2012 (3) TMI 227 - HC - Income Tax

Validity of revisionary powers exercised by Commissioner u/s 263 on ground that A.O. has not examined aspect of full value of consideration and that high-yielding asset could not be disposed off at such a low value assessee claimed long-term capital loss on sale of immovable property in year 2003 for 70 lacs purchased in year 1997 for 69.63 lacs - Held that - A.O. is both an investigator and an adjudicator. If the A.O. fails to conduct enquiry he commits an error and the word erroneous includes failure to make the enquiry. In cases where there is inadequate enquiry but not lack of enquiry again the CIT must give and record a finding that the order/inquiry made is erroneous. An order is not erroneous and prejudicial to the interest of Revenue unless the CIT hold and records reasons why it is erroneous. Therefore we upheld the order of Tribunal setting aside the order of CIT since CIT has not examined the said aspect himself and has not given any finding/reason for observing that the order passed by the A.O. was erroneous Decided against the Revenue.

Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in setting aside the order of the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Examination of the Sale Transaction by the Assessing Officer:
The Assessing Officer (AO) had examined the sale transaction of an immovable property by the assessee and accepted the computation of the respondent-assessee. The AO made a minor addition of Rs.7,500/- to cover possible leakages, indicating that the transaction was scrutinized and accepted.

2. Notice Issued by the Commissioner of Income Tax (CIT) under Section 263:
The CIT issued a notice under Section 263, stating that the profit on the sale of the property was neither assessed as capital gain nor as business income. The CIT contended that the AO had not properly examined the full value of consideration receivable and the assessment order was erroneous and prejudicial to the interest of the revenue.

3. CIT's Order and Tribunal's Observations:
The CIT's order held that the sale price was understated and that the AO had not properly examined the transaction. However, the Tribunal set aside the CIT's order, noting that the CIT had not provided a finding that the actual receipt of consideration was more than what was declared. The Tribunal emphasized that the CIT could not make an addition under Section 50C as there was no evidence of extra stamp duty payable over the transaction value.

4. Legal Provisions and Interpretation:
Section 263 of the Income Tax Act allows the CIT to revise an order if it is erroneous and prejudicial to the interest of the revenue. The term "erroneous" includes failure to make an enquiry. The CIT must record a finding that the order is erroneous and prejudicial to the revenue before remanding the matter to the AO. The Delhi High Court in various judgments, including Gee Vee Enterprises and Sunbeam Auto Ltd., has clarified that the CIT must conduct an enquiry and provide a clear finding that the AO's order is unsustainable in law.

5. Tribunal's Findings and High Court's Judgment:
The Tribunal found that the CIT had not conducted any verification or given a finding on the merits of the sale transaction. The High Court upheld the Tribunal's decision, stating that the CIT had not justified why the AO's order was erroneous. The CIT's doubts about the valuation and sale consideration were not substantiated with a proper enquiry or finding. The High Court emphasized that the CIT cannot direct the AO to conduct further enquiry without first establishing that the order is erroneous.

6. Conclusion:
The High Court concluded that the CIT had not provided sufficient reasons to show that the AO's order was erroneous and prejudicial to the revenue. The Tribunal's decision to set aside the CIT's order was upheld, and the appeal by the Revenue was dismissed.

Final Judgment:
The question of law was answered in favor of the respondent-assessee, and the appeal by the Revenue was dismissed with no costs.

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