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Facts
The assessee sold an immovable property for Rs. 3,50,00,000, but the stamp duty valuation was Rs. 3,92,06,122. The assessee declared a short-term capital gain based on the sale consideration. The Assessing Officer (AO) accepted the returned income without further inquiry. The Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under Section 263 of the Income Tax Act, 1961, holding the assessment order erroneous and prejudicial to revenue.
Held
The Tribunal held that the AO had conducted adequate inquiry by issuing notices under Section 142(1) and considering the assessee's submissions and documentary evidence. The AO applied his mind and took a plausible view. Therefore, the assessment order was neither erroneous nor prejudicial to the interest of the revenue.
Key Issues
Whether the PCIT's invocation of Section 263 was justified when the AO had conducted adequate inquiry and applied his mind to the facts, resulting in a plausible assessment order.
Sections Cited
263, 147, 144B, 50C, 142(1), 143(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & SHRI DINESH MOHAN SINHA
Assessment Year: (2016-17) (Hybrid Hearing) Shri Denish Khodidas Patel Vs. The Pr.CIT-1 Raag Mahavir Society, Street Rajkot No.2, Nirmala Convent School Road, Rajkot – 360005, Gujarat �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AGIPP1382Q (Assessee) (Respondent) Assessee by Shri Mehul Ranpura, AR Respondent by Shri Sanjay Punglia, CIT-DR Date of Hearing 17/12/2024 Date of Pronouncement 06/03/2025 आदेश / O R D E R PER DR. A. L. SAINI, AM:
By way of this appeal, the assessee has challenged the correctness of the order passed by the Ld. Principal Commissioner of Income Tax, Rajkot-1 [in short ‘Ld. PCIT’], under Section263 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), vide, order dated 26.03.2024.
The grievances raised by the assessee are as follows:
“1. The grounds of appeal mentioned hereunder are without prejudice to one another.
2. The order passed by PR. Commissioner of Income-tax, Rajkot-1 [hereinafter referred as to the “PCIT”] is bad in law, invalid and requires to be quashed, the same may kindly be quashed.
3. The LD. PCIT erred in law and on facts in arriving at a conclusion to the effect that the assessment order passed by the assessing officer was 128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT erroneous as well as prejudicial to the interest of the revenue on the ground that the assessing officer has not applied his mind and has not conducted any inquiry and not applied the correct position of law in respect applicability of section 50C of the Act on sale of plot at Mavdi. The order passed by PCIT required to b quashed and may kindly be quashed.
4. The Learned Pr. CIT erred on facts as also in law in setting aside the assessment order dated 24.03.2022 passed u/s. 147 r.w.s. 144B of the Income Tax Act, 1961, directing the assessing officer to pass a fresh assessment order. The order passed u/s. 263 of the Act by the learned Pr. CIT is totally unjustified on facts as also in law therefore the same may kindly be quashed.
5. Your Honor’s appellant craves leave to add, to amend, alter or withdraw any or more grounds of appeal on or before the hearing of appeal.”
3.The relevant material facts, as culled out from the material on record, are as follows. The assessee, before us, is an individual and has filed his return of income for assessment year (AY) 2016-17, on 10.10.2016, declaring total income of Rs. 3,86,070/- and agricultural income of Rs. 20,88,692/-. The assessment was finalized under section 147 the Income Tax Act, 1961, on 24.03.2022, accepting returned income.
Later on,the Learned Principal Commissioner of Income Tax, [in short ‘Ld. PCIT’], has exercised his jurisdiction under Section 263 of the Income-tax Act, 1961. On perusal of records, it was noticed by ld. PCIT that case of the assessee for the year under consideration was reopened on the basis of information that during the year consideration, the assessee, along with others have sold an immovable property for sale consideration of Rs.3,50,00,000/-. The stamp duty valuation authorities have valued said property at Rs. 3,92,06,122/-. Thus, there is difference of Rs. 42,06,122/- (Rs.3,50,00,000-Rs. 3,92,06,122) between valuation adopted for stamp duty purpose by the stamp duty valuation authorities and sale consideration declared in the sale deed. In 128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT the return of income for the year under consideration, the assessee has declared short term capital gain by taking sale consideration of above referred property at Rs. 21,00,000/-, being 6% of total sale consideration declared in the sale deed. During the course of assessment proceedings, the assessing officer has simply accepted assessee's submission without due verification and inquiry and not made any addition in this regard. Considering the value of the property adopted by the Stamp Duty Valuation Authority for the purpose of Stamp duty, Rs. 2,52,367/-, being 6% share of differential value as stated above, is required to be added as per the provisions of section 50C of the I.T. Act.However, the assessing officer failed to add the same while finalizing the assessment order.
