Assessment order Not Erroneous, Jurisdiction u/s 263 can't invoke: ITAT [Read Order]

The Chandigarh bench of the Income Tax Appellate Tribunal (ITAT) has held that jurisdiction under section 263 of the Income Tax Act,1961 can’t invoke when the assessment order passed by the Assessing Officer(AO) is not erroneous.

Shri Surjit Singh, the case of the assessee was reopened under section 147 and reasons were recorded by the Assessing officer before issuance of notice under section 148 on 8/09/2016 stating that the assessee has sold a property for Rs. 32,50,000/- during the Financial Year 2011-12 relevant to impugned assessment year and in the return of income filed on 27/09/2012, the transaction has not been reflected/disclosed by the assessee.

The assessee filed a copy of the revised return filed on 30/09/2012 disclosing the capital gains on the sale of the property and declaring an income of Rs. 2,52,645/-. Thereafter considering the information/documents submitted by the assessee, the return of income of Rs. 2,52,645/- was accepted. 

Later the PCIT observed that the assessee has shown a capital gain in his ITR at Rs. 25,67,392/- in respect of the sale of the house on 29/02/2011 and claimed the entire capital gain exempted under section 54 being amount deposited in the capital gain account scheme on 12/09/2012 with a maturity date of 12/09/2015.

The assessment was finalized on 28/09/2018 and as per provisions of Section 54, there are time limits wherein the assessee is required to purchase a new residential property within one year before or within two years after the date of transfer of the original residential house property or construct a new residential property within three years from the date of transfer of the original residential house property. 

The PCIT viewed that the AO failed to examine the purchase consideration, source of purchase of said property and year of purchase with supporting evidence and has also failed to examine the person to whom the property has been purchased. Further held that the order so passed by the AO is erroneous in so far as prejudicial to the interest of the Revenue and a show cause was issued to the assessee on 10/03/2021 for which neither anybody attended the proceedings nor sought any adjournment on behalf of the assessee.

It was submitted that as the assessee couldn’t purchase/construct the new property before the date of filing of return of income, the amount of capital gain was invested in the Capital Gain Account Scheme and accordingly claimed exemption under section 54 of the Act.

Further contended that where there is any violation or breach of the condition so stipulated in section 54 in terms of purchase or construction of the new house property within the stipulated time frame as so specified, the same has to be examined and looked at only on the expiry of the two years or three years from the date of transfer of the original asset and not in the year under consideration and our reference was drawn to the provisions of section 54(2) of the Act.  

A Coram comprising of Smt Diva Singh, Judicial Member and Shri Vikram Singh Yadav, Accountant Member observed that any inaction on part of the Assessing officer to carry out such verification will call for action under section 263 in the year of the expiry of three years and not in the year of transfer. 

While allowing the appeal, the Tribunal viewed that the exercise of jurisdiction under section 263 by the PCIT cannot be sustained given the express provisions of the claim of exemption under section 54 and set aside the order passed by the PCIT.

To Read the full text of the Order CLICK HERE

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