INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Jurisdiction of Pr. CIT - One of twin pre-conditions not satisfied -

Pr. CIT was of the opinion that assessee had increased his capital during the year on account of receipt of gift of residential flat. Pr. CIT after considering all the facts was of the opinion that the AO had accepted increase in capital without proper application of his mind. According to Pr. CIT, the AO had not ascertained whether the daughter who had gifted the flat to the assessee had the capacity to purchase the flat or not, he took the aid of the Explanation inserted in section 263 with effect from 1-6-2015 and held that the assessment order, dated 23-8-2017 passed by the AO was erroneous, insofar as prejudicial to the interest of the revenue. Held: The assessee's case for assessment year 2015-16 was selected for limited scrutiny, i.e., only for the issue in respect of increase in capital of assessee. Gift of a flat at Bangalore from his daughter Ms. A. Kejriwal to the tune of Rs. 2.29 crores being reflected in the capital account was duly enquired by AO and the assessee had submitted all documents to support his claim of gift, including the source of the donor, Ms. Ankita Kejriwal along with the bank statement of donor who at that time was assessed under ITO Ward-29(4), Kolkata, the assessee in this process had discharged the onus cast upon him by virtue of non-registration of the gift instrument, in the eyes of law, no transfer of flat takes place, then the assessee's capital account will get reduced by the cost of the flat which had been gifted and then will get reflected in the capital account of the donor Ms. A.Kejriwal, thereby increasing her capital account and not that of assessee. In such an event, there will be no prejudice caused to the revenue, on account of AO not appreciating the legal effect of non-registration of gift instrument. From the enquiry conducted by the AO, assessee had furnished the source of the donor for purchasing the property other than Rs. 20,050 the source of fund for purchasing the flat flows from the earlier assessment years. Thus, even if the AO finds that the non-registration of the gift deed would result in non-transfer of the flat would not in any case prejudice the revenue. Therefore, the second limb of the jurisdictional requirement, i.e. 'prejudicial to the interest of revenue' does not exist and, therefore, the Principal Commissioner lacked jurisdiction to interfere in the order of the assessment passed by the AO and since there would be no prejudice caused to the revenue, as discussed, in this case, the twin conditions were not satisfied as held by the Apex Court in Malabar Industries Ltd., therefore, the revisionary jurisdiction exercised by the Pr. CIT under section 263 was without jurisdiction and was liable to be quashed and accordingly the impugned order was quashed.

Applied:Malabar Industries Ltd. v. CIT (2000) 243 ITR 83 (SC) : 2000 TaxPub(DT) 1227 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

SUBSCRIBE FOR FULL CONTENT