STARSHINE LAND DEVELOPERS PRIVATE LIMITED,ANDHERI EAST, MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX, MUMBAI-5, AAYAKAR BHAVAN, MUMBAI

The PCIT on perusal of assessment order has found the order erroneous in so far as prejudicial to the interest of revenue within the meaning of provisions of section 263 of the IT Act as the Assessing Officer has failed to examine the issue for which assessment was reopened. The assessee is before us against the above order.

The Ld. AR submitted that the Assessing Officer had issued notice u/s 142(1) and obtained details and therefore it should be presumed that the Assessing Officer had applied his mind. He further submitted that the amendment to section 23(5) has been brought on the statute only w.e.f. AY 2018-19 and therefore no notional ALV could be brought to tax for the year under consideration. The Ld. AR placed reliance on the decisions in Dosti Realty Pvt. Ltd., Shamdarshan vs. DCIT [(2025) 177 Taxmann.com 317 (Mumbai)], DCIT vs. Neepa Real Estate Pvt. Ltd. [(2024) 116 ITR (T) 247 (Mumbai)], and C.R. Developments Pvt. Ltd. vs. JCIT[ITA No.4277/Mum/2012] The Ld. AR further relied upon the judgment of the Hon’ble Supreme Court in CIT vs. Kelvinator of India 3

Per contra, the Ld. DR strongly supported the order of the Ld. PCIT and submitted that the reassessment order itself demonstrates complete non-application of mind. The Ld. DR placed reliance on the judgment of the Hon’ble Supreme Court in PCIT vs. Paville Projects Pvt. Ltd.[(2023) 149 taxmann.com 115 (SC)] to contend that lack of proper enquiry justifies revision u/s 263. The Ld. DR further relied on the decision of the Hon’ble Bombay High Court in CIT vs. Gundecha Builders [(2019) 102 taxmann.com 27 (Bom)] and CIT vs. Sane & Doshi Enterprises[(2015) 58 Taxmann.com 111 (Bombay)] to submit that the issue of notional ALV on unsold flats is a legally examinable issue and failure of the Assessing Officer to examine the same renders the assessment order erroneous and prejudicial to the interests of the revenue.

We have heard the rival submissions and perused the material available on record. The legal position governing exercise of revisional jurisdiction under section 263 is well settled. The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. vs. CIT (243 ITR 83) has held that the Commissioner can revise an order only when the twin conditions, the order being erroneous and prejudicial to the interests of the revenue are satisfied. An order becomes erroneous when it is passed on incorrect assumption of facts or incorrect application of law or without application of mind.

In the present case, the reasons recorded for reopening clearly and specifically flagged the issue of taxability of notional ALV on unsold flats. Therefore, the Assessing Officer was duty bound to examine this issue in a focused and meaningful manner. The reopening itself was founded on the belief of escapement on this precise issue. Hence, the enquiry on this aspect was not optional but mandatory. However, on perusal of the reassessment order, we find that except for a mechanical narration of issuance of notices and filing of replies, there is absolutely no discussion, verification, analysis or finding on the issue of notional ALV. The order is completely silent on the escapement issue. There is nothing on record to demonstrate that the Assessing Officer formed any opinion after examining the facts and applicable law.

The contention of the Ld. AR that issuance of notice u/s 142(1) raises a presumption of application of mind is not acceptable in the facts of the present case. The Hon’ble Delhi High Court in Gee Vee Enterprises vs. Addl. CIT (99 ITR 375) has held that failure to make enquiries which are called for renders the order erroneous. Similar view has been taken by the Hon’ble Supreme Court in Rampyari Devi Saraogi vs. CIT (67 ITR 84) and Tara Devi Aggarwal vs. CIT (88 ITR 323). Further, the Hon’ble Supreme Court in CIT vs. Amitabh Bachchan (384 ITR 200) has held that where the Assessing Officer has not made proper enquiry, the Commissioner is justified in invoking section 263.

The reliance placed by the Ld. AR on Kelvinator of India Ltd. and Marico Ltd. is misplaced. Those decisions deal with the scope of reopening and change of opinion. The present controversy is not about validity of reopening but about lack of enquiry in the reassessment proceedings. Likewise, the decisions relied upon by the Ld. AR on the merits of section 23(5) pertain to taxability of notional rent and the same are left open to be examined by the Assessing Officer in the set aside proceedings.

The argument of “possible view” also does not assist the assessee. For invoking the doctrine of possible view, there must be material to demonstrate conscious application of mind by the Assessing Officer. In the present case, the reassessment order does not reflect any such application of mind. Therefore, this is a clear case of lack of enquiry and not a case of inadequate enquiry. The Hon’ble Supreme Court in PCIT vs. Paville Projects Pvt. Ltd., as relied upon by the Ld. DR, has reiterated that where the assessment is completed without proper enquiry, the Commissioner is well within his jurisdiction to invoke section 263. The facts of the present case squarely fall within the ratio of the said judgment.

Considering the totality of facts and circumstances of the case, we are of the considered opinion that the Assessing Officer failed to examine the very issue for which the case was reopened. Therefore, the reassessment order is erroneous insofar as it is prejudicial to the interests of the revenue. The Ld. PCIT has rightly invoked the provisions of section 263. We, however, make it clear that we have not expressed any opinion on the merits of the addition.