction of only one residential house. 8In such circumstances referred to above, the PrincipalCommissioner, vide his order dated 25[th] March 2019 passedunder Section 263 of the Act, set aside the assessment orderunder Section 143(3) of the Act as he was of the view that theassessment order was prejudicial to the interest of the Revenue. 9The assessee, being dissatisfied with the order passedunder Section 263 of the Act, preferred an appeal before theappellate authority. The Appellate Tribunal allowed the appeal ofthe assessee holding as under: “9. We have carefully considered the rival submissions. Section263 of the Act confers power upon the Pr.CIT/CIT to call for andexamine the records of a proceeding under the Act and revise anyorder if he considers the same to be erroneous and prejudicial tothe interests of the Revenue. The Pr.CIT can take recourse torevision under Section 263 of the Act where the assessment orderis erroneous as well as prejudicial to the interest of Revenue. Thetwin conditions are required to be satisfied simultaneously. ThePr.ClT in the present case has purported to act in exercise ofpower under s.263 of the Act and thereby has sought to cancelthe assessment order of the AO passed under s. 143(3) of theAct. The Pr.ClT essentially observed that the AO has wrongly alloweddeduction under s.54F of the Act in contravention of theprovision of the Act. The ground for impugned action under 8.263of the Act is that the AO has failed to make requisite inquiry intothe claim of deduction of the assessee under s.54F of the Act andin the absence of proper inquiry on the eligibility of deductioninvolved, the order of the AO is erroneous in so far as prejudicialto the interest ofthe Revenue. 9.1 As pointed out on behalf of the assessee, two pre-requisitesmust coexist before the designated authority could exercise therevisional jurisdiction conferred on him namely; the order shouldbe (I) erroneous & (ii) the error must be such that it is prejudicialto the interests of the Revenue. However, an erroneous orderdoes not necessarily mean an order with which the Pr.ClT isunable to agree. The AO while passing an order of assessment,performs judicial functions. An order of assessment passed bythe AO cannot be interfered only because an another view is alsopossible onthe issue as held in CIT vs. GreenworldCorporation(2009) 181 Taxman 111 (SC). If in given facts and circumstancesof the case, two views are possible and one view as legallyplausible has been adopted by the AO then existence of otherpossible view alone would not be sufficient to exercise powersunder s.263 of the Act.by the Pr.ClT / CIT concerned. Hence,there can be no doubt that the provision cannot be invoked tocorrect each and every type of mistake or error committed by theAO. It is only when an order is erroneous and causing prejudice,that the Section will be attracted. An incorrect assumption offacts or incorrect application of law will satisfy therequirementsof the order being erroneous. 9.2 In the instant case, it is demonstrated on behalf of theassessee that necessary inquiries were made towardscomputation of long term capital gain and claim of deductionunder s.54F of the Act. The issue of eligibility of claim ofdeduction was thus present to the mind of the AO. Relevantdocuments were also shown to have been filed in the assessmentproceedings. We also simultaneously notice that theassesseehas placed reliance upon several judicial precedents namely; CITvs. Smt. K. G. Rukminiamma (2011) 331 ITR 211 (Kamataka); CITvs. Gita Duggal (2013) 357 ITR 153 (Delhi); CIT vs. Gita Duggal(2014) 52 taxmann.com246 (SC), CIT vs. Syed Ali Adil (2013)352 ITR 418 (AP) and CIT vs. Smt. V. R. Karpagam (2015) 373ITR 127 (Madras) for the construction of expression 'a residentialhouse' in the context of Section 54 & 54F of the Act. DifferentCourts noted above have echoed that expression “a residentialhouse’ would encompass different residential units located on thedifferent floors of the same building. On facts, we note that all the three units are located on the different floors of the samestructure and purchased by the assessee by a common deed ofconveyance. In the facts and circumstances, plurality of opinionabout the allowability of deduction surely exists even if it ispresumed for a moment that view adopted by the AO in favour ofthe assessee is notsingular or absolute. In the circumstances,wherethe language couched in Section 54F of the Act has beeninterpreted in a manner favourable to assessee and multipleresidential units were included within the sphere of Section 54Fof the Act, we see no wrong in the action of the AO in seeing theissue in a wider spectrum. Thus, when the issue of eligibility ofdeduction under s.54F of the Act is tested on the touchstone ofprevailing judicial dícta, the action of the AO cannot bediscredited as incorrect application of law or wrong assumptionof facts. As noted earlier, the relevant facts concerning thepurchase of super structure comprising of three different unitswere duly placed and available on record. The AO was not foundto be totally oblivious of the relevant facts. Thus, there is anapparent plausibility about the assent of mind of AO onadmissibility of claim having regard to the law existing at therelevant time. In these circumstances, the AO can be safelypresumed to have adopted a view which was plausible thoughnot necessarily agreeable to the RevisionalCommissioner. 