MAULIK RAVJIBHAI PATEL,AHMEDABAD vs. PCIT, AHMEDABAD -1, AHMEDABAD

The brief facts of the case are that the assessee had filed his return of income for A.Y. 2020-21 on 27.12.2020 declaring income of Rs5,49,255/-. The case was selected in e-Verification scheme in accordance with the provisions of section 135A of the Act, on the basis of mismatch report. Subsequently, a notice u/s. 148 of the Act was issued

Aggrieved with the order of the Ld. PCIT, the assessee is in appeal before us. h

The following grounds have been taken in this appeal:

Shri Rameshchandra B Patel, the Ld. AR of the assessee submitted that the AO had issued notice u/s. 147 of the Act to examine the escapement of income of Rs 27.50 lakhs, which was duly examined by the AO in the course of assessment and the returned income of the assessee was accepted. He submitted that the Ld. PCIT had no jurisdiction to travel beyond the recorded reasons and treat the assessment order as erroneous on account of issues relating to LTCG valuation and section 50C, which did not form part of the recorded reasons. According to the Ld. AR, the issue on which the case was reopened was duly examined by the AO in the course of assessment and, therefore, the Ld. PCIT was not correct in holding that the order of the AO was erroneous and pre-judicial to the interest of revenue.

Per Contra, Shri Kiran Unavekar, the Ld. CIT-DR submit that the AO, in the course of assessment proceeding, had referred the matter to the DVO to find out the correct value of the property as on 01.04.2001 and also on the date of sale. He submitted that this fact was duly recorded by the AO in the assessment order. However, since the order of the DVO was not received till the passing of assessment order, the AO had accepted the valuation as submitted by the assessee. The Ld. CIT-DR

We have considered the rival submissions. It is found that the case was selected for scrutiny to examine the purchase of an immovable property during the year being non-agricultural land at Zundal for Rs. 81 lakhs, in which the assessee had 34% share valued at Rs. 27.54 lakh. It was explained that this property was purchased out of sale proceeds of co-owned land at Chandkheda, which was sold for a consideration of Rs. 5 crores and on which LTCG of Rs.1,10,33,336/- was derived. The assessee had 22.07% share in this land and the proportionate LTCG derived on sale of this land was offered to tax. Thus, the issues of acquisition of non-agricultural land at Zundal and sale of land at Chandkheda were inter-connected and was rightly examined by the Assessing Officer in the course of assessment proceeding. To work out the LTCG on sale of Chandkheda land, which was stated to be an ancestral property, the assessee had adopted the fair market value of the property as on 01.04.2001 at Rs.1,64,13,000/-, on the basis of valuation report of a private valuer. The AO had noted in the assessment order that considering the value of the property at Rs.1,64,13,000/- as on

Thus, the undisputed facts are that during the course of assessment proceedings, the AO entertained doubts regarding the fair market value of the property as on 01.04.2001 as well as its value on the date of transfer. Consequently, he made a reference to the DVO for determination of the valuation. However, as the DVO's report was not received before the limitation period for completion of assessment, the AO had completed the assessment u/s 143(3) of the Act by accepting the income returned by the assessee without making any adjustment on the basis of valuation. Subsequently, the DVO furnished his valuation report, wherein the fair market value as on 01.04.2001 and the value on the date of transfer was determined at figures materially different from those adopted by the assessee. On examination of the assessment record along with the valuation report, the learned PCIT invoked the provisions of section 263 of the Act, holding that the assessment order was erroneous and

The provision of section 263 of the Act stipulates that the PCIT may call for and examine the record of any proceeding under this Act to find out whether the order of the AO was erroneous and pre-judicial to the interest of revenue. The clause (b) to Explanation (1) of section 263 of the Act, stipulates as under:

In the present case, the AO himself considered it necessary to ascertain the correct valuation of the property and, accordingly, made a reference to the DVO. Having formed such an opinion, he could not have finalized the assessment by mechanically accepting the assessee's computation merely because the valuation report had not been received by then. The assessment order itself records no independent examination of the valuation adopted by the assessee, nor does it contain any finding demonstrating that the AO was otherwise satisfied regarding the correctness of such valuation. The assessment was thus completed

The subsequent receipt of the DVO's report revealed that the valuation adopted by the assessee was not in accordance with the valuation determined by the statutory valuation authority. The report constituted relevant material having a direct bearing on the computation of capital gains. Once such material became available, the learned PCIT was fully justified in examining whether the assessment order suffered from an error resulting in prejudice to the interests of the revenue. The revisional jurisdiction under section 263 is exercised with reference to the legality and correctness of the assessment order, and if subsequent material demonstrates that the assessment was completed without considering material which was indispensable for determining the correct taxable income, the PCIT is not precluded from invoking section 263 of the Act.

The fact that the AO completed the assessment owing to the impending limitation period does not cure the defect in the assessment nor does it deprive the PCIT of his statutory revisional powers. Administrative or procedural constraints faced by the Assessing Officer cannot validate an assessment which has resulted in the underassessment of income. The object of section 263 is precisely to enable correction of such erroneous assessments where the Revenue has suffered prejudice.

It is equally significant that the learned PCIT has not himself substituted the valuation adopted by the DVO for the purpose of making the addition. He has merely set aside the assessment on the limited issue

In view of the foregoing discussions, we are satisfied that the assessment order was passed without proper determination of the fair market value, despite the AO himself having initiated the statutory process of valuation. The subsequent DVO's report clearly disclosed that the assessment had the potential to result in escapement or underassessment of taxable capital gains. The learned PCIT, therefore, rightly concluded that the assessment order was erroneous in so far as it was prejudicial to the interests of the revenue and validly exercised the revisional jurisdiction under section 263 of the Act. Accordingly, we find no infirmity in the impugned order passed by the learned PCIT u/s 263 of the Act. The order of the Ld. PCIT is, therefore, upheld and the grounds raised by the assessee are dismissed.

In the result, the appeal of the assessee is dismissed.