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2016 (7) TMI 684 - AT - Income TaxRevision u/s 263 - CIT(A) directing the AO to consider the fair market value of the properties as on 1.4.1981 at ₹ 40 per sq.ft. instead of ₹ 300/- as claimed by the assessee - Held that - Assessing Officer cannot take a view either against or in favour of the assessee without making proper enquiries and without proper examination of the claim made by the assessee in the light of applicable law. In the present case, the Assessing Officer considered the FMV at ₹ 300 per sq.ft. as on 1.4.1981 as submitted by the assessee without bringing any comparable cases or referring the matter to the DVO for valuation. This itself is an error committed by the AO that aspect involves the rejection of tax, which is prejudicial to the interests of the revenue. The CIT is empowered to invoke the provisions of sec.263 of the Act, so as to rectify the errors committed or wrong decision taken by the Assessing Officer. After considering the material on record, in our opinion, it cannot be said that exercise of jurisdiction by the CIT u/s.263 of the Act, is bad in law. Accordingly, we uphold the order of the CIT to the extent that the Assessing Officer is not justified in considering the FMV as on 1.4.1981 at ₹ 300 per sq.ft.. However, the CIT cannot determine the FMV of the property, himself. In the present case, the CIT, himself fixed the FMV of the properties as on 1.4.1981 at ₹ 40 per sq.ft., which is not correct. Accordingly, we direct the AO to refer the matter both, landed properties as well as buildings to the DVO and decide the issue afresh. It is needless to say that the DVO has to consider comparable cases in the immediate vicinity of the properties, where it is located and also give an opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax (CIT) under Section 263 of the Income Tax Act. 2. Fair Market Value (FMV) of properties as on 1.4.1981. Issue-wise Detailed Analysis: 1. Jurisdiction of the Commissioner of Income-tax (CIT) under Section 263 of the Income Tax Act: The primary issue revolves around the CIT's authority to revise an order under Section 263 of the Income Tax Act. The CIT invoked this section on the grounds that the Assessing Officer's (AO) order was erroneous and prejudicial to the interests of the revenue. The judgment references the case of Malabar Industries Co. Ltd. vs. CIT (243 ITR 83 (SC)), which establishes that the CIT can exercise revision jurisdiction if the order is both erroneous and prejudicial to the revenue. The term 'erroneous' is defined as involving error or deviating from the law, and an order can be considered erroneous if it is based on incorrect facts, incorrect application of law, non-application of mind, or insufficient materials. The judgment emphasizes that the AO's role is not just adjudicative but also investigative. The AO must scrutinize returns and claims made by the assessee, especially in cases picked for scrutiny under Section 143(3) of the Act. The AO's failure to make necessary inquiries or to examine the genuineness of claims can render an order erroneous. The CIT's role is to ensure that such errors, which are prejudicial to the revenue, are corrected. In this case, the AO accepted the FMV of the property at ?300 per sq.ft. without proper investigation or inquiry, which the CIT deemed erroneous. The CIT's revision under Section 263 was to correct this error and ensure a fair assessment. 2. Fair Market Value (FMV) of properties as on 1.4.1981: The second issue concerns the determination of the FMV of the properties as on 1.4.1981. The assessees claimed the FMV to be ?300 per sq.ft., which the AO accepted without sufficient basis or inquiry. The CIT, however, directed the AO to consider the FMV at ?40 per sq.ft., based on a letter from the Joint Sub-Registrar, District Registrar Office, Erode. The judgment highlights that the AO's acceptance of ?300 per sq.ft. was without any comparable cases or a referral to the District Valuation Officer (DVO) for a proper valuation, which constitutes an error. The CIT's intervention was to rectify this error. However, the judgment also notes that the CIT cannot unilaterally determine the FMV. Instead, the matter should be referred to the DVO, who should consider comparable cases and provide an opportunity for the assessee to be heard. The Tribunal concluded that while the CIT was correct in invoking Section 263, the determination of FMV should be done by the DVO. The AO is directed to refer the matter to the DVO for a fresh decision, ensuring that the DVO considers comparable cases and hears the assessee. Conclusion: The Tribunal upheld the CIT's invocation of Section 263, agreeing that the AO's order was erroneous and prejudicial to the revenue. However, it directed that the FMV determination be referred to the DVO for a fresh assessment. The appeals of the assessees were allowed for statistical purposes, with instructions for a proper valuation process to be followed. The order was pronounced on April 27, 2016, in Chennai.
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