2016 (11) TMI 324 - AT - Income Tax

Revision u/s 263 - as per CIT(A) AO did not apply the provisions of section 50C of the Act and did not examine the impugned transaction through parameters of these provisions in this case inspite of the fact that capital gains had arisen to the assessee as a coowner of the impugned plot of land transferred during the year - Held that - It is noted that provisions of section 50C are deeming provisions and mandatory in nature. The application of such provisions is made by operation of law. Exception to these provisions can be made only in accordance with law, as provided in section 50C only. It is noted that AO did not raise any query with regard to application of section 50C, as has been fairly admitted by both the parties during the course of hearing. Under these circumstances, the AO committed a mistake of law and thus, it rendered the order of the AO as erroneous and since non application of section 50C would also amount to under assessment of income and tax payable thereon, therefore, it was prejudicial to the interest of revenue. Thus, in the given facts of the case, it can be undoubtedly said that the impugned assessment order was erroneous and prejudicial to the interest of revenue. The assessee is having few objections with regard to value to be adopted viz the stamp value at the date of aforesaid MOU shall be taken or stamp value as on the date of conveyance deed shall be adopted and one more objection that since the plot was received for police quarters, therefore, it is FMV cannot be taken as per free market value and only discounted value could have been taken as its FMV. We agree with the assessee on this aspect to this extent that these objections need to be dealt with as per law before finally adopting appropriate value u/s 50C. But, as stated by us earlier also that all these objections or any other objection with regard to the manner in which section 50C has to be applied can be dealt with in accordance with law and procedure as has been laid down u/s 50C itself. But that would be possible only when the provisions of section 50C are applied and the impugned transaction is tested through the prism of these provisions. Under these circumstances, we uphold the revision order passed by the CIT order u/s 263 - Decided against assessee

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961.
2. Applicability of Section 50C for the computation of capital gains.
3. Validity of the assessment order under Section 143(3) read with Section 147.
4. Doctrine of Merger and its applicability.
5. Determination of the cost of acquisition and computation of capital gains.

Detailed Analysis:

1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263:
The primary issue was whether the CIT had the jurisdiction to invoke Section 263 to revise the assessment order. The Tribunal held that the CIT had the requisite power under the law to consider and examine the application of Section 50C for revision under Section 263 since the issue was not considered and decided in the appeal by the Commissioner of Income Tax (Appeals). This was supported by Explanation 1(c) of Section 263(1), which states that the powers of the CIT shall extend to matters not considered and decided in the appeal. The Tribunal relied on judgments from the Supreme Court and various High Courts, affirming that the CIT could revise issues not adjudicated by the CIT(A).

2. Applicability of Section 50C for the computation of capital gains:
The Tribunal examined whether Section 50C, which mandates the adoption of the value assessed by the Stamp Duty Authorities as the sale value for computing capital gains, was applicable. The CIT observed that the Stamp Duty was paid on a valuation of ?11,88,43,200, which should have been considered as the sale value under Section 50C. The Tribunal upheld the CIT's direction to apply Section 50C, noting that the AO did not apply this provision, rendering the assessment order erroneous and prejudicial to the interest of the revenue.

3. Validity of the assessment order under Section 143(3) read with Section 147:
The Tribunal found that the AO's assessment order was erroneous and prejudicial to the interest of the revenue because it failed to apply the provisions of Section 50C. The AO reopened the assessment to assess the capital gains in the hands of the assessee but did not consider the mandatory provisions of Section 50C. The Tribunal upheld the CIT's order to set aside the assessment and directed the AO to re-examine the issue after applying Section 50C.

4. Doctrine of Merger and its applicability:
The assessee argued that the assessment order had merged with the order of the CIT(A) and thus could not be revised under Section 263. The Tribunal rejected this argument, stating that the Doctrine of Merger did not apply to issues not considered and decided by the CIT(A). The Tribunal cited judgments from the Supreme Court and High Courts, emphasizing that the CIT's powers to revise an assessment order extend to matters not adjudicated in the appeal.

5. Determination of the cost of acquisition and computation of capital gains:
The Tribunal noted that the AO had taken the cost of acquisition as 'nil,' which was contested by the assessee. The CIT(A) had upheld the AO's action. However, the CIT, in the revision proceedings, directed the AO to re-examine the computation of capital gains, including the application of Section 50C. The Tribunal upheld this direction, allowing the AO to determine the correct amount of capital gains after applying the provisions of Section 50C.

Conclusion:
The Tribunal dismissed the appeals filed by the assessee, upholding the CIT's order under Section 263. The Tribunal directed the AO to re-examine the issue of capital gains, including the application of Section 50C, and to provide the assessee with an adequate opportunity of hearing before finalizing the fresh assessment. The Tribunal emphasized that the CIT had the jurisdiction to revise the assessment order on issues not considered and decided by the CIT(A), and the AO's failure to apply Section 50C rendered the assessment order erroneous and prejudicial to the interest of the revenue.