2017 (10) TMI 1147 - AT - Income Tax

Revision u/s 263 - Held that - We are of the firm conviction that from the withholding by the assessee of the actual source of the investment, viz. loan raised by him on 21.08.2008 from his client, i.e M/s Kalpavruksha Plantation Pvt. Ltd., during the course of the assessment proceedings, it can safely be inferred that the same had been so done with a purpose of avoiding verification of certain issues which would had a strong bearing on the income of the assessee. We are of the considered view that the acceptance of the claim of the assessee by the A.O without making any verification, thus clearly renders the order passed by the A.O on the said aspect, as erroneous and prejudicial to the interest of the revenue. We also do not find ourselves to be in agreement with the contention of the assessee had made the payment of the purchase consideration not from the loan raised from his mother Mrs. Suneeta Pawar was discernible from the Agreement , copy of bank statement, balance sheet of the assessee on 31.03.2009, which were there before the A.O, therefore, it could safely be gathered that the A.O after perusing the said factual position and being conversant of the fact that the investment did not pertain to the year under consideration, but was relatable to A.Y. 2009-10, had thus after due application of mind accepted the claim of the assessee. We have further perused the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Gabrial India Ltd. 1993 (4) TMI 55 - BOMBAY High Court and are of the considered view that the same being distinguishable on facts would thus not assist the case of the assessee. We are further of the considered view that after the insertion of Explanation 2 to Sec. 263 w.e.f 01.06.2015, which would be applicable to the case of the assessee, the order which in the opinion of the Pr. CIT had been passed by the A.O without making inquiries or verification, thus, on the said count would be rendered as erroneous in so far as it is prejudicial to the interest of the revenue, and as such amenable for revision u/s 263. We thus in light of our aforesaid observations uphold the revision of the order u/s 263 on the aforesaid issue under consideration. Applicability of the provisions of Sec. 50C - Held that - We have deliberated on the invocation of the revisional powers by the Pr. CIT on the ground that as the agreement was for a consideration of ₹ 5,00,00,000/-, however, the value adopted by the Stamp Valuation authority was ₹ 5,38,45,100/-, therefore, the A.O had not verified the applicability of Sec. 50C in the hands of the seller. We are of the considered view that as the applicability of the provisions of Sec. 50C is not attracted in the hands of the assessee, viz, buyer, therefore, for the purpose of verifying the tax liability of the seller, viz. third party, the case of the assessee could not be revised. We thus set aside the exercise of the revisional jurisdiction by the Pr. CIT on the issue pertaining to verification of the applicability of Sec. 50C in the hands of the seller of the property.

Summary

Issues Involved:
1. Validity and justification of the Principal Commissioner of Income Tax (Pr. CIT) assuming jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Verification of the source of investment in the acquisition of immovable property.
3. Applicability of Section 50C in the hands of the seller.

Issue-Wise Detailed Analysis:

1. Validity and Justification of Pr. CIT Assuming Jurisdiction under Section 263:
The assessee contested the Pr. CIT’s jurisdiction under Section 263, arguing that the assessment order under Section 143(3) was neither erroneous nor prejudicial to the revenue. The Pr. CIT had observed that the Assessing Officer (A.O) did not verify the source of investment for the property purchase during the assessment proceedings. The Pr. CIT noted discrepancies in the assessee's explanation regarding the source of funds, which led to the conclusion that the A.O’s order was erroneous and prejudicial to the revenue. The tribunal upheld the Pr. CIT’s jurisdiction, noting that the A.O failed to make necessary verifications regarding the source of investment, rendering the order erroneous and prejudicial to the revenue.

2. Verification of the Source of Investment in the Acquisition of Immovable Property:
The Pr. CIT found that the assessee had purchased a property for ?5 Crore, claiming the investment was made from a loan taken from his mother. However, the Pr. CIT discovered that the payment to the seller was made in 2008, not from the loan taken in 2011. The assessee argued that the payment source was a loan from M/s Kalpavruksha Plantation Pvt. Ltd., repaid in 2011 using a loan from his mother. The tribunal found that the A.O did not verify the actual source of investment during the assessment, thus supporting the Pr. CIT’s decision to revise the order under Section 263. The tribunal concluded that the A.O's failure to verify the source of investment rendered the assessment order erroneous and prejudicial to the revenue.

3. Applicability of Section 50C in the Hands of the Seller:
The Pr. CIT directed the A.O to verify the applicability of Section 50C, which pertains to the valuation of the property for stamp duty purposes, in the hands of the seller. The tribunal held that Section 50C applies to the seller, not the buyer (assessee in this case). Therefore, the Pr. CIT's direction to verify the applicability of Section 50C in the hands of the seller was not justified. The tribunal set aside the Pr. CIT’s exercise of revisional jurisdiction on this issue, allowing the assessee’s appeal on this ground.

Conclusion:
The tribunal upheld the Pr. CIT’s revision of the assessment order under Section 263 concerning the verification of the source of investment in the property purchase, dismissing the assessee’s appeal on this ground. However, it set aside the Pr. CIT’s direction to verify the applicability of Section 50C in the hands of the seller, allowing the assessee’s appeal on this issue. The appeal was partly allowed based on these observations.