The assessment order was deemed erroneous under Section 263 due to the AO’s failure to properly investigate the exemption claim for capital gains, which was incorrectly applied under different statutory provisions.

ORDER

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal by assessee is directed against order of PCIT/NFAC for the assessment year 2018-19 dated 6.12.2023 passed u/s 263 of the Income Tax Act, 1961 (in short “The Act”).

2. Facts of the case are that the assessee is an individual, filed return of income for AY 2018-19 on 30-03-2019 by declaring total income of Rs 4,06,38,068/- with tax payable amount of Rs 1,84,24,220/-. The scrutiny assessment was completed under section 143(3) r.w.s. 144B of the Act on 22-04-2021, determining the total income at Rs 8,45,68,068/- after disallowing Rs.4,25,00,000/- claimed u/s 54 of the IT Act and Rs.14,30,000/- as cost of improvement.

2.1 On verification and examination of the assessment record, the following were noticed:

• That the assessee has claimed exemption of Rs. under capital gain on account of compulsory acquisition of property situated at Bommanahalli, Bengaluru under the Right to Fair Compensation & Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013 (RFCTLAAR Act 2013). The said property was acquired by the KIADB as per KIADB Act 1966 for the metro work at Bommanahalli.

• The said property was acquired under KIADB Act 1966 for the metro work at Bommanahalli vide its notification order no. 460/1/54/2:28(1) dated 23.07.2015. The property was NOT acquired under RECTLAAR Act, 2013. Therefore, the exemption claimed by the assessee of Rs.11,98,36,958/- of capital gain on account of compulsory acquisition is not in order and is taxable u/s 45(5) of the IT Act 1961.

• The assessment order under consideration was passed without carrying out the necessary investigation and as such the order passed by the AO is deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue.

2.2 It is clear from the above verification of the records that the Assessing Officer passed the order without carrying out the necessary inquiry and verification on the exemption claimed on account of compulsory acquisition of the lands and as such the order passed by the AO without causing any inquiry is deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue in view of clause (a) to Explanation 2 of Section 263 of the Act thereby rendering the assessment order passed to be erroneous and prejudicial to the interest of revenue.

2.3 Against this assessee is in appeal before us by way of following grounds:

1. The order of the learned Principal Commissioner of Income-tax, Bangalore-I (Pr. CIT), in so far as it is against the appellant is opposed to law, equity, facts, weight Of evidence, probabilities and circumstances of the case.

2. The Hon'ble Principal Commissioner of Income-tax, Bangalore has grossly erred in revising the order passed by the learned assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the learned Principal Commissioner of Income-tax, Bangalore is ultra vires to the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant's case.

3. The Hon'ble Pr. CIT is not justified in invoking the provision u/s 263 and holding that the order passed by the Assessing Officer u/s 143 (3) r.w.s 144B dated 22.04.2021 as "erroneous and pre-judicial to revenue" ignoring the fact that the Assessing Officer had applied his mind on the issue and had verified and examined all the relevant documents on the exemption claimed by the appellant. Therefore, the order u/s 263 does not survive and deserves to be cancelled on facts and circumstances of the case.

4. The Hon'ble Pr. CIT is not justified in invoking the provision u/s 263 and passing the order u/s 263 of the Income Tax Act, 1961 as the twin conditions for invoking the ju