2025 (3) TMI 143 - AT - Income Tax

Revision u/s 263 - capital gain on sale of residential house -determination of cost of acquisition in respect of residential property sold by the assessee - valuation of the fair market value (FMV) of the property as on April 1 2001 - HELD THAT - In the instant case where the assessee s father acquired the property prior to the 01/04/1981 and thereafter the property has been gifted to the assessee which has been sold in the year under consideration while computing capital gain the term first year in which the asset was held by the assessee as so interpreted by the Courts to means the year in which asset was first held by the previous owner and not the year in which the assessee became the owner of the asset in terms of the gift deed. We therefore find that even on this account where the assessee has computed the Index cost of acquisition by taking into consideration cost of inflation index for the year beginning first day of April 2001 the same is in consonance with the stated provision in the statute and where the AO has verified and allowed the same the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue. Valuation report of a registered valuer so submitted by the assessee during the course of assessment proceedings and the findings of the Ld. PCIT - We find force in the contention so advanced by the Ld AR as what is relevant for determining the fair market value is the comparative sale instance not just in terms of land area built up structure proximity of location but also the ownership rights and inherent risks associated with such ownership and therefore where the assessee has sold a property having 100% ownership rights the comparative sale instance where the seller holds 25% undivided share has to be suitably grossed up rather than discounted as currently done by the Valuer and where the adjusted value is considered there is no prejudice which is caused to be Revenue as the same is on a higher side as compared to what has been considered by the assessee. AO after calling for required information/documentation and after duly considering the explanations and documentation submitted before him reached a rightful conclusion in terms of determining the indexed cost of acquisition while working out the capital gains in the hands of the assessee. Such a view is clearly a plausible view which a reasonable and prudent officer could have taken and the view so taken and order so passed by the Assessing officer cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue and the exercise of revisional jurisdiction by the Ld. PCIT u/s 263 cannot be sustained in the eyes of law. Appeal of the assessee is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking Section 263 of the Income Tax Act to revise the assessment order passed by the Assessing Officer (AO) concerning the computation of long-term capital gains (LTCG) on the sale of a residential property.
• Whether the valuation of the fair market value (FMV) of the property as on April 1, 2001, as determined by the assessee's valuer, was appropriate and whether it was correctly accepted by the AO.
• Whether the AO's acceptance of the valuation report and the resultant computation of LTCG was erroneous and prejudicial to the interests of the Revenue.

ISSUE-WISE DETAILED ANALYSIS

1. Invocation of Section 263 by PCIT

• Relevant legal framework and precedents: Section 263 of the Income Tax Act allows the PCIT to revise an assessment order if it is deemed erroneous and prejudicial to the interests of the Revenue. The PCIT must demonstrate that the AO's order was not only erroneous but also caused prejudice to the Revenue.
• Court's interpretation and reasoning: The Tribunal examined whether the AO's order was erroneous or prejudicial. It emphasized that the AO had conducted a detailed inquiry into the FMV and accepted the valuation report after due consideration.
• Key evidence and findings: The AO had issued notices under Section 142(1) and thoroughly scrutinized the valuation report submitted by the assessee. The Tribunal noted that the AO had made a conscious decision to accept the FMV as determined by the registered valuer.
• Application of law to facts: The Tribunal found that the AO's decision was based on a plausible view and was not erroneous. The Tribunal held that the PCIT's invocation of Section 263 was not justified as the AO's order was not prejudicial to the interests of the Revenue.
• Conclusions: The Tribunal concluded that the AO's order was neither erroneous nor prejudicial, and the PCIT's exercise of revisional jurisdiction was unwarranted.

2. Valuation of Fair Market Value (FMV)

• Relevant legal framework and precedents: The FMV as of April 1, 2001, can be determined either by the cost to the previous owner or the FMV on that date, at the assessee's option. The Finance Act 2020 introduced a proviso limiting the FMV to the stamp duty value, but this was applicable from AY 2021-22.
• Court's interpretation and reasoning: The Tribunal noted that the assessee had the option to adopt the FMV as of April 1, 2001, and the AO had accepted this valuation after due consideration. The Tribunal found no error in the AO's acceptance of the valuation report.
• Key evidence and findings: The valuation report was prepared by a registered valuer, and the AO had accepted the FMV after considering the report and other relevant factors. The Tribunal found the AO's acceptance of the FMV to be a reasonable exercise of discretion.
• Application of law to facts: The Tribunal found that the AO's acceptance of the FMV was in line with the legal provisions and was not erroneous. The Tribunal disagreed with the PCIT's assertion that the FMV was inflated to reduce tax liability.
• Conclusions: The Tribunal concluded that the AO's acceptance of the FMV was appropriate and that the PCIT's concerns about the valuation report were unfounded.

SIGNIFICANT HOLDINGS

• Core principles established: The Tribunal reinforced the principle that an AO's order cannot be revised under Section 263 unless it is both erroneous and prejudicial to the interests of the Revenue. The Tribunal emphasized that a plausible view taken by the AO cannot be considered erroneous merely because the PCIT holds a different opinion.
• Final determinations on each issue: The Tribunal set aside the PCIT's order and sustained the AO's assessment order, allowing the assessee's appeal. The Tribunal held that the AO's acceptance of the FMV and computation of LTCG was not erroneous and did not warrant revision under Section 263.