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Facts
The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263 of the Income Tax Act against the assessee's assessment order. The PCIT believed the Assessing Officer (AO) failed to conduct adequate inquiries regarding the sale consideration of a property, leading to a potential escapement of income.
Held
The Tribunal held that for proceedings under Section 263 to be valid, the order must be both erroneous and prejudicial to the revenue. In this case, the assessee provided evidence demonstrating that the PCIT's assumption of income escapement was due to an incorrect appreciation of facts, and the PCIT had not controverted this. Therefore, the PCIT's action was not justified.
Key Issues
Whether the PCIT was justified in revising the assessment order under Section 263 when the assessee demonstrated no prejudice to the revenue and the AO's assessment was not erroneous.
Sections Cited
263, 153A, 143(3), 50C
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Income Tax Appellate Tribunal, JABALPUR BENCH, JABALPUR
A.Y.2016-17 Smt Vandana Saraogi vs. Principal Commissioner Prop. Mahalaxmi Industries, Ghantaghar, of Income Tax (Central) Hanumanganj Ward, Katni-483222. Bhopal at Jabalpur Director General of Income Tax, Aayakar Bhawan, 48, Arera Hills, Bhopal-462011. PAN: ASIPS2301L (Appellant) (Respondent) Assessee by: Sh. Dhiraj Ghai, C.A. Revenue by: Sh. Shravan Kumar Meena, CIT- DR Date of hearing: 18.09.2025 Date of pronouncement: 12.12.2025 O R D E R PER NIKHIL CHOUDHARY, A.M. This is an appeal filed by the assessee against the order of the ld. PCIT(Central), Bhopal at Jabalpur u/s 263 of the Income Tax Act, 1961 (“Act”, for short) setting aside the assessment order passed by the Assessing Officer (AO) u/s 153A read with section 143(3) of the Act dated 22.04.2021. The grounds of appeal are as under:-
“(1) On the facts and circumstances of the case, the order passed by the learned Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Act is bad, both in the eyes of law and on facts. (2) On the facts and circumstances of the case, the order passed by learned Pr. CIT under section 263 of the Act is bad in lad in the eyes of law and on facts, having been passed without giving assessee an opportunity of being heard on adverse opinion drawn from the reply submitted to notice under section 263 in violation of principle of natural justice. 3 On the facts and circumstances of the case, the learned Pr.CIT has erred both on facts and in law assuming jurisdiction under section 263 in the absence of twin conditions of the order passed by the A.O. being erroneous as well as A.Y. 2016-17 Smt Vandana Saraogi prejudicial to the interest of the Revenue, being satisfied as was held in the case of Malabar Industrial Co. Ltd. v/s CIT (2000) 243 ITR 83 (SC).
On the facts and | circumstances: of the case, the order passed by the learned Pr.CIT assuming jurisdiction under section 263 is bad in law having been initiated at the instance of audit objection only and merely on presumption and assumptions and ignoring the important fact that property in relevance has duly been offered to tax.
The Id. Pr. CIT (Central), Bhopal seriously erred’ in law as well as on the facts of the case in wrongly setting the assessment order dated 22.04.2021 despite there being complete application of mind by the AO on the subjected issues including sale and purchase of | properties in block period.
On the facts and circumstances of the case, the learned Pr.CIT has erred both on facts and in law in ignoring the fact that the proceeding under Section 263 cannot be used for substituting opinion of the A.O. by that of the PCIT. 7 On the facts and circumstances of the case, the order passed by Pr. CIT | under section 263 of the unsustainable as power to revise can be invoked in the case of lack of enquiry, not in the case of inadequate enquiry. 8 On the facts and circumstances of the case, the learned Pr. CIT has erred both on facts and in law in setting aside the matter to the file of the AO without giving a finding as to the error and prejudice caused to the revenue by the assessment order(as such NIL); and as such the order passed is bad in law and liable to be quashed.
On the facts and circumstances of the case, Pr CIT has erred both on facts and in law in setting aside the issue. of correct sale consideration of Rs. 20,51,589/- to the file of the Ld AO without properly appreciating the explanation of assessee given during the assessment proceedings brought on record to prove that AO has deeply examined during, assessment proceedings itself.
The revision order dated 29.03.2024 is bad in law for other reasons also hence may kindly be cancelled.”
