2022 (6) TMI 1470 - AT - Income Tax

Revision u/s 263 by CIT - Addition u/s 56(2)(viib) - PCIT said AO has neither enquired about the claim of the assessee that the property was under litigation during the course of assessment proceedings nor brought to the notice of the Assessing Officer by the assessee - as argued AO has passed order after seeking an approval of the ACIT, u/s 153D - AR had admitted that details of the property were disclosed by the assessee in pursuant to the notice issued u/s 142(1) and the same was duly examined by the AO and no additions were made on the basis of the documents filed by the assessee. Moreover it was submitted that notice u/s 153A r.w.s 143(3), the addition can only be made by the AO in respect of the documents / incriminating material found during the course of search HELD THAT - As during the assessment proceeding u/s 153A r.w.s. 143(3), AO is duty bound to make the addition in respect of the incriminating documents found during the course of search or in respect to the additions which are relatable to the material seized during the search. AO is not required to make any addition in respect of the material / document came to its possession on account of post search enquiries, though this issue may be debatable within the jurisdiction of Hon ble Telangana High court. CIT in the impugned orders had nowhere stated that the documents were filed by the assessee in response to notice under section 142(1) of the Act and that the documents found during the course of search were incriminating in nature. Unless the requirement of law, namely existence of the incriminating document is fulfilled, the Assessing Officer could not make the addition and therefore, the Assessing Officer has rightly not made any addition. The reliance on explanation 2 to section 263 of the PCIT was incorrect, as Assessing Officer had made enquiries from the assessee and assessee had provided all information to the Assessing Officer, therefore, PCIT s finding was factually incorrect, as it was not born out of the record. Moreover, we agree with the view taken in the case of M/s. Indian Roadways Corporation Ltd. 2018 (10) TMI 1495 - ITAT KOLKATA wherein the identical view was decided by the Kolkata Tribunal in favour of the assessee. Therefore, on this count alone, the order passed by the ld.PCIT is required to be annulled . There is another reason for annulling the order passed by the ld.PCIT, as in the present case, the Assessing Officer before passing the assessment order has taken the approval of ld.ACIT under section 153D Also in the case of Dhariwal Industries Limited, Pune 2017 (1) TMI 260 - ITAT PUNE on similar facts, had annulled the order passed by ld.PCIT. Therefore, we have no hesitation to take a similar view, more particularly, when one of us (namely Hon ble A. M.) was a party to the decision. Another reason to annul the order passed by the ld.PCIT was that the ld.PCIT had directed the Assessing Officer to make the additions after invoking the provisions of section 56(2)(vii)(b) of the Act on the premise that there is difference in consideration for which the property was purchased vis- -vis the SRO value. In our view, the addition under section 56(2)(vii)(b) is a deeming provision, based on this notional addition can be made. We hereby hold invocation of jurisdiction section 263 of the Act by ld.PCIT was not correct. In our considered opinion, once all the material including the sale deeds and other litigation documents were available on the record before the PCIT, then it is the duty of the ld.PCIT to give a specific finding as to how the provisions u/s 56(2)(vii)(b) are applicable and why the order of Assessing Officer was passed without proper enquiry. Therefore, PCIT s finding that the order passed by AO was erroneous and prejudicial to the interest of the Revenue, can not be upheld. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.
2. Validity of the assessment order passed under Section 143(3) read with Section 153A.
3. Applicability of Section 56(2)(vii)(b) concerning the difference between the purchase price and stamp duty value of properties.

Issue-wise Detailed Analysis:

1. Jurisdiction of PCIT under Section 263:

The assessee challenged the jurisdiction of the PCIT under Section 263, arguing that the PCIT erred in directing the Assessing Officer (AO) to invoke provisions of Section 56(2)(vii)(b) without considering the submissions made by the assessee. The assessee contended that the AO had already made elaborate inquiries and obtained approval from the Additional Commissioner of Income Tax (ACIT) before passing the assessment order. The Tribunal noted that the AO had indeed conducted inquiries and obtained necessary approvals, and therefore, the PCIT's invocation of Section 263 was not justified. The Tribunal cited several judgments, including those from the Lucknow and Hyderabad Benches of the Tribunal, which held that an assessment order approved by the ACIT under Section 153D cannot be revised under Section 263 without revising the directions of the ACIT.

2. Validity of the Assessment Order:

The Tribunal examined whether the AO's order was erroneous and prejudicial to the interest of the Revenue. It was noted that the AO had made inquiries and accepted the assessee's claims after considering the documents submitted. The Tribunal emphasized that during assessment proceedings under Section 153A read with Section 143(3), the AO is required to make additions based on incriminating documents found during the search. In this case, no such incriminating documents were found, and the AO's decision not to make any additions was deemed appropriate. The Tribunal referenced the Kolkata Tribunal's decision in M/s. Indian Roadways Corporation Ltd., which held that assessments under Section 153A should be evidence-based and limited to undisclosed income found during the search.

3. Applicability of Section 56(2)(vii)(b):

The PCIT directed the AO to make additions based on the difference between the purchase price and the stamp duty value of the properties under Section 56(2)(vii)(b). The assessee argued that the properties were under litigation, affecting their market value, and thus the provisions of Section 56(2)(vii)(b) were not applicable. The Tribunal agreed with the assessee, citing the Madras High Court's decision in CIT Vs. Smt. Padmavathi, which held that guideline values are only indicators and do not always represent the fair market value of properties. The Tribunal concluded that the PCIT's direction to apply Section 56(2)(vii)(b) was incorrect, as the properties' litigation status was not adequately considered.

Conclusion:

The Tribunal quashed the orders passed by the PCIT for the assessment years 2014-15 and 2017-18, finding that the AO had conducted proper inquiries and obtained necessary approvals, and that the PCIT's invocation of Section 263 was not justified. The Tribunal emphasized that additions under Section 56(2)(vii)(b) could not be made based on notional valuation without considering the properties' litigation status. Consequently, both appeals filed by the assessee were allowed.