2022 (12) TMI 110 - AT - Income Tax

Revision u/s 263 - Income from other sources - AO failed to examine the applicability of s. 56(2)(vii)(b) - Fair Market Value (FMV) (guideline value under Stamp Act) of the property - absence of any verification qua the applicability of s. 56(2)(vii)(b) and, consequently, non-recording of satisfaction in its respect - HELD THAT - We are in agreement with the ld. Pr. CIT that the agreement referred to in s. 56(2)(vii)(b) is to be a valid agreement in law (for which reference is made to the decisions in ITO v. Vinod Kumar Chate 2022 (4) TMI 614 - ITAT JABALPUR rendered in the context of the analogous provision of s.50C, and Naina Saraf (supra), to cite two. We, as afore-stated, agree that the only question that survives is the applicability of the section 56(2)(vii)(b), in view of the provisos thereto, in the instant case. It is open for the revisionary authority to examine the same himself proceedings or direct the assessing authority to do so. However, once he adopts the latter course, it is not for us to interfere with the exercise of his discretionary power. We have clarified that the only aspect open for adjudication is if the agreement dtd.29/3/2011 qualifies to be an agreement referred to in the proviso to section 56(2)(vii)(b). Though no issue in its respect stands raised before us, inasmuch as the assessee s return was selected for limited scrutiny, clarify that it is in our view within the competence of the ld. Pr. CIT to, as the revisionary authority, extend the scope of enquiry, requiring the assessing authority to enquire into areas impinging on matters at hand, or which comes to the notice of the AO in the course of his examination, and warrant further verification, as in the instant case. Reference for the purpose may be made to the decisions by the Jabalpur Bench of the Appellate Tribunal in Alankar Anr. 2022 (8) TMI 1312 - ITAT JABALPUR and Nitin Sharma 2020 (10) TMI 75 - ITAT JABALPUR - Assessee appeal dismissed.

Issues Involved:
1. Legality of the order passed under section 263 of the Income Tax Act, 1961.
2. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue.
3. Applicability of section 56(2)(vii)(b) of the Income Tax Act, 1961.
4. Validity of the agreement dated 29/03/2011 in the context of section 56(2)(vii)(b).

Detailed Analysis:

1. Legality of the Order Passed Under Section 263:
The assessee contended that the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 was illegal and should be set aside. The PCIT had reviewed the assessment order dated 10/11/2017 and found that the AO had failed to examine the applicability of section 56(2)(vii)(b) of the Income Tax Act, 1961. The PCIT set aside the assessment for a de novo consideration. The assessee argued that the assessment was framed after due scrutiny and verification of facts, and hence, the action under section 263 was bad in law.

2. Erroneous and Prejudicial to the Interest of the Revenue:
The PCIT's view was that the AO's failure to examine the applicability of section 56(2)(vii)(b) rendered the assessment order erroneous and prejudicial to the interest of the revenue. The AO had accepted the assessee's returned income without considering the deemed purchase consideration under section 56(2)(vii)(b), which would have been Rs. 1208.61 lacs based on the market value as on the date of purchase. The Tribunal agreed with the PCIT that the AO had not conducted proper enquiry or investigation regarding the applicability of section 56(2)(vii)(b), making the assessment order erroneous and prejudicial to the revenue.

3. Applicability of Section 56(2)(vii)(b):
The Tribunal examined whether section 56(2)(vii)(b) was applicable in this case. The section deals with the receipt of immovable property for a consideration less than the stamp duty value by an amount exceeding fifty thousand rupees. The assessee argued that the AO was satisfied with the non-application of section 56(2)(vii)(b) as the agreement for sale of the property was submitted and verified. However, the Tribunal found that there was no record of any enquiry or finding by the AO regarding the applicability of section 56(2)(vii)(b). The Tribunal noted that the taxable event under section 56(2)(vii) is the 'receipt' of the property, which in this case took place in the financial year 2014-15. The Tribunal held that the provision of section 56(2)(vii)(b) was applicable as the transfer of the property occurred within the relevant assessment year.

4. Validity of the Agreement Dated 29/03/2011:
The assessee relied on the agreement dated 29/03/2011 to argue that the consideration for the property was fixed before the amendment to section 56(2)(vii)(b) by the Finance Act, 2013, which came into effect from 01/04/2014. The Tribunal examined the agreement and found that the transfer or receipt of the property took place on 14/08/2014, in pursuance of the agreement dated 29/03/2011. The Tribunal clarified that the date of the agreement is relevant only for valuation purposes and does not affect the applicability of section 56(2)(vii)(b). The Tribunal held that the agreement dated 29/03/2011 did not qualify to exempt the assessee from the applicability of section 56(2)(vii)(b).

Conclusion:
The Tribunal dismissed the assessee's appeal, upholding the PCIT's order under section 263. The Tribunal agreed that the AO had failed to conduct proper enquiry regarding the applicability of section 56(2)(vii)(b), making the assessment order erroneous and prejudicial to the revenue. The Tribunal also held that section 56(2)(vii)(b) was applicable in this case as the transfer of the property occurred within the relevant assessment year. The Tribunal modified the PCIT's order to limit the scope of enquiry to the applicability of section 56(2)(vii)(b) and the validity of the agreement dated 29/03/2011.

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