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Facts
The assessee's original assessment for AY 2020-21 was framed under Section 143(3) r.w. Section 144B, accepting the returned income after scrutiny. Subsequently, the JAO brought certain issues, including land valuation, to the attention of the Pr.CIT, who then initiated proceedings under Section 263 and revised the assessment, directing a fresh assessment.
Held
The Tribunal found that the Pr.CIT's invocation of Section 263 based solely on the AO's proposal was not sustainable, citing established jurisprudence requiring the Pr.CIT to apply independent mind and fulfill the twin conditions for revisional jurisdiction. It noted that the Faceless Assessment Unit had accepted the returned income after document verification, and the DVO's valuation was based on an 'illegal referral' and not considered in the original assessment.
Key Issues
Whether the Pr.CIT validly exercised revisional jurisdiction under Section 263 when initiating proceedings based on an Assessing Officer's proposal, particularly after the original assessment was completed post-verification, and whether the Pr.CIT applied independent mind as required by law.
Sections Cited
263, 143(3), 144B, 142(1), 55A
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR & SHRI PRADIP KUMAR CHOUBEY
O R D E R
Per Rajesh Kumar, AM:
This is an appeal filed by the assesseeagainst the order passed by the ld. Pr.CIT, Kolkata-2, dated 19.03.2025 for the assessment year 2020- 2021.
The only issue raised by the assessee is against the invalid exercise of jurisdiction by the Pr.CIT, Kolkata-2 u/s.263 of the Act, thereby revising the assessment framed by the AO u/s.143(3) r.w.s.144B of the Act dated 23.09.2022.
Facts in brief are that the assessee filed its return of income on 30.12.2020 declaring total income at Rs.23,35,26,000/-. The case of the assessee was selected for scrutiny and the assessment was framed accordingly u/s.143(3)/144B of the Act accepting the returned income. Thereafter the JAO/DCIT, Circle-5(1) Kolkata brought to notice of the ld. Pr.CIT certain issues/matters which were the subject matter of the proposed proceedings u/s.263 of the Act for A.Y.2020-2021. Accordingly, ld. Pr.CIT issued notice u/s.263 of the Act giving show cause as to why the assessment should not be revised on the ground of being erroneous and prejudicial to the interest of the revenue to the assessee company on 13.09.2022 , which was replied by the assessee. Ld. Pr.CIT after taking into consideration the reply of the assessee revised the assessment framed by the AO by directing to frame the assessment afresh after giving adequate opportunity of hearing to the assessee.
Ld. AR vehemently submitted that the jurisdiction exercised by the ld. Pr.CIT on the proposal of the AO is not sustainable in the eyes of law. The case of the assessee is supported by the decision of the Hon’ble Calcutta High Court in the case of PCIT Vs. Reeta Lakhmani, reported in (2022) 145 taxmann.com 590 (Cal.) and in the case of PCIT Vs. Britannia Industries Ltd., reported in (2025) 175 taxmann.com 470 (Cal). Ld. AR also relied on the decision of the coordinate bench of the Tribunal in the case of CIT Vs. Sinforte (P) Ltd. passed in ITA No.104/Kol/2019. Thus, the ld. AR prayed that the order passed u/s.263 of the Act may kindly be quashed.
Ld. AR also submitted that even during the assessment proceedings the assessee replied to all the notices issued u/s 142(1) of the Act wherein specific query was raised by the AO and replied by the assessee which are available in the paper book. The assessee replied the said notices by furnishing all the documents before the JAO and thereafter no opportunity was given to the assessee for rebutting the referral to the DVO or the Technical Unit, as the case may be. There is no provision for referral to Technical Unit u/s.55A of the Act. Thus, the ld. AR prayed the order passed by the ld. Pr.CIT may kindly be quashed.
Ld. CIT-DR, on the other hand relied heavily in the order of ld PCIT and submitted that no prejudice is caused to the assessee by such invoking of juridiction u/s 263 of the Act as the assessee would be given sufficient opportunity during the set aside proceedings.