9.3An inquiry on the issue contemplated under 8.263 r.w.Explanation 2 of the Act has its limits implicit in it. It is only avery gross case of inadequacy in inquiry or where inquiry is perse mandated on the basis of record available before AO and suchinquiry was not conducted which resulted an error fatal to theinterest of the Revenue, the revisional power so conferred can beexercised to invalidate the action of the AO. The AO is notexpected to chase will o’ the wisp to find out something adverseto the assessee on each and every transaction. What issignificant is the lack/inadequacy of inquiry should result in asubstantive error or a visible abnormality resulting in loss ofRevenue. The claim of the assessee towards deductibility unders.54F of the Act cannot be regarded to be erroneous in the light ofjudicial precedents and therefore lesser degree of inquiry madeon the issue per se would not cover the situation in the sweep ofexpression ‘erroneous’. A plausible view admitted in assessmentstage inexercise of quasi-judícial function cannot bedislodged ina light hearted manner in the name of inadequacy in inquiries orverification as perceivedin the opinion of the revisional authority. 9.4 On a broader reckoning of facts and law enunciated in thisregard, we find merit in both the pleas raised on behalf of theassessee i.e. the alleged inadequacy in inquiry has not resulted 9.4 On a broader reckoning of facts and law enunciated in thisregard, we find merit in both the pleas raised on behalf of theassessee i.e. the alleged inadequacy in inquiry has not resulted in perceptible error when tested in the light of judicial precedents,secondly and without prejudice, the claim of the assessee unders.54F of the Act is certainly plausible in law and thus the actionof theAO is not open to attack on the grounds of beingarbitraryand capricious. Section 263 of the Act does not visualize a case ofsubstitution of the judgment of the Revisional Commissioner forthat of AO unless the decision of the AO is found to be erroneous.The claim under s.54F of the Act being plausible, the foundationfor exercise of revisional jurisdiction in our view does not exist.We thus find merit in the plea of the assessee towards lack ofauthority of Pr.CIT to exercise jurisdiction conferredunder s.263of the Act in the instant case. The revisional order is accordinglyset aside and quashed.” 10Being dissatisfied with the impugned order passed by theAppellate Tribunal, the Revenue is here before this Court withthe present appeal. 11Having heard the learned senior counsel appearing for theRevenue and having gone through the materials on record, theonly question that falls for our consideration is whether theAppellate Tribunal committed any error in passing the impugnedorder. 12The power under Section 263 of the Act, 1961 can beexercised by the Commissioner in the following facts andcircumstances: [1] There should be proceedings under the Act; [2] In such proceedings, the Assessing Officer must havepassed an order. The Commissioner should consider thatthe assessment order is erroneous and prejudicial to theinterest of the Revenue. 13When the aforesaid factors co-exists, the Commissionerwill have the jurisdiction to take action under Section 263 of the Act. 14It is also an essential condition for the exercise of powerunder Section 263 of the Act that the Commissioner of IncomeTax must find an error which is found in the assessment order ofthe Income Tax Officer prejudicial to the interest of the Revenueand conclusion of the Commissioner that the order is erroneousand prejudicial to the Revenue must be based on materials andcontentions raised by the assessee on opportunity of hearingbeing afforded to him. 15The findings of facts recorded by the Appellate Tribunal isthat one of the requisite conditions for the exercise of powerunder Section 263 of the Act that the Commissioner shouldconsider the assessment order to be erroneous and prejudicial tothe interest of the Revenue is not satisfied in the present case. Inarriving at such conclusion, the appellate Tribunal has assignedcogent reasons. 16In the overall view of the matter, we have reached to theconclusion that we should not disturb the order passed by theappellate Tribunal as the proposed question, in our opinion,cannot be termed as a substantial question of law. 17In the result, this appeal fails and is hereby dismissed. (VIKRAM NATH, CJ) Vahid / CHANDRESH (J. B. PARDIWALA, J)