The facts of the case are that during examination of the assessment records of the aforesaid case, the Ld. PCIT noticed that the assessee had declared capital gain in the assessment year 2016-17 against the sale of two properties and had not shown the correct sale consideration against the sale of property named, “House 184.80 Sq.mtr”. She had declared sale consideration of Rs.42,69,411/- against the sale of property named, “House 184.80 Sq mtr” in the ITR filed by her for the A.Y. 2016-17. However, as per insight/TDS details on record, the correct A.Y. 2016-17 Smt Vandana Saraogi sale consideration of property was Rs.63,21,000/-. Hence, there was a difference of Rs.20,51,589/- and such income was potentially liable to be taxed in the hands of the assessee, which remained to be considered and added in the assessment order dated 22.04.2021. The Ld. PCIT also observed that during the course of assessment proceedings, the AO had failed to conduct even bare minimum inquiries/verifications on the issue. Therefore, he proposed to revise the said order u/s 263 of the Act by invoking Explanation-2(a) to section 263(1) of the Act. On receipt of this show cause notice from the Ld. PCIT dated 12.03.2024, the assessee submitted a reply in which she pointed out, that there was no escapement of income of Rs.20,51,589/-. She also pointed out that in the A.Y. 2016-17, she had sold 3 properties in two trenches. The first trench was in the form of 2 properties being sold via one registry i.e. Plot No.61 & 62 and the second trench was a sale of another property sold i.e. Plot No.60. She enclosed copies of the sale registries along with her reply. She pointed out that the Ld. PCIT had merged the sales consideration of one trench with another trench of the registry and had accordingly determined an incorrect escapement of Rs.20,51,589/-. However, she further pointed out that in fact the first trench of registry, which comprise Plot No.61 & 62 measuring 184.80 sq. mtrs and 236.70 sq. mtrs respectively total sale consideration received was of Rs.84,21,000/- and out of this Rs.21,00,000/- had been received in the previous assessment year. The balance of R.63,21,000/- was paid in the current assessment year. The second trench which comprised of Plot No.60 measuring 184.80 sq. mtrs had fetched a total sale consideration of Rs.42,69,411/- and in the entire amount with regard to the same was received in the current assessment year. It appears that due to the common area in the first and second trench of Rs.184.80 sq. mtrs (in Plot No.60 & 61), the balance consideration received for the first trench in this assessment year had been mixed up with the sale consideration of the second trench and escapement of Rs.20,51,589/- being assumed on this account. Therefore, there was no reason to re-open the case u/s 263 of the Act for escapement of income. Furthermore, the assessee argued that legally also the case could not be re-opened and for that A.Y. 2016-17 Smt Vandana Saraogi preposition she placed reliance on several case laws. However, the Ld. PCIT was not convinced by the reply of the assessee. He held that in her reply, the assessee had stated that the matter had been inquired into in para 5 of query letter dated 27.01.2020 but in fact on going through the questionnaire u/s 142(1) of the Act issued on 27.01.2020, it was noticed that the AO had not even asked the specific question on the issue of taxability of income of Rs.20,51,589/-, being difference between declared sale consideration of the property and correct sale consideration as per Insight/TDS details on record. Hence, this was an aspect that clearly remained to be inquired into and verified while passing the assessment order u/s 153A read with section 143(3) of the Act dated 22.04.2021. He further pointed out that it was only in the proceedings before him that the assessee had submitted copies of registered sale deed and a tabular chart which demonstrated that there was no cause to re-open the case u/s 263 of the Act for escapement of income of Rs.20,51,589/-, but the assessee had failed to submit any explanation or any documentary evidence for the sale in the assessment proceedings that culminated in the order dated 22.04.2021. He held that since the necessary verification and inquiry had not been conducted by AO, the registered sale deed and tabular chart now submitted by the assessee required proper verification and his examination. He further observed that the assessee had declared capital gain against sale of two properties but shown in the incorrect consideration against the sale of property named as, “House 184.80 Sq. mtrs”. However, as per insight/TDS details the correct sale consideration of the property named as, “House 184.80 Sq. mtrs” was Rs.63,21,000/-. Hence, there was a difference of Rs.20,51,589/- and since the order had been passed by the AO without conducting the necessary inquiry or verification on this issue, it was erroneous in so much as prejudicial to the Revenue in terms of clause (a) of Explanation—2 below section 263(1) of the Act. He, therefore, partially set aside the composite assessment order to that extent and asked the AO to re-frame the assessment on this issue after conducting proper inquiries in the light of his discussions/directions and after affording reasonable opportunity of being heard to the assessee.
