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2025 (3) TMI 595 - AT - Income TaxRevision u/s 263 - Addition u/s 56(2)(vii)(b) regarding the difference between the stamp duty value and the actual sale consideration of land . HELD THAT - In light of the PCIT s revision directions that the addition which is sought to be made herein is that u/s 56(2)(vii)(b) of the Act which is applicable in case of an individual or an HUF; as the case may be is found to have received a capital asset at a lower price than that adopted by the stamp authorities in clause (b) sub-clauses (i) (ii) thereof. That being the case we notice that it is not these twin assessee s but their partnership firm M/s Goyal Sons which had in fact acted as the purchaser of the capital asset representing a share in an orchard measuring 585 bhigas adjacent to National Highway No. 58. Faced with this situation we invite the CIT DR s kind attention to the impugned revisionary directions indicating share holding in the said partnership firm who has actually acted as the purchaser or received the asset(s) in the relevant previous year. This clinching fact has gone un-rebutted from the departmental side. All what the learned CIT DR has reiterated is that once these assessee s have routed their impugned purchases through the partnership firm the addition herein u/s 56(2)(vii)(b) of the Act ought to be made in their hands only. We find no merit in the Revenue s instant arguments. This is for the precise reason that both these individuals/assessee happen to be partner of the partnership firms M/s Goyal Sons they could not be themselves treated as the actual purchaser for the purpose of involving the relevant statutory provisions u/s 56(2)(vii)(b) of the Act. We wish to reiterate here that the legislature has inserted section 56(2)(x) of the Act dealing with any person including a partnership firm to cover such a mischief 01.04.2017 onwards by the Finance Act 2017 which admittedly does not carry any retrospective effect as the case in A.Y. 2016-17 only. We conclude in light of all these facts that even if the learned Assessing Officer had failed to verify all the relevant facts for the purpose of making impugned section 56(2)(vii)(b) addition in assessee s hands his twin search assessments could neither be held to be erroneous ones nor those causing prejudice to the interest of the Revenue which forms a condition precedent for exercise of section 263 revision jurisdiction as held in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT We accordingly reverse the learned PCIT revisionary directions in both these cases for this precise reason alone. Assessee appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment revolve around the exercise of revisional jurisdiction under Section 263 of the Income Tax Act, 1961. Specifically, the issues include: 1. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking Section 263 to revise the assessment orders passed under Section 143(3) read with Section 153A, alleging them to be erroneous and prejudicial to the interest of the Revenue. 2. Whether the addition under Section 56(2)(vii)(b) of the Act, regarding the difference between the stamp duty value and the actual sale consideration of land, should be made in the hands of the individual partners of the firms, despite the firms being the actual purchasers. 3. Whether the lack of verification and enquiry by the Assessing Officer (AO) in the original assessment constitutes a valid ground for invoking Section 263. ISSUE-WISE DETAILED ANALYSIS 1. Exercise of Revisional Jurisdiction under Section 263 The relevant legal framework involves Section 263 of the Income Tax Act, which empowers the PCIT to revise any order passed by the AO if it is deemed erroneous and prejudicial to the interests of the Revenue. The Court examined whether the PCIT correctly invoked this section, considering the AO's alleged failure to conduct necessary enquiries. The Court's interpretation focused on the necessity for the AO to conduct proper verification and enquiries. The PCIT argued that the AO did not adequately verify the facts related to the purchase of land by the firms and the applicability of Section 56(2)(vii)(b). However, the Court noted that the primary issue was whether the firms or the individual partners should be taxed under this section. Key evidence included the partnership deeds, the purchase transactions, and the AO's original assessment records. The Court found that the firms, not the individual partners, were the purchasers of the land, which was crucial in determining the applicability of Section 56(2)(vii)(b). The Court concluded that the AO's failure to verify certain facts did not render the assessment erroneous or prejudicial to the Revenue because the addition under Section 56(2)(vii)(b) could not be made in the hands of the individual partners. 2. Applicability of Section 56(2)(vii)(b) to Individual Partners The legal framework under Section 56(2)(vii)(b) involves taxing the difference between the stamp duty value and the actual consideration if an individual or HUF receives an asset for less than its stamp duty value. The Court examined whether this section applied to the individual partners when the firms were the actual purchasers. The Court reasoned that since the firms were the entities that purchased the land, the partners could not be considered as having "received" the asset under the terms of Section 56(2)(vii)(b). The addition could only be made in the hands of the firms, not the individual partners. The Court highlighted that Section 56(2)(x), which includes "any person" and covers partnership firms, was introduced only from 01.04.2017, and thus, was not applicable to the assessment year in question (A.Y. 2016-17). Competing arguments from the Revenue suggested that routing purchases through firms should not prevent taxation under Section 56(2)(vii)(b) in the hands of the partners. However, the Court found this argument unconvincing due to the clear statutory language and legislative intent. The conclusion was that the addition under Section 56(2)(vii)(b) could not be made against the individual partners, as the firms were the purchasers. 3. Lack of Verification and Enquiry by AO The Court considered whether the AO's lack of verification and enquiry justified the invocation of Section 263. The PCIT argued that the AO's failure to conduct thorough enquiries rendered the assessment erroneous and prejudicial to the Revenue. The Court examined precedents where lack of enquiry was deemed sufficient for invoking Section 263, such as the cases cited by the PCIT. However, the Court distinguished these cases based on the facts, highlighting that the AO's failure did not affect the correct application of Section 56(2)(vii)(b) in this instance. The Court concluded that while the AO's lack of enquiry was a concern, it did not justify the invocation of Section 263, given the inapplicability of Section 56(2)(vii)(b) to the individual partners. SIGNIFICANT HOLDINGS The Court held that the PCIT's invocation of Section 263 was unjustified because the AO's assessment orders were not erroneous or prejudicial to the Revenue. The core principle established was that Section 56(2)(vii)(b) could not be applied to individual partners when the firms were the actual purchasers of the asset. The final determination was that the revisionary directions issued by the PCIT were reversed, and the appeals filed by the assessee were allowed. The Court emphasized that the legislative framework did not support the Revenue's position, and the AO's original assessments were upheld.
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