2017 (2) TMI 1185 - AT - Income Tax

Revision u/s 263 - Lack of inquiry - Held that - On the issue of provisions of section 50C applicability AO has apparently not applied his mind to the applicability of the provisions of section 50 C of the income tax act to the sale consideration shown by the assessee when the sale deed was also available before him where the fair market value of the property was shown as 58.75 lakhs. In view of this we are of the opinion that Ld. assessing officer has not conducted any Inquiry on this aspect of the computation of capital gain and therefore the order of the Ld. assessing officer is erroneous and prejudicial to the interest of the revenue on this count. With respect to the claim of the long-term capital loss shown by the assessee on per usual of query letter dated 13/07/2009 issued by the Ld. assessing officer he has asked the details of loss of ₹ 36.75 lakhs claimed by the assessee while computing the long term capital gains. Further there is no evidence on record that the Ld. assessing officer before allowing the set-off has considered whether the loss shown by the assessee in assessment year 2006 2007 is allowable as set-off during the year or not. The Ld. CIT has further stated that only on 02/06/2008 the principal Corporation of Google was constituted and further the certificate obtained by the assessee dated 7 07/04/2015 also shows that during the course of original assessment proceedings for assessment year 2007 08 the issue was not at all examined whether the impugned land sold in assessment year 2006 07 was situated within 8 km or beyond 8 km of the limits of the municipal corporation. Therefore, according to us the assessing officer has allowed the set-off of the loss to the assessee without examining the facts at all. With respect to the capital gain on sale of shares of a company assessing officer has allowed the claim of the assessee under section 10 (38) of the income tax act without examining whether the security transaction tax has been paid on the sale of the shares or not. The query letter as relied upon by AR only shows that the assessing officer has enquired about the details about acquisition of those source and mode of payment for acquisition of the same as well as evidence for sale of shares and mode of receipt of sale proceeds. According to us these are not the necessary enquiries to be made for the purpose of exemption to be granted to the assessee under section 10 (38) of the income tax act. In view of this the order of the Ld. assessing officer is erroneous and prejudicial to the interest of the revenue to that extent. In the present case the assessment proceedings conducted by the Ld. assessing officer clearly falls within the parameters of Lack of inquiry. Therefore there cannot be any fault found with the order of the Ld. CIT in assuming his jurisdiction under section 263 of the income tax act. In view of our above finding we dismiss the appeal of the assessee challenging the order of Ld. CIT under section 263 of the income tax act. - Decided against assessee

Summary

Issues Involved:
1. Initiation of proceedings under section 263 of the Income Tax Act.
2. Validity and jurisdiction of the order under section 263.
3. Setting aside the assessment order under section 143(3) and directing modification.
4. Applicability of section 50C regarding the sale consideration of property.
5. Verification of brought forward long-term capital loss.
6. Verification of long-term capital gain on sale of shares.

Detailed Analysis:

1. Initiation of Proceedings under Section 263:
The Commissioner of Income Tax (CIT) initiated proceedings under section 263, alleging that the assessment order dated 30th December 2009 was erroneous and prejudicial to the interest of the revenue. The CIT's conclusions were based on the alleged incorrect acceptance of sale considerations and capital gains without proper verification.

2. Validity and Jurisdiction of the Order under Section 263:
The assessee contended that the order under section 263 was without jurisdiction, not good in law, and void, as the original assessment order was neither erroneous nor prejudicial to the interest of the revenue. The CIT, however, held that the Assessing Officer (AO) did not properly examine the issues during the assessment proceedings, thereby justifying the initiation of proceedings under section 263.

3. Setting Aside the Assessment Order under Section 143(3) and Directing Modification:
The CIT set aside the assessment order under section 143(3) and directed the AO to modify it in light of the directions provided in the order under section 263. This direction was challenged by the assessee, who argued that the original assessment was conducted with due application of mind and proper inquiry.

4. Applicability of Section 50C Regarding the Sale Consideration of Property:
The CIT observed that the AO failed to apply the provisions of section 50C while assessing the sale consideration of a property sold by the assessee. The property was sold for ?10 lakhs, whereas the stamp duty valuation was ?58.75 lakhs. The assessee argued that the property was in a flood-prone area, and the sale price reflected its fair market value. However, the CIT rejected this contention, noting that the AO did not raise this issue or consider the stamp duty valuation, rendering the assessment order erroneous and prejudicial to the revenue.

5. Verification of Brought Forward Long-Term Capital Loss:
The CIT found that the AO allowed the set-off of a long-term capital loss of ?36.75 lakhs from the previous year without proper verification. The loss was related to the sale of agricultural land, which is not chargeable to tax under section 2(14). The assessee argued that the land was within 8 km of the municipal corporation limits, making it non-agricultural. The CIT noted that this issue was not examined during the original assessment, and the AO's failure to verify this rendered the order erroneous and prejudicial to the revenue.

6. Verification of Long-Term Capital Gain on Sale of Shares:
The CIT noted that the AO allowed the assessee's claim of exemption under section 10(38) for capital gains on the sale of shares without verifying if the securities transaction tax (STT) was paid. The AO's inquiry was limited to the acquisition details and sale proceeds, without examining the compliance with section 10(38). This lack of proper inquiry made the assessment order erroneous and prejudicial to the revenue.

Conclusion:
The Tribunal upheld the CIT's order under section 263, concluding that the AO's assessment was conducted with a lack of proper inquiry, making the order erroneous and prejudicial to the revenue. The appeal by the assessee was dismissed, affirming the CIT's jurisdiction under section 263. The Tribunal emphasized that an inquiry that is merely a formality or pretence cannot be considered adequate, and the AO must conduct a thorough examination to reach a rational conclusion.