5. Considering such facts, the ld PCIT issued notice u/s 263 of the Income-tax Act, 1961,the relevant portion of said notice is reproduced as under:
“2. On perusal of records, it is noticed that during the year consideration, you along with others have sold an immovable property for sale consideration of Rs. 3,50,00,000/-. Your share in the property is 6%. The Stamp Duty Valuation Authorities has valued said property at Rs. 3,92,06,122/-. Thus, there is difference of Rs.42,06,122/- between valuation adopted for stamp duty purpose by the Stamp Duty Valuation Authorities and sale consideration declared in the sale deed in your return of income for the year under consideration.You have declared short term capital gain by taking sale consideration of above referred property at Rs. 21,00,000/-, being 6% of total sale consideration. During the course of assessment proceedings, you have objected reopening proceedings. The assessing officer has simply accepted your explanation without due verification and inquiry and not made any addition in this regard. Considering the value of the property adopted by the Stamp Duty Valuation Authority for the purpose of Stamp duty, Rs.2,52,367/- being 6% share of differential value, as stated above is required to be added as per the provisions of section 50C of the I.T. Act. However, the assessing officer failed to add the same while finalizing the assessment order.
In this case the assessment order has been passed without making due inquiry/verification. Hence, in terms of Explanation 2 to sec. 263, such order is erroneous in so far as it is prejudicial to the interests of revenue.”
128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT 6.During the proceedings u/s.263 of the Act, the Ld. PCIT issued notice u/s.263 of the Act, to the assessee, to explain the transaction. In response to the notice of the Ld. PCIT, the assessee has filed written submission before the Ld. PCIT on 1st March, 2024, which was reproduced by the Ld. PCIT in his order vide page nos. 3 to 8 of the order of the Ld. PCIT. The assessee submitted before ld. PCIT that in the course of assessment proceedings, the assessing officer,vide notice under section 142 (1) of the Act, dated 3rd January 2022, has made detailed enquiry about the sale consideration, as referred in the sale document and value determined by the Stamp Value Authority. The assessing officer, during the assessment proceedings, in fact, issued two notices on the assessee, and in response to these notices, the assessee submitted its reply before the assessing officer, stating that value adopted by the assessee is correct and the assessee also submitted necessary documentary evidences before the assessing officer. The assessing officer, after considering the reply of the assessee, framed the assessment order. Therefore, assessing officer has applied his mind and made adequate enquiry and then after assessment order was framed by him,therefore, such assessment order is neither erroneous nor prejudicial to the interest of the revenue.
However, Ld. PCIT, after having gone through the reply of the assessee, observed that the assessee alongwith others have sold an immovable property for sale consideration of Rs. 3,50,00,000/-. The Stamp Duty Valuation Authorities has valued said property at Rs. 3,92,06,122/-. Thus, there is difference of Rs. 42,06,122/- between valuation adopted for stamp duty purpose by the Stamp Duty Valuation 128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT Authorities and sale consideration declared in the sale deed in the return of income for the year under consideration, the assessee has declared short term capital gain by taking sale consideration of above referred property at Rs. 21,00,000/- being 6% of total sale consideration declared in the sale deed. The sale value of the property declared by the assessee in the registered sale deed is on the lower side. In the instant case, the purchaser has also paid stamp duty on value of the property valued by the Stamp Duty Valuation Authority. Considering the value of the property adopted by the Stamp Duty Valuation Authority for the purpose of Stamp duty, Rs. 2,52,367/-,( 6% Rs. 42,06,122) being 6% share of differential value as stated above, is required to be added as per the provisions of section 50C of the I.T. Act.However, the assessing officer failed to add the same while finalizing the assessment order. Therefore, ld. PCIT was of the view that assessee`s case is a fit case for invoking section 263 of Act, as the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the revenue are satisfied. Accordingly, the impugned assessment order passed by the assessing officer u/s 147 r.w.s 144B of the Income-tax Act, 1961, on 24.03.2022,was set aside by ld. PCIT, for fresh assessment only to the extent of the issues discussed (supra).
Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us.
9.LearnedCounsel for the assessee, in this regard, submitted that the assessing officer has made adequate enquiry during the assessment proceedings.The assessing officer has issued notice to the assessee which is placed at paper book page no.21, wherein the assessing officer 128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT has raised the same issue, which is raised by the ld. PCIT. The Ld. Counsel stated that adequate enquiry was made by the assessing officer during the assessment stage, hence, the view taken by the assessing officer cannot be corrected by the Ld. PCIT, by way of revising his order. The assessing officer applied his mind and taken the plausible view, therefore, order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the Revenue.
On the other hand, the Ld. CIT-DR for the Revenue, argued that assessing officer has passed the order on incorrect application of law. The Ld. CIT-DR pointed out that assessing officer did not observe the provisions of Section 50C(1) of the Act and, therefore, incorrect application of law, is one of the essential point to consider the order passed by the assessing officer, as erroneous. The Ld. DR for the Revenue further relied on the order passed by the Ld. PCIT,specially Para No.4.6 to 4.7 of the Ld. PCIT’s order and stated that Ld. PCIT has correctly exercised the jurisdiction u/s.263 of the Act.
11.We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld PCIT and other materials brought on record. The ld. Counsel for the assessee stated that assessee, along with other co-owners, had sold immovable property during the year under consideration and on verification of the information, it was noticed by the assessing officer that as per the sale deed, the sale consideration was shown at Rs.3,50,00,000/- and out of said sale consideration of Rs.3,50,00,000/-, assessee’s share was worth Rs.17,50,000/- only,that is, at the rate of 5% of the total sale consideration ( 5% of 128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT Rs.3,50,00,000). However, as per the Jantri value of stamp duty valuation authority, the fair market value of the said property comes to Rs.3,92,06,122/- and the assessee’s share comes to Rs.19,60,306/-, (that is, at the rate of 5% of Rs.3,92,06,122/-). The difference between the two values comes to Rs.2,10,306/- (Rs.19,60,306-Rs.17,50,000), which is a minor difference. The assessee has explained the reasons of such difference stating that ld PCIT did not go through the clause 11 of the sale deed where in it is stated that the seller had received consideration of Rs.3,50,00,000/- for 2451.11 sq. meter of land sold to the purchaser along with the common plot admeasuring 300.09 sq. meters for which no consideration is received by the seller, nor the purchaser has paid nor become payable. However, as per the provision of stamp duty regulations, stamp duty has been collected by the authority on this common plot also. Had the ld. PCIT gone through these facts and circumstances, then order passed by the assessing officer would be neither erroneous nor prejudicial to the interest of the revenue.
We find that assessing officer has made adequate enquiry. The assessing officer has issued notice to the assessee, which is placed at paper book page no.21, wherein the assessing officer has raised the issue stating as follows:
“(3) On scrutiny of your documents, it is seen that during the AY 2016-17 you have sold an immovable property along with other co-owners. Further, it is seen that as per the sale deed, the sale consideration is shown at Rs. 3,50,00,000/- (your share: Rs. 17,50,000/- @5%) and the stamp duty has been paid thereon. However, as per the jantri value of stamp duty valuation authority, the fair market value of the said property comes to Rs. 3,92,06,122/- (Your share: Rs. 19,62,306/- @5% share). In this connection you are requested to please furnish the following details:
1. 1. Please furnish all your bank statements for the period 1.4.2015 to 31.3.2016 highlighting the immovable property transactions.
2. Please furnish the Agreement copy, sale deed copy of the transaction.
128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT 3. Please furnish any agreement copy entered between the co- owners.
4. Please furnish any documentary evidences to show the common area and the saleable are and levy of stamp duty thereon.
Please furnish the valuation certificate from the competent state Govt. authority about the valuation of the property.
Any other supporting authentic document to prove your point.”
