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2020 (10) TMI 425 - HC - Income TaxRevision u/s 263 - Scope of limited scrutiny - AO did not invoke Section 56(2)(vii)b(ii) - HELD THAT - AO has noted that the sale consideration paid by the assessee was ₹ 41,50,000/- and she has paid stamp duty and other expenses of ₹ 5,75,000/-. The source of funds was verified and the assessing officer was satisfied with the same. PCIT while invoking his power u/s 263 faults the assessing officer on the ground that he did not make proper enquiry. It is not clear as to what in the opinion of the PCIT is 'proper enquiry'. By using such expression, it presupposes that the AO did conduct an enquiry. PCIT, the enquiry was not proper in absence of not clearly stating as to why in the opinion of PCIT, the enquiry was not proper, we have to necessarily hold that the invocation of the power u/s 263 was not justified. Only reason for setting aside the scrutiny assessment was on the ground that the guide line value of the property, at the relevant time, was higher than the sale consideration reflected in the registered document. Question would be as to what is the effect of the guideline value fixed by the State Government. There are long line of decisions of the Hon'ble Supreme Court holding that guideline value is only an indicator and the same is fixed by the State Government for the purposes of calculating stamp duty on a deal of conveyance. Merely because the guideline was higher than the sale consideration shown in the deed of conveyance, cannot be the sole reason for holding that the assessment is erroneous and prejudicial to the interest of revenue. AO in his limited scrutiny, has verified the source of funds, noted the sale consideration paid, the expenses incurred for stamp duty and other charges - assessee in their reply dated 11.01.2019 to the show cause notice dated 26.10.2018 issued by the PCIT has specifically stated that the assessment was getting time barred, assessing officer took upon himself the role of a valuation officer u/s 50(C)(2) and found that the guideline value was not actual fair market value of the property and the actual consideration paid was the fair market value and therefore, he did not choose to make any addition under Section 50(C) of the Act. PCIT, has not dealt with this specific objection, but, would fault the assessing officer for not invoking Section 56(2)(vii)(b)(ii) merely on the ground that the market value was higher. As point out earlier, the guideline value is only an indicator and that will always not represent the fair market value of the property and therefore, the invocation of the power under Section 263 by the PCIT is not sustainable in law. - Decided against the revenue.
Issues Involved:
1. Scope of the CIT's power of revision under Section 263 of the Income Tax Act in limited scrutiny cases. 2. Applicability of Section 56(2)(vii)(b) of the Income Tax Act in the context of limited scrutiny. 3. Consideration of CBDT Instruction No.20/2015 regarding conversion of limited scrutiny to complete scrutiny. Issue-wise Detailed Analysis: 1. Scope of the CIT's Power of Revision under Section 263 of the Income Tax Act in Limited Scrutiny Cases: The High Court examined whether the CIT could exercise the power of revision under Section 263 of the Income Tax Act in a limited scrutiny case. The Tribunal had concluded that the CIT could not look into issues beyond the scope of the limited scrutiny. The assessee's case was selected for limited scrutiny concerning the purchase of a property. The CIT issued a show cause notice, noting a discrepancy between the purchase consideration and the guideline value of the property. The assessee argued that the Assessing Officer (AO) had conducted an enquiry, verifying the source of funds and noting the guideline value and sale consideration. The High Court found that the CIT's invocation of Section 263 was unjustified as the AO had conducted an enquiry, and the CIT did not clearly state why the enquiry was deemed improper. The court held that the guideline value alone could not be the sole reason for holding the assessment as erroneous and prejudicial to the interest of revenue. 2. Applicability of Section 56(2)(vii)(b) of the Income Tax Act in the Context of Limited Scrutiny: The Tribunal held that the AO could not invoke Section 56(2)(vii)(b) in a limited scrutiny case, as it would be beyond the scope of the limited scrutiny. The CIT had faulted the AO for not applying this provision. The High Court noted that the AO had verified the source of funds and the sale consideration. The court emphasized that the guideline value is only an indicator and does not always represent the fair market value of the property. Therefore, the AO's decision not to invoke Section 56(2)(vii)(b) was justified, and the CIT's invocation of Section 263 was not sustainable. 3. Consideration of CBDT Instruction No.20/2015 Regarding Conversion of Limited Scrutiny to Complete Scrutiny: The High Court addressed the Tribunal's failure to consider CBDT Instruction No.20/2015, which allows for the conversion of limited scrutiny to complete scrutiny if potential income escapement exceeding ?5 lakhs (?10 lakhs for metro charges) is noticed. The Tribunal had not taken this instruction into account in its decision. The High Court noted that the Tribunal had considered this instruction in a subsequent case, which was pending before the Division Bench. Therefore, the court vacated the Tribunal's observations regarding the scope of limited scrutiny assessments and left the substantial question of law open to be agitated in the pending tax case appeal. Conclusion: The High Court dismissed the appeal, answering the substantial questions of law nos.1 and 2 against the revenue and leaving substantial question of law no.3 open for further consideration in the pending tax case appeal. The court emphasized that the AO's enquiry was adequate, the guideline value alone could not determine the fair market value, and the CIT's invocation of Section 263 was not justified.
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