After hearing the rival contentions of the parties and perusing the material available on record, we find that in this case a piece of land was sold at Nagpur for Rs.70.08 crore as against stamp duty valuation of Rs.68.72 crore. The fair market value of the land was determined at Rs.21.16 crore by the Registered Valuer of the assessee. After considering indexation on fair market value and indexed cost of improvement, taxable long term capital gain came to be Rs.5.99 crore, which was offered to tax. The fair market value as per the DVO as on 01.04.2001 has been determined at Rs.18.06 crore on an illegal referral of the case to him. The Faceless Assessment Unit had not accepted this valuation of DVO and a clear-cut remark was made in the assessment order that the returned income has been accepted after verification of documents. As per the JAO, the valuation report was not considered by the Faceless Assessment Unit and, therefore, the ld. Pr.CIT was approached for intervention u/s.263 of the Act. In our opinion, the invocation of provision of Section 263 of the Act on the proposal of AO is not sustainable under the Act as has been held by the Hon’ble Kolkata High Court in the case of Reeta Lakhmani (supra), wherein it has been held that the order passed by the Pr.CIT based on the proposal forwarded by the AO is not sustainable. The relevant observations of the Hon’ble Jurisdictional High Court are as under :- On going through the order passed by the learned Tribunal we find that the learned Tribunal had granted relief to the assessee on two grounds firstly as to whether the exercise of jurisdiction by the Principal Commissioner of Income Tax under Section 263 was justified and in accordance with law. This aspect was considered by the learned Tribunal and after going through the facts of the case it was found that the initiation of the proceedings under Section 263 of the Act was based on a proposal given by the assessing officer and not at the behest of the PCIT. It may be true that the PCIT may have information from the assessment file or through other sources. Nevertheless while exercising powers under Section 263 of the Act the PCIT has to bear in mind the twin conditions are to be conjointly fulfilled. Therefore, before exercise of power under Section 263 it is the PCIT who has to apply its mind to the issue and thereafter record reasons as to how the twin conditions are satisfied and then issue a show-cause notice to the assessee. In the cases on hand there is nothing on record to show that such an exercise was done by the PCIT. Therefore, learned Tribunal after noting several decisions on the subject rendered by the Coordinate Benches of the Tribunal had allowed the assessee’s appeal and set aside the order passed by the PCIT under Section 263 of the Act. Thereafter, the learned Tribunal has proceeded to examine the merits of the matter and granted relief. It is the submission of Mr. Mitra that so far as the merit of the cases are concerned similar issue was tested by this Court in the case of Principal Commissioner of Income Tax Vs. Swati Bajaj reported in 2022 SCC online page 1572. Though such may be the issue, as pointed out earlier the learned Tribunal had granted relief to the assessee on two grounds the first of which being that the exercise of power under Section 263 of the Act was not in accordance with law. As could be seen from the substantial questions of law suggested by the revenue, the revenue has not raised any question on the said finding of the Tribunal which goes to show that the revenue had reconciled with the reasoning given by the learned Tribunal in that record. Therefore, a piecemeal challenge to the order passed by the learned Tribunal on one of the grounds on which relief was granted to the assessee is not maintainable. In more or less identical circumstances in the case of Principal Commissioner of Income Tax, Durgapur Vs. M/s. Sinforte Pvt. Ltd. in ITAT No.104/2019 dated 7.1.2022 the court had dismissed the appeal filed by the revenue on the ground that the PCIT in order to exercise jurisdiction under section 263 of the Act exercised jurisdiction at the instance of the assessing officer which is against the provisions of the law. This decision supports the case of the respondent assessee. Hence, for the above reasons, we are of the view that the order passed by the learned tribunal on the first ground, namely with regard to the correctness of the exercise of power under section 263 of the Act has to be affirmed and, accordingly, the appeal filed by the revenue is dismissed and the substantial questions of law suggested by the revenue are not required to be decided in the instant case. For the reasons set out by us above and, accordingly, the same are left open.
Similar ratio has been laid down by the coordinate bench of the Tribunal in the case of Sinforte (P) Ltd. (supra) and the Hon’ble Jurisdictional High Court in the case of Britannia Industries Ltd. (supra), wherein it has been held that where the valuation was determined on scientific basis and all facts were scrutinized by the Assessing Officer in the course of assessment, the PCIT could not have invoked jurisdiction under section 263 of the Act. Considering the above facts, we are inclined to quash the impugned order passed by the Pr.CIT, Kolkata-2 u/s.263 of the Act. Accordingly, appeal of the assessee is allowed.