In response to the above query raised by the assessing officer, the assessee has submitted his reply, before the assessing officer, which is placed at paper book page no.27. The said reply submitted before the assessing officer is reproduced below:
“3.0 Regarding the sale of immovable property with the other co-owners, it is to submit that I have jointly sold non-agricultural land having area of 2451.11 Sq. Mtr. At Rs. 3,50,00,000/- further my share in the property is 6% and not 5% as stated in the notice and received Rs. 21,00,000/- and not Rs. 19,60,306/- mentioned in the notice. 4.0 It appears from the notice that while analyzing the information and the documents i.e., sale deed, the sale consideration has been arithmetically calculated on the basis of stamp duty issued in the said document. In this case the purchaser has used stamp duty at Rs. 19,21,100/- and as such the value of property was worked out to Rs. 3,92,06,122/- (3,92,06,122*4.9%) as against the documentation value of Rs. 3,50,00,000/-. However, as per clause 11 of the said deed wherein it is stated that the seller had received consideration of Rs. 3.50 Cr. For 2451.11 sq. meters of land sold to the purchaser along with the common plot admeasuring 300.09 sq. meters for which no consideration is received by the seller nor the purchaser has paid nor it will be payable. However, as per the provisions of stamp duty regulations stamp duty has been collected by the authority on this common plot also. Accordingly, I have disclose STCG at Rs. 7,37,308/- in the return of income and paid due tax thereon which is verifiable form the records available. For your verification copy of sale deed and bank statement is attached as Annexure 2.” 14.Therefore, we find that sufficient and adequate enquiry was made by the assessing officer, during the assessment stage. We note that in the assessment order itself, the assessing officer has mentioned the details of the property and the submission of the assessee and then after the conclusion reached by the assessing officer, after due verification, are as follows:
128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT “The assessee is an individual and has filed his return of income for A.Y.-2016- 17 on 10/10/2016, declaring total income of Rs. 3,86,070 /- and Net agricultural income of Rs. 20,88,692/-. During the Financial Year 2015- 16, relevant to the Asst. Year 2016-17 the assessee, along with other co- owners had sold immovableproperty. It is seen that as per the sale deed, the sale consideration is shown at Rs.3,50,00,000/- (Assessee's share: Rs. 17,50,000/- @5%) and the stamp duty has been paid thereon. However, as per the jantri value of stamp duty valuation authority, the fair market value of the said property comes to Rs.3,92,06,122/- (Assessee's share: Rs. 19,60,306/- @ 5% share). It is seen that though the assessee has filed return of income for A.Y.2016-17 but the assessee has shown short term capital gain of only Rs. 7,37,308/-. As per Jantri value, the assessee's share in the sale consideration of immovable property is Rs. 19,60,306/- 2.The case was reopened u/s 147 of Income tax Act and notice u/s 148 dated28.03.2021 was issued calling for the return. The assessee filed his return of income on 28.04.2021, declaring a total income of Rs.3,86,070/-. Further, notice u/s 143(2) was issued on 22.06.2021 calling for the details in respect of his return of income. Further Notice u/s 142(1) was issued on 03.01.2022 and 19.01.2022 calling for the details in respect of the difference in sale value and stamp duty valuation of the property. In response to the said notice, the assessee vide his letter dated 16.08.2021 has objected to the reopening proceedings furnishing full details of the case. After verification of the documents on record, the assessment is concluded by accepting the returned income:”
Therefore, the assessing officer has examined the issue by issuing notice u/s.142 of the Act and in response, the assessee has submitted the reply and after having gone through the assessee`s reply, the assessing officer took the plausible view. Therefore, order passed by the assessing officer is neither erroneous and nor prejudicial to the interest of the Revenue. On the above undisputed facts on record, the matter is already decided by Hon’ble Gujarat High Court in the case of CIT Vs. Arvind Jewellers [2003] 259 ITR 502 (Guj) following the ratio of decision of Hon’ble Supreme Court in the case of of Malabar Industrial Co. Ltd. Vs. CIT [2000] 243 ITR 83 (SC) by holding as under:
“Held, that the finding of fact by the Tribunal was that the assessee had produced relevant material and offered explanations in pursuance of the 128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT notices issued under section 142(1) as well as section 143(2) of the Act and after considering the material and explanations, the Income-tax Officer had come to a definite conclusion. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that different view can be taken should not be the basis for an action under section 263 . The order of revision was not justified.”