A.Y. 2016-17 Smt Vandana Saraogi 3. The assessee is aggrieved at this order u/s 263 of the Act and has accordingly come in appeal before us, Shri Dhiraj Ghai, C.A (hereinafter referred to as the ‘ld. AR’) appearing on behalf of the assessee submitted that the entire proceedings u/s 263 of the Act had been carried out on the basis of incorrect assumption. He drew our attention to the computation of income submitted by the assessee contained on pages 51-52 of his paper book and pointed out that the assessee had in fact sold two properties during the course of assessment year and received Rs.85,40,307/- in respect of the first property and Rs.42,69,000/- in respect of the second property since the value of the second property, u/s 50C of the Act was Rs.42,69,411/-, the assessee had offered that amount for tax consideration. However, in respect of the first property, he further invited our attention to the registration deeds of the said properties that were submitted in pages 57 to 77 of his paper book. More specifically, he invited our attention to page no. 70 of his paper book which contained the dimensions of Plot No.62 which had been sold as part and parcel of the first property that was offered for capital gains and it was pointed out that this property this plot also had an area of 184.80 sq. mtrs. He also invited our attention to page 64 of the paper book which showed that plot area of Plot No.61 was 236.50 mtrs. The Ld. AR, thereafter invited our attention to the computation on page no. 51 of paper book, once again to show that these two plots total upto 421.50 sq mtrs, the purchase consideration for which of Rs.85,40,307/-, which had been duly offered to tax in assessee’s returns of income. He further pointed out that of the deemed purchase amount of Rs.84,21,000/- a sum of Rs.21,00,000/- had been received in the previous assessment year and only the balance had been received in this assessment year. It was this balance which was being confused with the consideration received for the second property of Rs.42,69,411/-. Therefore, there was in fact no escapement of income. The Ld. AR pointed out that all these documents had been furnished before the Ld. PCIT and had in fact not being denied by the Ld. PCIT. Even then, the Ld. PCIT had set aside the matter back to the file of the Ld. AO because in his opinion, the Ld. AO had not inquired into the same. However, the fact remains that A.Y. 2016-17 Smt Vandana Saraogi since the assessee had placed all the evidence before the Ld. PCIT to demonstrate that there was in fact no prejudice caused to the Revenue, the order of the Ld. PCIT was itself erroneous and was deserving of being quashed. The Ld. AR specifically placed reliance upon the decision of the ITAT Rajkot Bench in the case of Kishu Kumar Bhualara, Rajkot vs Pr. CIT-1, Rajkot in where the Hon’ble ITAT had held that where the Ld. PCIT did not give any specific finding to controvert the written submission filed by the assessee during the course of 263 of the Act proceedings and proceeded to hold that the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue, his order could not be sustained. The Ld.AR also placed reliance on the copy of the order of the ITAT Delhi ‘B’ Bench in the case of Umesh Garg vs ITO Ward-2(4), Meerut in wherein the Hon’ble Delhi Bench after observing that Ld. PCIT had not given a specific finding the amount was taxable and which type of inquiry was not carried out by the AO, had held that his order could not be sustained. Placing reliance on these, the Ld. AR pleaded that in the facts of the case, the order u/s 263 of the Act was deserving of being quashed.
4. On the other hand, Shri Shravan Kumar Meena, CIT-DR pointed out that the Ld. PCIT in his order had specifically debunked the arguments of the assessee that the Assessing Officer had made complete inquiries with regard to this matter in the notice issued u/s 142(1) of the Act and pointed out that he had not raised any specific query with regard to the escapement of income of Rs.20,51,589/- on account of incorrect representation of the actual sale price of the plot in question. Therefore, the Ld. PCIT was well within his rights to invoke Explanation-2(a) of Section 263(1) of the Act to hold that the order was prejudicial and erroneous as inquiries, which in his opinion ought to have been done, had not been done. The Ld. CIT-DR argued that by virtue of deeming provision of this clause, the Ld. PCIT had only to demonstrate the fact of lack of inquiry before sending the matter back to the AO for further inquiries and therefore his order deserved to be upheld.
A.Y. 2016-17 Smt Vandana Saraogi 5. We have duly considered the facts and circumstances of the case. We note that after having come to a conclusion that there was an escapement of income on account of the failure of the Assessing Officer to inquire into the issue of capital gains, the Ld. PCIT had issued a show cause notice to the assessee asking why the order should not be revised as being erroneous and prejudicial to the Revenue. The assessee had replied with complete details, to show how the order that was passed by the Assessing Officer was not prejudicial to the Revenue. By filing the sale-deeds, the details of the money received in the previous assessment year, the details received in this year and a copy of his computation, the assessee had explained how there was no escapement of income on account of sale of Plot No.60 (marked as House No.184.80 sq. mtrs in his computation) because the figure of 63,21,000/- represented the balance consideration for the sale of properties marked as Plot No.61 & 62 that had been separately sold on the same date and duly offered to tax separately as per the computation of income. This was clearly evident from a perusal of the sale deeds and the computation of income, both of which have been filed before the Ld. PCIT. The Ld. PCIT had not controverted any part of those submissions made by the assessee and therefore could not make out a case that the order passed by the AO was in any way prejudicial to the Revenue. For a valid proceedings u/s 263 of the Act, the order passed by the Assessing Officer must not only be erroneous, it must also be prejudicial to the Revenue. While the AO or may not have done inquiries, once the assessee had demonstrated with all evidences before the Ld. PCIT that there was no prejudice caused to the Revenue but rather that the assumption of loss was because of the incorrect appreciation of the facts, without controverting the said finding, the Ld. PCIT could not have set aside the order and restored the assessment back to the file of the AO for fresh consideration. In the circumstances, we hold that does not appear to any reason for the Ld. PCIT to exercise his jurisdiction u/s 263 of the Act and accordingly, we deem it appropriate to quash the said order and allow the appeal of the assessee.