2020 (5) TMI 382 - AT - Income Tax

Revision u/s 263 - Capital gain computation - non referring the issue of valuation to the DVO - HELD THAT - Going by the language used it is not mandatory in the AO to make a reference to the DVO in all cases where the stamp duty valuation exceeds the fair market value - order of the Assessing Officer cannot be held to be erroneous in so far as being prejudicial to the interest of the Revenue on this count. In Jitindar S. Chadha Vs. Pr. CIT 2019 (1) TMI 272 - ITAT DELHI wherein it had been held that the powers of the Assessing Officer u/s 55A of the Act were discretionary and that the AO can take plausible view of the matter. Thus in the present case also it is our considered opinion that by not referring the issue of valuation to the DVO the Assessing Officer had taken one of the possible views and this discretion of the Assessing Officer cannot be termed as being erroneous as has been held by the Ld. Pr. CIT. Valuation of residential flat at Nehru Apartments Kalkaji New Delhi to the District Valuation Officer for the purposes of Sec.50C - Assessee had duly submitted the details of renovation which were carried out in the flat sold by him and the Assessing Officer by taking one of the possible two views accepted the sam - it cannot be said that the Assessing Officer did not make any enquiry what so ever in this regard. The Assessing Officer called for certain details and the assessee submitted them. On the Assessing Officer being satisfied with the same the Assessing Officer took one of the possible views to which the Ld. Pr. CIT might not been in agreement but which the Ld. Pr. CIT has no power to change if the same has been taken after enquiry by the Assessing Officer. Cannot be held that order passed by the Assessing Officer was erroneous in so far as being prejudicial to the interest of the Revenue. Non deduction of tax on the expenditure claimed towards cost of improvement - It was never a part of the show cause notice and a perusal of the reply submitted by the assessee before the Ld. Pr. CIT also makes it apparent that the assessee was not confronted with this issue and was not given any opportunity to respond to the same. The impugned order also does not mention that the assessee was later required to respond on this issue. Thus there was a complete lack of natural justice on the part of the Ld. Pr. CIT while setting aside the assessment order for this reason. Therefore we are afraid the same cannot be taken as a reason for treating the assessment order as erroneous. As decided in the case of CIT vs. Amitabh Bacchan 2016 (5) TMI 493 - SUPREME COURT without providing a proper opportunity on the issue the commissioner cannot exercise the revisionary powers. - Decided in favour of assessee

Summary

Issues:
1. Jurisdiction of the Ld. Pr. CIT under Section 263 of the Income Tax Act, 1961
2. Application of Section 50C of the Act on the valuation of a residential flat
3. Examination of cost of improvement expenditure for capital gain calculation
4. Non-deduction of TDS on cost of improvement expenditure

Analysis:

Issue 1: Jurisdiction of the Ld. Pr. CIT under Section 263 of the Income Tax Act, 1961
The appeal challenged the Ld. Pr. CIT's action in setting aside the assessment order under Section 263. The Ld. Authorized Representative argued that the Assessing Officer had properly examined the issues raised during assessment proceedings, and the Ld. Pr. CIT exceeded his jurisdiction by invoking Explanation-2 to Section-263. It was contended that the Ld. Pr. CIT should have conducted the enquiry himself rather than directing the Assessing Officer to do so.

Issue 2: Application of Section 50C of the Act on the valuation of a residential flat
The dispute arose from the valuation of a residential flat for capital gains calculation. The Ld. Pr. CIT held that the Assessing Officer should have referred the valuation to the DVO under Section 50C. However, the ITAT found that Section 50C does not mandate such a reference in all cases where stamp duty valuation exceeds fair market value. The ITAT cited precedents to support the discretionary powers of the Assessing Officer in such matters.

Issue 3: Examination of cost of improvement expenditure for capital gain calculation
The Ld. Pr. CIT raised concerns about the Assessing Officer's examination of the cost of improvement expenditure. The ITAT noted that the issue was not part of the show cause notice, denying the assessee natural justice. Citing a Supreme Court judgment, the ITAT emphasized that proper opportunity must be provided before exercising revisionary powers.

Issue 4: Non-deduction of TDS on cost of improvement expenditure
The Ld. Pr. CIT's direction regarding non-deduction of TDS on cost of improvement expenditure was deemed outside the scope of the impugned order as it was not raised in the show cause notice. The ITAT found a lack of natural justice in this aspect and referenced a Supreme Court ruling to support its decision to quash the order under Section 263.

In conclusion, the ITAT quashed the Ld. Pr. CIT's order under Section 263, citing failures to adhere to legal principles and provide natural justice. The appeal of the assessee was allowed, emphasizing the importance of due process and proper examination of issues in tax assessments.