2019 (12) TMI 208 - AT - Income Tax

Revision u/s 263 - proceedings before AO were in second round where the matter was remitted back to the file of the AO to make a denovo assessment as per the directions of the Tribunal in assessee s own case - dispute was with regard to computation of long term capital gains vis-a-vis the cost of acquisition as on 01.04.1981 - HELD THAT - The assessee in the initial assessment proceedings had filed a valuer report of Registered Valuer in support of the fair market value as on 01.04.1981. In the second round of litigation, the assessee again filed a valuer report of Registered Valuer and had placed reliance on sale instance of another property in 1985 in the adjacent area and also instance of acquisition proceedings by the Income tax Department in another case. The Registered Valuer on the basis of the same had adopted the value of the property at ₹ 95,28,000/- i.e. by backward calculation from 1985 to 1981. On the other hand, the DVO had made backward calculation of the valuation of the property from the date of sale and had not relied on any sale instance during the corresponding period. The Tribunal had not accepted the DVO s report in the first round. The Commissioner was of the view that the Assessing Officer has failed to correctly determine the fair market value as on 01.04.1981. Whether the value has been correctly determined or not, we may refer to the decision of Hon ble Bombay High Court in CIT vs Puja Prints 2014 (1) TMI 764 - BOMBAY HIGH COURT wherein it has been laid down that the provisions of section 55A(a) of the Act cannot be applied and no reference is possible to be made to the DVO for determining the market value of the property at a figure less than that shown by the assessee. Accordingly, AO had no authority to make any such reference to the DVO to determine the value of the property i.e. cost of acquisition as on 01.04.1981, at any price less than the price shown by the assessee. AO has to accept the valuation shown by the assessee as on 01.04.1981. The said valuation is supported by a report of the Registered Valuer and other sales instance during the period. In such facts and circumstances, we find no merit in the exercise of the jurisdiction by the Commissioner u/s 263 - Decided in favour of assessee

Summary

Issues Involved:

1. Assumption of jurisdiction under section 263 of the Income-tax Act, 1961.
2. Cancellation of the assessment order dated 29-12-2016.
3. Determination of the assessment order as erroneous and prejudicial to the interest of revenue.
4. Alleged violation of principles of natural justice in passing the order under section 263.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 263 of the Income-tax Act, 1961:

The primary issue in the appeal was whether the Commissioner rightly assumed jurisdiction under section 263 of the Income-tax Act, 1961. The Commissioner issued a show cause notice to the assessee, referring to the valuation done by an authorized valuer and observed that the assessment order dated 29.12.2016 was erroneous and prejudicial to the interest of the Revenue. The Commissioner believed that the Assessing Officer should have made inquiries to find the value of any comparable incident in 1981, instead of adopting a comparable from 1985 and indexing it backwards.

2. Cancellation of the Assessment Order Dated 29-12-2016:

The Commissioner canceled the assessment order dated 29-12-2016, directing the Assessing Officer to make a fresh assessment. The Commissioner was of the view that the Assessing Officer had accepted the cost of acquisition adopted by the assessee without making any inquiries, which was against the Tribunal's directions to adopt comparable valuation. The Commissioner found that the valuation report of the second valuer did not match the Tribunal's directions, and the acceptance of the higher value without any investigation could not be accepted.

3. Determination of the Assessment Order as Erroneous and Prejudicial to the Interest of Revenue:

The Tribunal examined whether the assessment order was both erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT had held that the twin conditions of section 263 must be satisfied for the Commissioner to exercise his power. The Tribunal found that the Assessing Officer had applied his mind and passed a speaking order, considering the Registered Valuer's report and other instances. The Tribunal concluded that the Commissioner could not substitute his view for that of the Assessing Officer, especially when the fair market value was an estimation.

4. Alleged Violation of Principles of Natural Justice in Passing the Order under Section 263:

The assessee contended that the Commissioner had violated the principles of natural justice by passing the order under section 263 without proper inquiry and verification. The Tribunal noted that the Commissioner had remitted the matter back to the Assessing Officer without making inquiries himself. The Tribunal referred to the decision of the Hon'ble Delhi High Court in Director of Income Tax vs Jyoti Foundation, which held that the Commissioner should make inquiries if he believes the Assessing Officer had not done so.

Conclusion:

The Tribunal held that the Commissioner had no authority to make a reference to the DVO for determining the market value of the property at a figure less than that shown by the assessee, as laid down by the Hon'ble Bombay High Court in CIT vs Puja Prints. The Tribunal found no merit in the exercise of jurisdiction by the Commissioner under section 263 and reversed the order, holding it invalid and bad in law. The appeal of the assessee was allowed.