16.It is pertinent to mention here that there was as such no allegation of ‘no enquiry’ or ‘lack of enquiry’ or verification, because the Ld. Pr. C.I.T. himself found all the details/evidences in the assessment record, that is, well within the A.O.’s possession and what he alleged was about the plausible view taken by the A.O. as against his perception and understanding on the same set of facts and documents. Therefore, the notices issued for examination of the issues during the assessment proceedings and submission and verification of the same has not been shown to be fallacious. In this connection it is pertinent to mention here that the way in which assessment should be finalized falls in the exclusive domain of the Assessing Officer. Section 142(1) speaks of inquiry before assessment and gives immense power to the A.O. for conducting enquiry. Therefore, the A.O. u/s 142(1)(ii) & (iii) can ask the assessee almost any information which he thinks necessary for passing assessment and even if Ld. PCIT has such results of enquiries, the resultant order cannot be subjected to revision proceedings. Therefore, the very initiation of proceeding u/s. 263 of the Act by the Ld. Pr. C.I.T. is in violation of the settled position in law. When the conditions precedent for invoking revisional power u/s. 263 of the Act on the facts and in the circumstances of the case are not fulfilled in the case of the assessee, the subsequent action in passing the order u/s. 263 on such invalid proceeding becomes null and void. Reliance is placed on the following decisions, the ratios of which are totally applicable to the facts of the assessee’s case:
128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT (1) Smt. Juthika Kar vs. ITO [I.T.A. No.1128/Kol/ 2009, dated 16.5.2012] “8. With the leave and consent of my learned brother, however, I may add a few words to my learned brother’s analysis of Hon’ble Delhi High Court’s judgment in the case of Gee Vee Enterprises (supra). Undoubtedly, as noted by their Lordships in that case, an Assessing Officer cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. In such a case, revision proceedings can indeed be initiated and there seems to be no serious controversy in this respect. The fine point, however, one must bear in mind is the distinction between adequate enquiries not having been conducted and the result of such enquiries not having been dealt with by way of a speaking order or not having resulted in the conclusion that could be, in the wisdom of a person other than the Assessing Officer, more appropriate. Here is a case in which sufficient enquiries were conducted. As learned brother has rightly noted, the Assessing Officer called for specific details, confirmations and even copies of bills. It could not, therefore, be said that sufficient enquiries were not conducted. However, what is opinion formed as a result of these enquiries is something which is in exclusive domain of the Assessing Officer, and even if Commissioner has such results of enquiries, the resultant order cannot be subjected to revision proceedings. The conclusions arrived at as a result of enquiries cannot be tinkered with in the revision proceedings. The conclusions being drawn up as a result of enquiry is a highly subjective exercise and as to what is appropriate conclusion is something on which perceptions vary from person to persons. These variations in the perceptions of the Assessing Officer vis-à-vis that of the Commissioner, cannot render an order erroneous and prejudicial to the interest of the revenue.
Viewed in this perspective, and having noted that the Commissioner has subjected the assessment order mainly on the ground that the Assessing Officer did not reach the right conclusions as a result of his enquiry, the impugned revision order is indeed unsustainable in law. It is not a case in which adequate enquiries has not been carried out.” [Emphasis given]”
(2) CIT vs. J.L. Morrison (India) Ltd. (2014) 366 ITR 593 (Cal) “85. Whether the assessment order dated March 28, 2008, was passed without application of mind is basically a question of fact. The learned Tribunal has held that the assessment order was not passed without application of mind. The records of the assessment including the order-sheets go to show that appropriate enquiry was made and the Assessee was heard from time to time. In deciding the question the court has to bear in mind the presumption in law laid down in section 114 clause (e) of the Evidence Act : “that judicial and official acts have been regularly performed.”
Therefore, the court has to start with the presumption that the assessment order dated March 28, 2008, was regularly passed. There is evidence to show that the Assessing Officer had required the Assessee to answer 17 questions and to file 128- ITA.356/RJT/2024 – A.Y. 2016-17 Shri Denish Khodidas Patel vs. PCIT documents in regard thereto. If the A.O. cannot be shown to have violated any form prescribed for writing an assessment order, it would not be correct to hold that he acted illegally or without applying his mind.” [Emphasis given] 17.In the conclusion we are of the view that none of the reasons set out by the PCIT for invoking the jurisdiction u/s 263 of the Act are sustainable. The impugned order of the PCIT has to be quashed for the reason that order of the AO sought to be revised in the impugned order was neither erroneous nor prejudicial to the interest of the revenue for the reason of any lack of inquiry that the AO ought to have made in the given facts and circumstances of the case. We accordingly quash the order u/s 263 of the Act and allow the appeal of the assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 06/03/2025 at Rajkot.